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This record contains private information, which has been redacted from public viewing.
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Type:
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Ordinance
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Status:
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Failed to Pass
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Title:
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Designation of municipal depositaries for Year 2020
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Topic:
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FINANCE FUNDS - Depositories of City/School Funds
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Attachments:
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1. O2019-9946.pdf
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OFFICE OF THE MAYOR CITY OF CHICAGO LORI E. LIGHTFOOT MAYOR December 18, 2019 TO THE HONORABLE, THE CITY COUNCIL OF THE CITY OF CHICAGO Ladies and Gentlemen: At the request ofthe City Comptroller, I transmit herewith an ordinance designating the 2020 municipal depositaries. Your favorable consideration ofthis ordinance will be appreciated. Very truly yours, ayor ORDINANCE WHEREAS, on October 7, 2019 and October 8, 2019, the City Comptroller advertised for bids from national and state banks and federal and state savings and loan associations for interest upon the funds of the City of Chicago and of the Chicago Board of Education to be deposited in banks and savings and loan associations, in accordance with Section 2-32-400 of the Municipal Code of Chicago (the "Code"); and WHEREAS, on or priorto November 18, 2019, the City Comptroller received bids from financial institutions seeking to be designated as municipal depositaries, and subsequently, determined that 12 bidders were eligible to be so designated; and WHEREAS, pursuant to Section 2-32-400 ofthe Code, the City Comptroller reported such bids to the City Council on December 12, 2019 to the end that an award or awards may be made upon such bids; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF CHICAGO: SECTION 1. The following national and state banks and federal and state savings and loan associations, pursuant to an advertisement required by the Code have applied to become municipal depositaries of the City of Chicago and of the Chicago Board of Education for the purpose of holding and paying interest on municipal deposits, and each such financial institution has satisfactorily filed with the City Comptroller the information required by Sections 2-32-430, 2-32-440 and 2-32-450 of the Code: Amalgamated Bank of Chicago; Associated Bank, N.A.; Bank of America, National Association; BMO Harris Bank N.A.; Citibank, N.A.; Fifth Third Bank, National Association; JPMorgan Chase Bank, N.A.; MUFG Union Bank, N.A.; PNC Bank, National Association; The Huntington National Bank; Wells Fargo Bank, N.A.; and Zions Bancorporation, National Association. SECTION 2. The financial institutions listed in Section 1 are hereby designated as legal depositaries for the City of Chicago and the Chicago Board of Education and the Treasurer of the City of Chicago may deposit monies received by him in any of these institutions in accordance with Sections 2-32-470, 2-32-480 and 2-32-490 ofthe Code. SECTION 3. To the extent that any ordinance, resolution, rule, order or provision of the Code, or part thereof, is in conflict with the provisions ofthis ordinance, the provisions ofthis ordinance shall control. If any section, paragraph, clause or provision ofthis ordinance shall be held invalid, the invalidity of such section, paragraph, clause or provision shall not affect any of the other provisions of this ordinance. SECTION 4. This ordinance shall be effective from and after its passage and approval. S:\Finance\Monroe\MunicipalDepositories2019.ord
AMALGAMATED
BANK
OF CHICAGO
O2019-9946
|1010|CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal name ofthe Disclosing Party submitting this EDS. Include d/b/a/ if applicable: AMALGAMATED BANK OF CHICAGO
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[X] the Applicant
OR
[ ] a legal entity currently holding, or anticipated to hold within six months after City action on
the contract, transaction or other undertaking to which this EDS pertains (referred to below as the
"Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name:
OR
[ ] a legal entity with a direct or indirect right of control ofthe Applicant (see Section 11(B)(1)) State the legal name ofthe entity in which the Disclosing Party holds a right of control:
B. Business address ofthe Disclosing Party: 30 N. LASALLE STREET
CHICAGO, IL 60602
Telephone: 312-822-3188 Fax: 312-267-8770 Email: LRYAN@ABOC.COM
Name of contact person: LAURA D. RYAN
Federal Employer Identification No. (if you have one): _
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
RFP for Payment of Interest on the Monies ofthe City of Chicago and the Chicago Board of Education.
G. Which City agency or department is requesting this EDS? c'ty of Chicago, Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification// and Contract//
Ver 201 8-1 Paget of 15
SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PARTY
1. Indicate the nature ofthe Disclosing Pi [ 1 Person
[ J Publicly registered business corporation [x] Privately held business coiporation f ] Sole proprietorship [ ] General partnership [ ] Limited partnership I ] Trust
ly:
[ ] Limited liability company
[ ] Limited liability partnership
[ ] Joint venture
[ ] Not-for-profit corporation
(Is the not-for-profit corporation also a 501(c)(3))?
[ J Yes [ ] No [ ] Other (please specify)
2. For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
ILLINOIS
3. For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [ ] No [x ] Organized in Illinois
> B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management of the Applicant.
Title
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name
SEE ATTACHED SHEET
2. Please provide the following information concerning each person or legal entity having a direct or indirect, cuircnt or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest of a member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Appiicanl
Amalgamated Investments Company
30 N. LaSalle Street 100%
Chicago, IL 60602
SECTION III -- INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date ofthis EDS? [ ] Yes [x] No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date of this EDS? [ ] Yes [X] No
If "yes" to cither of the above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
)
Does any Cily elected official or, to the best ofthe Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
\ ] Yes [X] No
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partncr(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount of the fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Seclion. the Disclosing Party must either ask lhe City whether disclosure is required or make the disclosure.
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Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets if necessary)
[x] Check here ifthe Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V - CERTIFICAT IONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [ ] No [x] No person directly or indirectly owns 10% or more of the Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement? <
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date ofthis EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance ofany public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment ofany lax administered by the Illinois Department of Revenue.
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3. The Disclosing Party and, ifthe Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) of this EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date of this EDS, been convicted of a criminal offense, adjudged guilty, nr had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen properly;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any of the offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date of this EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any slate, or any other unit of local government.
) 4. The Disclosing Party understands and shall comply with .the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
5. Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization of a business entity following the ineligibility ofa business entity to do business with federal or state or local government, including the Cily, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization of a responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date ofthis EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity ofa Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the City, the State of Illinois, or any agency ofthe federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or ofthe United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1 -23, Article I for applicability and defined terms] ofthe Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee of the City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Vci.2018-I Page 6 of 15
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. If the Disclosing Party is unable to certify to any ofthe above statements in this Part B (Further Certifications), the Disclosing Party must explain below:
N/A,
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-month period preceding the date ofthis EDS, an employee, or elected or appointed official, ofthe City of Chicago (if none, indicate with "N/A" or "none").
NONE
13. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date ofthis EDS, to an employee, or elected or appointed > official, ofthe City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or
"none"). As to any gift listed below, please also list the name of the City recipient. NONE
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[X ] is [ ] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate ofa predatory lender may result in ihe loss ofthe privilege of doing business with the City."
Page 7 of 15
Ifthe Disclosing Party is unable to make this pledge because il or any of its affiliates (as defined in MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain here (attach additional pages ifnecessary):
If lhe Idlers "NA." the word "None," or no response appears on the lines above., it will he conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ J Yes [X] No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name ofany other person or entity in the purchase ofany property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit of the City (collectively, "City Property Sale"). "Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning of this Part D.
Does the Matter involve a City Property Sale?
I" | Yes [ ] No
If you checked "Yes" to Item D(l), provide the names and business addresses ofthe City officials or employees having such financial interest and identify the nature of the financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
Page 8 of 15
E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. If the Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
X 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI - CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: If the Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes ofthis Section VT, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets if necessary):
(If no explanation appears or begins on the lines above, or ifthe letters "NA" or ifthe word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
ofa member of Congress, in connection with the award of any federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy ofthe statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
If the Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration ofthe Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Tf the Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
I lave you filed with the Joint Reporting Committee, the Director of the Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
SECTION VII - FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
'The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part ofany contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text ofthis ordinance and a training program is available on line at www.cityofchicago.org/Ethics . and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing'Party must comply fully with this ordinance.
Ifthe City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all of the information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy ofany information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. Ifthe Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page 11 of 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the dale furnished lo the City.
AMALGAMATED BANK OF CHICAGO
j
(Print or type exactjqgal name of Disclosing Party)
(Print or type name of person signing)
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL (Print or type title of person signing)
Signed and sworn to before me on (date) A(ot/emb&a- [SjJait at ({look _ County, ( LLine>i± (state).
C2a&o. ^if- -0' ukJ£z^~'^)L
NotaryTublic ' xpircs: *y/$3/&>2l
Official Seat Carolyn OWbiteurst High Notary Public State of Illinois My Commission Expires 04/23/202^
Page 12 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be. completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the cily treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law. mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers ofthe Disclosing Party listed in Section II.B.l .a., ifthe Disclosing Party is a corporation; all partners ofthe Disclosing Party, ifthe Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, ifthe Disclosing Party is a limited partnership; all managers, managing members and members ofthe Disclosing Party, ifthe Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes fc] No
If yes, please identify below (1) the name and title of such person, (2) the name ofthe legal entity to which such person is connected; (3) the name and title ofthe elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCO FFL AW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership intcrc3t in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [X] No
If the Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No [X] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified
) as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which 3hould be consulted (www.amleoul.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(1) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. 1 also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes
r ]No
[X] N/A - I am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
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DIRECTORS
Ken Bahk Ronald A. Damashek
Donald Finn Miriam L. Fitzgerald Warren Katz David E. Knopp Gary Perinar Robert Reiter James Sweeny Darrell Williams Debra FL Wrobel Robert M. Wrobel
OFFICERS
Robert M. Wrobel, Chairman and President
James T. Landenberger, Executive Vice President and General Counsel Scott A. Rupp, Executive Vice President and Chief Financial Officer Richard Wojtecki, Executive Vice President and Chief Lending Officer
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal name of the Disclosing Party submitting this EDS. Include d/b/a/ if applicable: AMALGAMATED INVESTMENTS COMPANY
Check ONE ofthe following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[X] a legal entity currently holding, or anticipated to hold within six months after City action on the contract, transaction or other undertaking to which this EDS pertains (referred to below as the "Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal name: AMALGAMATED BANK OF CHICAGO
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name ofthe entity in which the Disclosing Party holds a right of control:
B. Business address ofthe Disclosing Party: 30 N. LASALLE STREET
CHICAGO, IL 60602
Telephone: 312-822-3188 pax: 312-267-8770 Email: LRYAN@ABOC.COM
Name of contact person: LAURA D. RYAN
Federal Employer Identification No. (if you have one):
Brief description of the Matter to which this EDS pertains. (Include project number and location of property, if applicable):
RFP for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education.
G. Which City agency or department is requesting this EDS? City of Chicago, Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification /; Ver.20 I 8-1
and Contract //
Page 1 of 15
SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PARTY
[ ] Person
[ ] Publicly registered business corporation [xJ Privately held business corporation
[ ] Sole proprietorship
[ ] General partnership
[ ] Limited partnership
| ] Trust
[ ] Limited liability company
[ ] Limited liability partnership
[ ] Joint venture
[ J Not-for-profit corporaiion
(Is the not-for-profit corporation also a 501(c)(3))?
[ ] Yes [ ] No [ J Other (please specify)
2. For legal entities, the state (or foreign country) of incoiporation or organization, if applicable:
ILLINOIS
3. For legal entities not organized in the State of Illinois: Has the organization regislered to do business in the State of Illinois as a foreign entity?
[ JYes [ JNo [x ] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which arc legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management of the Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title SEE ATTACHED SHEET.
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% of the Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest ofa member or manager in a
Page 2 of .15
limited liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
SEE ATTACHED EXHIBIT.
SECTION III -- INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ JYes [xj No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date ofthis EDS? [ ] Yes [X] No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best ofthe Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
[ ] Yes [X] No
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partncr(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
Page 3 oflS
Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets if necessary)
[x] Check here ifthe Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V - CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout tlie contract's term.
Flas any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes f ] No Cx] No person directly or indirectly owns 10% or more ofthe Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance ofany public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment ofany tax administered by the Illinois Department of Revenue.
Page 4 of 15
The Disclosing ['arty and, if lhe Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) of this EDS:
arc not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date ofthis EDS, been convicted of a criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or stale anlilrusl statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen properly;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any ofthe offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date ofthis EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date of this EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any stale, or any other unit of local government. The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility ofa business entity to do business with federal or state or local government, including the Cily, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with lhe Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization ofa responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date ofthis EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity ofa Contractor during the 5 years ¦ before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee ofthe City, the State of Illinois, or any agency ofthe federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of stale or local government as a
) result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or ofthe United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] ofthe Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee ofthe City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in
) Certifications (2) and (9) above and will not, without the prior written consent of the City, use any such
Ver.2018-1 Page 6 of 15
contractor/subcontractor Lhal does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
1 1. Ifthe Disclosing Party is unable to certify to any ofthe above statements in this Part B (Further Certifications), the Disclosing Parly must explain below:
N/A.
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best of the Disclosing Parly's knowledge after reasonable inquiry, the following is a complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-month period preceding the date ofthis EDS, an employee, or elected or appointed official, ofthe City
of Chicago (if none, indicate with "N/A" or "none"). NONE.
13. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date ofthis EDS, to an employee, or elected or appointed ) official, ofthe City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value of less than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient.
NONE.
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[X] is [ ] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may resull in the loss ofthe privilege of doing business with the City."
Page 7 of 15
II" the Disclosing Parly is unable to make this pledge because it or any of its affiliates (as defined in MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain here (attach additional pages ifnecessary):
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
1. In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
| ] Yes [X] No
NOTE: If you checked "Yes" to. Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
'j 2. Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name ofany other person or entity in the purchase of any property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning ofthis Part D.
Does the Matter involve a City Property Sale?
[ J Yes [ ] No
3. If you checked "Yes" to Item D(l), provide the names and business addresses ofthe City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
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E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. Ifthe Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
__x_]. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI -- CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: Ifthe Matter is federally funded, complete this Section VI. Ifthe Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets ifnecessary):
(If no explanation appears or begins on the lines above, or if the letters "NA" or ifthe word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Vcr.2018-1 Page 9 ofl 5
ofa member of" Congress, in connection wilh the award ofany federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy ofthe statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section
501 (c)(4) of lhe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
If the Disclosing Parly is the Appiicanl, the Disclosing Parly musl obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration of the Matter and must make such certifications promptly available to the City upon request.
13. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director ofthe Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
SECTION VII -- FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part ofany contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply wilh all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text ofthis ordinance and a training program is available on line at www.cityofchicago.org/Ethics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
Ifthe City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in olher City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all ofthe information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Infonnation Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy ofany information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. If the Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1 -23 and Section 2-154-020.
Page 11 of" 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) wan-ants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the date furnished to the City.
AMALGAMATED INVESTMENTS COMPANY
(Print or type exacl_lcgajj)amc. of Disclosing Party)
SECRETARY
(Print or type title of person signing)
Signed and sworn to before me on (date) jj£ mb&<2- l^/Soff ,
Page 12 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date, this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any aldennan, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B.l.a., ifthe Disclosing Party is a corporation; all partners ofthe Disclosing Party, ifthe Disclosing ) Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Party, if the Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes |X] No
If yes, please identify below (1) the name and title of such person, (2) the name of the legal entity to which such person is connected; (3) the name and title ofthe elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
Page 13 of 1a
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicunt exceeding 7.5% (an "Owner"). It i3 not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x] No
Ifthe Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No [x] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified
) as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.amleaal.Gom ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.,
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(l) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes [ ]No
) [X] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of 15
(1 of 2 Exhibits for Amalgamated Investments Company)
EXHIBIT SECTION II. B. 1
AMALGAMATED
Investments Company
DIRECTORS
Warren Katz James Sweeney Debra H. Wrobel Robert M. Wrobel
OFFICERS
Robert M. Wrobel Scott A. Rupp James T. Landenberger Laura Maher William J. Dunn
Chairman of the Board and President Vice President and Chief Financial Officer Vice President and Secretary Vice President/Audit Assistant Secretary
(2 of 2 Exhibits for Amalgamated Investments Company)
SECTION II. B.2.
Percentage Indirect Interest in Amalgamated Bank of Chicago
Name Business Address (the "Applicant")
Robert M. Wrobel Trust dated November 13, 1997
Debra H. Wrobel Trust dated November 13, 1997, as amended on March 16, 2006
Amalgamated Bank of Chicago 30 North LaSalle Street Chicago, Illinois 60602
Amalgamated Bank of Chicago 30 North LaSalle Street Chicago, Illinois 60602
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal numc ofthe Disclosing Party submitting thi3 EDS. Include d/b/a/ if applicable: ROBERT M. WROBEL TRUST DATED NOVEMBER 13, 1997.
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[X] a legal entity currently holding, or anticipated to hold within six months after City action on the contract, transaction or other undertaking to which this EDS pertains (referred to below as the "Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name: AMALGAMATED BANK OF CHICAGO
__
[ ] a legal entity with a direct or indirect right of control ofthe Applicant (see Section 11(B)(1)) State the legal name of the entity in which the Disclosing Party holds a right of control:
')
B. Business address ofthe Disclosing Party: 30 N. LASALLE STREET
CHICAGO, IL 60602
Telephone: 312-822-3188 Fax: 312-267-8770 Email: LRYAN@ABOC.COM
Name of contact person: LAURA D. RYAN
Federal Employer Identification No. (if you have one): N/A
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
RFP for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education.
G. Which City agency or department is requesting this EDS? City of Chicago, Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # _ _ _ and Contract U
Ver.201 8-1 Page i of 15
SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PARTY
1. Indicate the nature of the Disclosing Party:
] Person [ ] Limited liability company
] Publicly registered business corporation [ ] Limited liability partnership
] Privately held business corporation [ ] Joint ventuie
] Sole proprietorship [ ] Not-for-profit corporation
] General partnership (Is the not-for-profit corporaiion also a 501(c)(3))?
] Limited partnership [ ] Yes [ ] No
[XJ Trust - [ ] Other (please specify)
For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
TRUSTS GOVERNED BY ILLINOIS LAW.
For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ JYes [ JNo J Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity lhal directly or indirectly controls the day-to-day management of the Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf. Name Title
ROBERTM WROBEL TRUSTEE
2. Please provide the following information concerning each person or legal entity having a direct or indirect, cun-ent or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest of a member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary of a trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
SEE ATTACHED EXHIBIT.
SECTION III - INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ ] Yes [x] No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date of this EDS? [ ] Yes [x] No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best ofthe Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
[ ] Yes [X] No
If "yes," please identify below the name(s) of such City elected officials) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Parly has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
Page 3 ofl5
Name (indicate whether Business Relationship to Disclosing Party Fees ("indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets ifnecessary)
[x] Check here ifthe Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V -- CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract wilh the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more ofthe Disclosing Party be);n declared in arrearage on any child support obligations by any Illinois court of cbrnpetoirjurfttiiction?
[ ] Yes [X] No [ ] No person directly or indirectly owns 10% or more of the Disclosing Party.
)
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
1. [This paragraph 1 applies only ifthe Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date ofthis EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance of any public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they . can be considered for agency contracts in the future, or continue with a contract in progress).
2-. The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property laxes and sales taxes, nor is the Disclosing Party delinquent in the payment of any tax administered by the Illinois Department of Revenue.
Page 4 of 15
|1010|3. The Disclosing Party and, ifthe Disclosing Parly is a legal entity, all of those persons or entities identified in Seclion 11(B)(1) ofthis EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date ofthis EDS, been convicted of a criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any ofthe offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date ofthis EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
j 4. The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
5. Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parlies");
any "Affiliated Entity" (meaning a person or entity that,'directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility ofa business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Parly, any Contractor or any Affiliated Eniily. acting pursuant to the direction or authorization ofa responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date ofthis EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity ofa Contractor during the 5 years before the date of such Contractor's or Affiliated Entityls contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of lhe Cily, lhe Stale of Illinois, or any agency uf the federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a
) result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or of the United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1 -23, Article I for applicability and defined terms] of the Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee ofthe City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, thai Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in
• Certifications (2) and (9) above and will nol, without the prior written consent ofthe City, use any such
Vcr.2018-1 Page 6 of 15
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify lo any ofthe above statements in this Part B (Further Certifications), the Disclosing Party must explain below:
N/A.
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees ofthe Disclosing Parly who were, at any time during the 12-month period preceding the date ofthis EDS, an employee, or elected or appointed official, ofthe City
of Chicago (if none, indicate with "N/A" or "none"). NONE.
13. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date ofthis EDS, to an employee, or elected or appointed ' official, of the City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having .a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient.
NONE.
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[ ] is [x] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
Ifthe Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate ofa predatory lender may result in the loss of the privilege of doing business with the Cily."
Page 7 ofl5
If tlie Disclosing Party is unable to make this pledge because it or any of ils affiliates (as defined in MCC Section 2-32-455(b)) is a predatory lender within the meaning of.MCC Chapter 2-32, explain here (attach additional pages ifnecessary):
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CI TY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
1. In accordance with MCC Section 2-156-110: To the best of the Disclosing Parly's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ ] Yes [X] No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
) 2. Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name ofany other person or entity in the purchase of any property that (i) belongs to lhe City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning ofthis Part D.
Does the Matter involve a City Property Sale?
[ j Yes [ ] No
3. If you checked "Yes" to Item D(l), provide the names and business addresses ofthe City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
Page 8 of 15
E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. Ifthe Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
X 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI - CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
)
NOTE: Ifthe Matter is federally funded, complete this Section VI. Ifthe Matter is not federally funded, proceed to Section VII. For purposes ofthis Section VI, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets if necessary):
(If no explanation appears or begins on the lines above, or if the letters "NA" or ifthe word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay-
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Vcr.2018-1 Page 9 of 15
ofa member of Congress, in connection with the award ofany federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the statements and information sel forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) of the Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
Ifthe Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration of the Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes r 1 No
Have you filed with the Joint Reporting Committee, the Director of the Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ 1 No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause? i
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Rage 10 of 15
SECTION VII -- FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part ofany contract or other agreement between the Applicant and the City in connection with (he Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution of any contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text of this ordinance and a training program is available on line at www.cityofchicago.org/Ethics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Parly must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate ih other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
)
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all of the infonnation provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy ofany information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. If the Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page 11 of" 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute ihis EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as ofthe dale furnished to the City.
(Sign here)
ROBERT M. WROBEL TRUST DATED NOVEMBER 13, 1997. (Print or type exact legal name of Disclosing Party)
ROBERT M. WROBEL, as Trustee
(Print or type name of person signing)
(Print or type title of person signing)
Notary Public
Signed and sworn to before me on (date) ttovtwbcnfl. iSyflo/f , at (?fAL County, ~^LLlf\Oi.< (state).
Page 12 of] 5
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, .stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers ofthe Disclosing Party listed in Section
II.B. 1 .a., if the Disclosing Party is a corporation; all partners ofthe Disclosing Party, ifthe Disclosing ) Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members ofthe Disclosing Party, if the Disclosing Party is a limited liability company; (2) all principal officers ofthe Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
, [ ] Yes [ ] No
If yes, please identify below (1) the name and title of such person, (2) the name ofthe legal entity to which such person is connected; (3) the name and title of the elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
Disclosing Party only has an indirect ownership interest in the Applicant.
Page 13 of 15
CITY OF CHICAGO
ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
; APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
I
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No
Ifthe Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No [ ] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified
; as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Disclosing Party only has an indirect ownership interest in the Applicant.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.airilcaal.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or olher professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385, I hereby certify that the Appiicanl is in compliance with MCC Section 2-92-385(b)(l) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes
[ ] No
) [X] N/A - I am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of 15
(1 ofl Exhibits for Robert M. Wrobel Trust)
Name
Robert M. Wrobel Trust dated. November 13, ,1997
EXHIBIT SECTION II. B. 2.
Percentage Indirect Interest in Amalgamated Bank of Chicago
Business Address (the "Applicant")
Amalgamated Bank of Chicago 30 North LaSalle Street Chicago, Illinois 60602
Beneficiary Robert M. Wrobel
Amalgamated Bank of Chicago 30 North LaSalle Street Chicago, Illinois 60602
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I -- GENERAL INFORMATION
A. Legal name ofthe Disclosing Party submitting this EDS. Include d/b/a/ if applicable: DEBRA H. WROBEL TRUST DATED NOVEMBER 13. 1997, as amended on March 16, 2006.
Check ONE ofthe following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[X] a legal entity currently holding, or anticipated to hold within six months after City action on the contract, transaction or other undertaking to which this EDS pertains (referred to below as the "Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal name: AMALGAMATED BANK OF CHICAGO
OR ~ ~
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) Stale the legal name of the entity in which the Disclosing Party holds a right of control:
B. Business address ofthe Disclosing Party: 30 N. LASALLE STREET
CHICAGO, IL 60602
Telephone: 312-822-3188 Fax: 312-267-8770 Email: LBYAN@ABOC.COM
Name of contact person: LAURA D. RYAN
Federal Employer Identification No. (if you have one): N/A
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
RFP for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education.
G. Which City agency or department is requesting this EDS? City of Chicago, Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification // and Contract if
Ver.201 8-1 Page t of 15
SECTION II -- DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PAR TY
1. Indicate the nature of the Disclosing Party:
[ ] Person [ ] Limited liability company
[ ] Publicly registered business corporation [ ] Limited liability partnership
[ ] Privately held business corporation [ ] Joint venture
[ ] Sole proprietorship [ ] Not-for-profit corporation
| ] General partnership (Is the not-for-profit corporation also a 501(c)(3))?
[ ] Limited partnership [ ] Yes [ ] No
[X] Trust [ ] Other (please specify)
For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
TRUSTS GOVERNED BY ILLINOIS LAW.
For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [ ] No [x] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each genera] partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management ofthe Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf. Name Title
DEBRA H. WROBEL TRUSTEE
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% of the Applicant. Examples of such an interest include shares in a coiporation, partnership interest in a partnership or joint venture, interest ofa member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary of a trust, estaie or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
SEE ATTACHED EXHIBIT.
SECTION III -- INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? ['] Yes [x] No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date ofthis EDS? [ ] Yes [X] No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
[ ] Yes [X] No
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION I V - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature of the relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
Page 3 ofl5
Name (indicate whether Business retained or anticipated Address to be retained)
Relationship to Disclosing Party (subcontractor, attorney,,; lobbyist, etc.)
Fees (indicate whether paid or estimated.) NOTE: "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets ifnecessary)
[x] Check here ifthe Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V - CERTIFICATIONS
COURT-ORDERED CHI ED SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [X] No [ ] No person directly or indirectly owns 10% or more of the Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance ofany public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment ofany lax administered by the Illinois Department of Revenue.
Page 4 of 15
3. The Disclosing Party and, ifthe Disclosing Party is a legal entity, all of those persons or entities -v identified in Section 11(B)(1) of this HDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date ofthis EDS, been convicted ofa criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any ofthe offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date ofthis EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
) 4. The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
5. Certifications (5), (6) and (7) concern:
the Disclosing Parly;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility of a business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization ofa responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither lhe Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date ofthis EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity ofa Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee ofthe City, the State of Illinois, or any agency ofthe federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or of the United Slates of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither tlie Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United Stales Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [sec MCC Chapter 1-23, Article I for applicability and defined terms] of the Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee ofthe City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Vcr.2018-1 Page 6 oft 5
contraclor/siibconlracLor that does not provide such certifications or lhat the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify to any of the above statements in this Part B (Further Certifications), the Disclosing Party must explain below:
N/A.
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-month period preceding the date of this EDS, an employee, or elected or appointed official, ofthe City
of Chicago (if none, indicate with "N/A" or "none"). NONE.
13. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date of this EDS, to an employee, or elected or appointed ) official, of the City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient.
NONE.
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[ ] is [x] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
Ifthe Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate ofa predatory lender may result in the loss ofthe privilege of doing business with the City."
Page 7 of IS
Ifthe Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in MCC Seclion 2-32-455(b)) is a predatoi y lender within the meaning of MCC Chapter 2-32, explain here (attach additional pages if necessary):
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Parly certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best ofthe Disclosing Party's knowledge after reasonable inquiry, does any official or employee ofthe City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ ] Yes [X] No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name ofany other person or entity in the purchase of any property that (i) belongs to the Cily, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe Cily (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning ofthis Part D.
Does the Matter involve a City Property Sale?
[ J Yes [ J No
If you checked "Yes" to Item D(l), provide the names and business addresses ofthe City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
Page 8 of 15
E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. Ifthe Disclosing Party checks (2). the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into wilh the City in connection with the Matter voidable by the City.
X l. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Parly and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued lo slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Parly has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names ofany and all slaves or slaveholders described in those records:
SECTION VI - CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: If the Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations ofthe City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets ifnecessary):
(If no explanation appears or begins on the lines above, or if the letters "NA" or ifthe word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Mailer.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
ofa member of Congress, in connection with the award ofany federally funded contract, making any . federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy ofthe statements and information set forth in paragraphs A( 1) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
Ifthe Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration ofthe Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
)
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director ofthe Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
SECTION VII - FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Parly understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part ofany contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that il must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text ofthis ordinance and a training program is available on line at www.cityofchicago.org/Etliics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
Ifthe City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all ofthe information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy ofany information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. Ifthe Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter
1 -23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page II of 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as ofthe dale furnished to the Cily.
DEBRA H. WROBEL TRUST DATED NOVEMBER 13, 1997, as amended on March 16, 2006.
(Print or type exact legal name of Disclosing Party)
(Sign here)
By:
DEBRA H. WROBEL, as Trustee
(Print or type name of person signing)
(Print or type title of person signing)
Signed and sworn lo before me on (date) /Wju £rvi/)cn\. 13 . 'Jtoltf
al C County, .LLLmciS (state).
Notary Public
Page 12 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELEC TED CIT Y OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B.l.a., if the Disclosing Party is a corporation; all partners ofthe Disclosing Party, ifthe Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, ifthe Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Parly, if the Disclosing Party is a limited liability company; (2) all principal officers ofthe Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary ofa legal entity or any person exercising similar authority.
Does lhe Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes [ ] No
If yes, please identify below (1) the name and title of such person, (2) the name of the legal entity to which such person is connected; (3) the name and title of the elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
Disclosing Party only has an indirect ownership interest in the Applicant.
Page 13 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No
Ifthe Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [ ] No [ ] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Disclosing Party only has an indirect ownership interest in the Applicant.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.am 1 egal.com), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them lo conduct a business on City premises.
On behalf of an Applicant lhal is a contractor pursuant lo MCC Section 2-92-385, f hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(l) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[JYes [ ] No
) [X] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of .15
(1 of 1 Exhibits for Debra H. Wrobel Trust)
EXHIBIT SECTION II. B. 2.
Percentage Indirect Interest in Amalgamated Bank of Chicago
Name Business Address (the "Applicant")
Debra H. Wrobel Trust Amalgamated Bank of Chicago 8.85%
dated.November 13, 1997, 30 North LaSalle Street
as amended on Chicago, Illinois 60602
March 16, 2006
Beneficiary
Debra H. Wrobel Amalgamated Bank of Chicago
30 North LaSalle Street Chicago, Illinois 60602
ASSOCIATED BANK,
N.A.
O2019-9946
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
Legal name of the Disclosing Party submitting this EDS. Include d/b/a/ if applicable:
Associated Bank, N.A.
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
I/J the Appl icant
OR
[ ] a legal entity currently holding, or anticipated to hold within six months after City action on
the contract, transaction or other undertaking to which this EDS pertains (referred to below as the
"Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name:
OR
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name ofthe entity in which the Disclosing Party holds a right of control:
n n . ., rfu ,v , p w 525 West Monroe Street; Suite 2300
Business address ofthe Disclosing Party: '
Chicago, IL 60661
"CarirABrahanrison@AssociatedBank.com
Name of contac, person: Cad AbrahamSOn
Federal Employer Identification No. (if you have one): '
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
City of Chicago and Chicago Board of Education RFP for Payment of Interest on Municipal Depositories
^ „n • , ^- . ,. Chicago Department of Finance
Which City agency or department is requesting this EDS?
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # ^/A and Contract // ^/A
Ver.2018-1 Page 1 of 15
SECTION II -- DISCLOSURE OF OWNERSHIP INTERESTS
. A. NATURE OF THE DISCLOSING PARTY
[ ] Person
[ ] Publicly registered business corporation
[ ] Privately held business corporation
[ ] Sole proprietorship
[ ] General partnership
[ ] Limited partnership
[ ] Trust
[ ] Limited liability company
[ ] Limited liability partnership
[ ] Joint venlure
[ ] Not-for-profit corporation
(Is the not-for-profit corporation also a 501(c)(3))?
[ ] Yes [ ] No |S\ Other (please specify)
National Association
2. For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
3. For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [ ] No [/] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar- entities, the-trusteerexecutor, administrator, or-similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management ofthe Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title
Please see page 15 of our 2018 Annual Report
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest of a member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."|1010|' NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name ' Business Address Percentage Interest in the Applicant
None
SECTION III -- INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ ] Yes \/\ No
No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date of this EDS? [ ] Yes J
If "yes" to either of the above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
f I Yes /
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in Chapter 2-156 of the Municipal Code of Chicago ("MCC")) in the Disclosing Party?
No
Tf "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
Page 3 ofl 5
Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets if necessary)
J Check here if the Disclosing Party has not retained, nor expects to retain, any such persons or entities.
SECTION V ~ CERTIFICATIONS
A. COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ J Yes [ ] No [2^° Person directly or indirectly owns 10% or more of the Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
N Yes [ ] No
B. FURTHER CERTIFICATIONS
[This paragraph 1 applies only ifthe Matter is a contract being handled by the City's Department of Procurement Services. ] In the 5-ycar period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance of any public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment ofany fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment ofany tax administered by the Illinois Department of Revenue.
Page 4 of 15
The Disclosing Party and, ifthe Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) ofthis EDS:
a. are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
- b. have not, during the 5 years before the date of this EDS, been convicted of a criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or. civilly charged by, a governmental entity (federal, state or local) with committing any ofthe offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date of this EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
— •-any-"eontractor" (meaning any"contractor orsubcontractor used'by the Disclosihg"Pafty~ih
connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility ofa business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization of a responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date of this EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity of a Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the Cily, the State of Illinois, or any agency of the federal government or of any state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
6. Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees,
officials, agents or partners, is barred from contracting with any unit of state or local government as a
result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2)
bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense of any state or of the United
States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the -United States-Department of Commerce, Stateror Treasury;; or any successor federafagency.-
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] of the Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee of the City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City.- NOTE: If MCC Chapter 1-23, Article 1 applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with.the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Ver.2018-1 Page 6 ofl 5
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify to any ofthe above statements in this Part B (Further Certifications), the Disclosing Party must explain below:
None
Ifthe letters "NA," the word "None," or no response appears on the lines abovei it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees of the Disclosing Party who were, at any time during the 12-month period preceding the date ofthis EDS, an employee, or elected or appointed official, of the City of Chicago (if none, indicate with "N/A" or "none").
None
13. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a
complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during
the 12-month period preceding the execution date of this EDS, to an employee, or elected or appointed
official, ofthe City of Chicago. For purposes ofthis statement, a "gift" does not include: (i) anything
made generally available to City employees or to the general public, or (ii) food or drink provided in
the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a
political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or
"none"). As to any gift listed below, please also list the name ofthe City recipient.
'None
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION 1. The Disclosing Party certifies that the Disclosing Party (check one)
J is [ ] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
2. Ifthe Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may result in the loss ofthe privilege of doing business with the City."
Page 7 of 15
Ifthe Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32. explain here (attach additional pages if necessary):
None
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
1. In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ ] Yes / No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
2. Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected
official or employee shall have a financial interest in his or her own name or in the name of any
other person or entity in the purchase ofany property that (i) belongs to the City, or (ii) is sold for
taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe City (collectively,
"City Property Sale"). Compensation for property taken pursuant to the City's eminent domain
.power-does-not constitutes-financial-interest within the-meaning-of this Part D. — -
Docs the Matter involve a City Property Sale?
[ ] Yes / No
3. If you checked "Yes" to Item D(l), provide the names and business addresses of the City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee. ;
Page 8 of 15
E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. If the Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
JZI,. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names ofany and all slaves or slaveholders described in those records:
SECTION VI -- CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
) NOTE: If the Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations ofthe City are not federal funding.
A. CHRTIFICATION REGARDING LOBBYING """~
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets if necessary):
(If no explanation appears or begins on the lines above, or ifthe letters "NA" or if the word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A( 1) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
ofa member of Congress, in connection with the award of any federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
Ifthe Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration ofthe Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant? [ ] Yes [/jNo
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director of the Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ J No [ J Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ j Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
SECTION VII -- FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS! will become part ofany contract or other agreement between the Applicant and the Cily in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS1 is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text of this ordinance and a training program is available on line at www.cityofchicago.org/Ethics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all of the information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it-may have-against the Gityin ro^
contained in this EDS and also authorizes the City to verify the accuracy ofany information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. Ifthe Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page 11 of 15
CERTIFICATION
! Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and! (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the date furnished to the City.
Associated Bank, N.A.
(Print or type exact legal name of Disclosing Party)
By: CansQ CLiKiQ^^fAA*^^ (Sign here)
Carl Abrahamson
(Print or type name of person signing)
Senior Vice President - Relationship Manager - Government Banking
(Print or type title of person signing)
Signed and sworn to before me on (date)
Nota^j Public
_ County, /-> 1 ^- (state).
OFFICIAL SEAL —
PATRYCJA KARWOWSKI NOTARY PUBLIC, STATE OF ILLINOIS My Commission Expires Oct. 12,2022
w m '
Page 12 of 15
ECONOMIC DISCLOSURE STATEMENT AND AFFipAVIT
!
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS j
i
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers ofthe Disclosing Party listed in Section II.B. 1 .a., if the Disclosing Party is a corporation; all partners of the Disclosing Party, if the Disclosing Party is a general partnership; all general partners and limited partners ofthe Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Party, if the Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary ofa legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes / No
If yes, please identify below (1) the name and title of such person, (2) the name ofthe legal entity to which such person is connected; (3) the name and title ofthe elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
t
) Ver.2018-1
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership, interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes 0 No
Ifthe Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes J No [ ] The Applicant is not publicly traded on any exchange.
3. If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Page 14ofl5
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.amlcgal.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-3 85(b)(1) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
Yes [ ]No
[ ] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l).
If you checked "no" to the above, please explain.
Page 15 of 15
^Associated Bank
2018 SUMMARY ANNUAL REPORT
Associated Banc-Corp
2018 SUMMARY ANNUAL REPORT
Top 50
publicly traded (NYSE- ASB) U.S. bank nolcing companies-1*
Our Vision
Associated Bank will be the Midwest's premier financial services company, distinguished by consistent, quality customer experiences, built upon a strong commitment to our colleagues and the communities we serve, resulting in exceptional value to our shareholders through economic cycles.
Largest
Wisconsin-based bank, by assets''*
OUR FOOTPRINT
Associated currently has over 230 branches serving more than 110 communities throughout Wisconsin, Illinois and Minnesota, with commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas, and select national specialty businesses.
^ million
More than
milli(
customers
Top 50
U.S. insurance broke-age firms"5
¦ffl Mortgage
TT I Lender
in Wisconsin''-'
Deposits by State'1"
CSEB 42% Consumer
i - „i 36% Commercial and business
m 22% Commercial real estate
Era 32% wi
C3 24% IL
10% MN
BB 18% MO. IN. OH. Ml. TX. IA
EZa 15% Other
C23 67% WI CE3 26% IL
a j% mn
Dear Shareholders,
2018 was a historic and momentous year for Associated Banc-Corp.
We strengthened our company through organic growth and with the acquisitions and successful integrations of Bank Mutual, Diversified Insurance Solutions and Anderson Insurance Agency. We sharpened our focus around the customer experience—prioritizing investments, products and services to meet changing needs and expectations. We extended our outreach, defining new opportunities to stimulate economic development and promote stronger communities.
Our financial performance was strong. We grew both our loan portfolio and fee businesses. We finished the year with record deposit levels and nearly $34 billion in'assets.
Our operational efficiency improved for the seventh consecutive year, demonstrating our acquisition discipline and commitment to controlling costs. We were effective in our credit and risk management practices, finishing the year with zero provision for credit losses.
Collectively, these improvements drove earnings per common share to $1.89, a 33% increase from 2017 and a 50% increase from two years ago.
Our plans call for considered and thoughtful growth of our company. This comes in two ways: 1) we continue to cultivate traditional sales growth through our relationships with customers, the expansion of our salesforce and investments in technology; and 2) we pursue targeted acquisition opportunities where they make sense.
2018 Highlights
Avcrngc loans o' ncoroxim.itolv
$24 10%
$23 billion
and record average depes'ts of more than
billion
beref t'"ci t'on o't<>nic jnd ¦. activ ty cur nc; t"c y|1010|We've lowered our adjusted efficiency ratio'-"
consecutive
years and were able to
improve our adjusted efficiency ratio more than
basis points
f.om 2017.
Our not r-ccmc available to ccrrTion equity was
^^^^ ^^^^ tf^s O million,
1 nc.;i
one eai'" ngj pe>- common equity
S'^-irC i"CO:iseC
0 to $1.89.
o
ccrrocir.y ewawea
o,
llijii^ljsli^dfu.fliry rdiin < i'y ¦ ;:AAL- --cisu.v ¦ V<> Ui* li' Kir! II, ii>< -| / y; .<¦¦? A-ri. rl \ri:(jll -j" • Ol"' Hi 'n-i' i:s" .V'r. ;>;ui 1' fjf t.'i= lin-i ;ml Uililf, I" I ivnr-t;r r.f r.!:,'io-;s
ASSOCIATED
2018 SUMMARY ANNUAL REPORT
GROWING OUR CORE BUSINESS
Associated proudly serves more than 1 million customers-individuals, families and businesses—providing a comprehensive mix of products and services to help them manage their finances, conveniently conduct transactions, and protect and promote personal wealth and business growth. Our commitment to the customer experience and the diversity of our portfolio has enabled us to increase our value to customers and shareholders, while maintaining a conservative credit culture.
Over the past several years, Associated has invested in the expansion of our commercial banking presence. Commercial and business average loans increased 7% in 2018 from 2017, and have nearly doubled over the past decade. While the majority of that growth was driven by our specialty lending verticals, manufacturing and wholesale trade remain our largest industry exposure.
Most of our commercial relationships are initiated through credit, then deepened with additional financial and risk management solutions over time. In 2018, we expanded our commercial banking team with experienced relationship managers in key markets. We expect these new colleagues to bring increasing value to existing and new customers in the Upper Midwest and through select national businesses.
To meet the complex needs of these customers, we plan
to-make-significant-improvements to-our digital-services-in—
2019. Expected features include an enhanced suite of online and mobile services for account reporting, funds transfer, positive pay and user administration.
Commercial Real Estate (CRE) average loans increased approximately 10% in 2018 from 2017. CRE accounts for a fifth of our total loans. Serving customers from 12 offices in eight states, our CRE mode! remains focused on working with proven developers This has allowed us tc successfully grow the business while remaining well diversified by geography, property type and borrower.
Over the past three years, our wealth management team, which focjses primarily on commercial, executive and professional customers, has undergone a series of organizational changes to better align its business units enhance capabilities and deepen customer relationships
Growth in 2018 was primarily driven by investment management and advisory fee revenues, reflecting the strength of the underlying equity markets and tre fuii-yoar contribution of Whitneli S Co., the hign net worth family office services firm we acquired in late 2017 In addition
Our Products and Services
Corporate and Commercial Specialty
Commercial and specialty lending
Commercial real estate lending
Deposit and cash management
Specialized financial services such as interest rate risk management, foreign exchange solutions and commodity hedging
Community, Consumer and Business
Business lending
Deposits and transactional solutions
Insurance and benefits-related products and services
Fiduciary, investment and financial planning services
Residential mortgage, home equity loans and lines of credit, and other lending solutions
Debit, credit and digital payment solutions
Our Select Affiliates
Associated Bank, N.A. "
Associated Trust Company, N.A.
Associated Financial Group, LLC DBA Associated Benefits and Risk Consulting
Associated Investment Services, Inc.
Kellogg Asset Management, LLC
Whitnell & Co.
our insurance activity was boosted by our 2018 acquisitions
of-Diversified Insurance Solutions and Anderson-Insurance- —
Agency, which added to our revenues.
Consumer deposits remained strong as we successfully retained and grew lower-cost balances. Our sports affinity programs continue to be effective in adding new customers. 3y the end of last year, more than 40% of active personal checking accounts had affinity debit cards.
The maionty of that group is tied to our long relationship with ihe Green Bay Packers. We have been the Bank of the Packers since their founding in 1919. We also have affinity programs with the Milwaukee Brewers '1 Minnesota Wild" and Wisconsin Badgers'1'.
Our company was once again recognized as Wisconsin's fl Mortgage Lender and continues to gam market share in Illinois and Minnesota. Residential mortgages, which represent approximately 36% of our average total loans, benefited from organic growth and the acquisition of Bank Mutual
, We continue to improve ou' market position and drive profitability through our com^urvty mp'kets strategy,|1010|
launched five years ago. Based in select midsized markets, this banking model combines the localized approach of traditional community banks with the efficiencies and full services of our larger organization.
Benefiting from both organic and acquired activity, our ' community markets' deposit balance has increased approximately 34% since 2014. We expect continued investment in these markets will improve our ability to grow organically while helping to successfully integrate customers joining us through acquisitions.
We've invested significant time and effort to ensure regulatory compliance and manage risk. Our current regulatory and risk management position is positive, and we will remain focused on our compliance efforts as we continue to grow the company.
GROWING THROUGH TARGETED ACQUISITIONS
Our acquisition strategy is driven in large part by current industry dynamics. There is an imperative for Associated to build scale to facilitate investment in services and technology that enhance the customer experience. Doing so helps us remain competitive with the largest banks with which we compete.
The 2018 acquisition and successful integration of Bank
-Mutual .provided.an_opportunity.to .increase our Wisconsin _.
presence and improve the scale of our operations. There was a significant amount of physical overlap, with approximately 50% of Bank Mutual branches being located within one mile of an Associated Bank location. In line with our expectations, we realized approximately 45% cost savings after converting systems, products, services and branches last June
The cultural synergies of our two companies, coupled with the dedication of our colleagues, also helped ensure a smooth transition for customers. Even with the rationalization of branches, customers, now have access to a broader network of locations, including branches in nearly a dozen additional communities
Central to this acquisition we proved our ability to acquire a bank and integrate it successfully, without disrupting the customer experience or taking cn significant additional staff We continue to be pleased with our deposit retention rates, which stood at approximately 90% at the end of 20IS
We learned much from our Bank Mutual approach ana see the acquisition of the Wisconsin branch banking operations of The Huntington National Bank, announced in December
2018, as an opportunity to both capitalize on our experience and replay our success. This similar, although smaller, transaction will strengthen our Wisconsin presence, and is expected to add more than 60,000 deposit accounts and 33,000 households to Associated.
We expect to add 14 branches to the combined companies' network and expand into 13 new communities during the second quarter of 2019. With this change, Huntington's Wisconsin customers will benefit from our broader branch network and 24/7/365 assistance from our Customer Care team. We expect opportunities to deepen these customer relationships over time.
In 2018. Associated also acquired Anderson Insurance Agency, an independent firm based in Minneapolis, and Diversified Insurance Solutions, one of Wisconsin's leading insurance brokers. Along with providing a lift in noninterest income, the addition of these established firms helps expand our insurance and risk management services in some of our largest metropolitan markets, and furthers our strategy to drive shareholder value through a diverse set of specialty businesses.
Our Acquisitions
Huntington Wisconsin Branch Acquisition
UJ INSURANCE A ;NV_5IVlE£Nr '"ve','1-
Expected June 2019
HI)-j CLtidexdun
Completed June 2018
I % Diversified
~mm* Insurance Soluli < n.s
Completed February 2018
PiopertysasuMy-Benefits Completed March 2018
BankMutual
2018 SUMMARY ANNUAL REPORT
ENHANCING THE CUSTOMER EXPERIENCE
Our colleagues view the opportunity to serve our customers as their top priority. They know that behind every relationship is an individual, family or business owner who is looking to Associated to provide the right solutions for their financial and risk management needs. Our teams focus on getting to know our customers, their unique situations and how they want to interact with us.
While banking continues to be a relationship business, our customers expect advanced online and mobile banking services to conduct their business.
Our investments in digital services and our branch network continue to benefit our consumer and business banking customers Since upgrading our consumer online and mobile banking services in February 2018, we've seen more than a 30% increase in mobile banking customer satisfaction through our customer experience surveys Nearly half of all Associated customer transactions are now done online, and mobile banking is our fastest growing service channel.
Customers appreciate features such as facial recognition and fingerprint authentication for mobile sign-in, personal financial management tools and a more user-friendly design. Beyond these enhancements tfie 2018 upgrade includes advanced security features and improves our company's ability to regularly roll out new features in a time- and cost-efficient manner
In early 2019, these online and mobile services were also rolled out to small business customers whose business|1010|
needs aligned with the platform's services. Business and commercial customers with more complex needs will receive a more advanced suite of online and mobile services later this year.
Across our industry, digitally based person-to-person transactions are increasing. Consumer adoption is expected
to-be-above-50%-in-2019.-To-meet-this growing demand,
Associated expects to upgrade its service to the Zelle platform during the first half of the year.
We are investing heavily to enhance our digital sales platforms and improve the overall customer experience. Upgrades to our online and mobile "uOpen" platform launched in early 2019. These updates speed up the consumer deposit application process by approximately 30% and reduce the chance for input errors. Additional digital upgrades for enhancing small business and mortgage loan applications are also planned for 2019.
Recognizing the importance of all our customer touchpoints, we regularly measure the customer experience across our digital, branch, and telephone channels Our branch customer experience scores reached a new high in October as our colleagues worked to deliver superior service The additio-" of our third 24/7/365 customer cali center extended our ability to respond to customers' needs real-time, often in one call
STRENGTHENING OUR COMMUNITIES
One of the most important things we do to keep our company healthy and vibrant is to proactively support economic development within our communities. We pride ourselves on being a strong community partner, actively coordinating resources for the benefit of the communities we serve
--ln-2018, Assoeiated-announced a-S2:4-billion-Gommunity
Commitment Plan, covering three years from 2018 through 2020. The plan, which is an extension of a similar plan adopted in 2016, sets forth our company's commitments to minority communities, low- to moderate-income communities and small businesses in our three-state branch footprint of Wisconsin, Illinois and Minnesota
Highlights of our financial commitments include $1.4 billion for residential mortgages, S600 million for community development loans, $425 million for small business loans and $8 million in donations.
Our colleagues work in tandem with community leaders, nonprofit organizations governmental entities and other community representatives to extend our reach into underserved markets and to ensure our coordinated efforts support the most important economic development issues m the markets we serve.
Associated's Colleague Resource Groups also help enhance engagement with our customers and communities. Each of these six groups wo'ks to create greater organizational awareness of and takes specific actions to address the
unique needs of diverse populations within our company and our markets. Their efforts have resulted in initiatives that influence workforce development; workplace culture, policies and programs; and marketplace practices.
This work is extended by our colleagues who volunteer their time and expertise. In 2018, colleagues logged more than
¦7-3.000 hours of volunteer-time.-worth $1t7-million^ Since
2012, our recorded volunteer hours were valued at more than $10 million in donated time. In addition, for the eighth consecutive year our colleagues joined together to raise more than $1 million for the United Way.
'One of the most important things we do to keep our company healthy and vibrant is to proactively support economic development within our communities.'5
20:8 SUMMARY ANNUAL REPORT
DEVELOPING FUTURE LEADERS
Ultimately, our momentum and success is driven by the passion of our people who strive to make our customers' experiences and our communities even better. Through a variety of programs, we work to ensure colleagues have the necessary tools and resources to achieve career and personal goals.
We make substantial investments in colleague education and have specialized and leadership development programs designed to help colleagues advance their careers In 2018, 21% of colleagues advanced their careers within Associated, including more than 570 internal promotions.
We have been very strategic about succession planning, and strive to fill positions from within the company, whenever possible. It gives us great pride to say that 12 of our executive committee members have been promoted from within our company. This is a testament to the high caliber of our colleagues and talent development resources.
In September 2018, Associated announced the promotion of Michael Meinolf to Associated's executive team as Chief Information Officer. Mike joined Associated in 2015 at which time he was responsible for the development and support of application systems for all major business units and significant third-party vendor relationships.
-¦ --Judith Doc-ter retired from-her-role-as-Ghief Human -
Resources Officer in March of this year. During her 27 years with the company, Judy has been instrumental in developing the company's talent programs, many of which have helped Associated be recognized as an employer of choice within our markets and by special interest groups. Judy is succeeded by Angie DeWitt. Angie joined Associated in 2008 and has more than 26 years experience, including multiple leadership roles in finance and human resources
DELIVERING VALUE
We feel very fortunate to be a part of Associated's 157-year journey. The work of our colleagues and management team continues to transform our company and deliver increasing value to all of our stakeholders—customers, colleagues, communities and shareholders. We love to share our story, and have included additional highlights on the pages that follow.
Thank you for your continued support and confidence in Associated. We enter 2019 with momentum and opportunity. Our capital management priorities remain consistent-support organic growth, pay a competitive dividend, pursue m-market, cost takeout acquisitions and deploy capital through share repurchases.
We will continue investing in the future of our company-improving our ability to serve our customers, grow our talent and strengthen our communities. Doing sc oositions us to deliver long-term value to our shareholders.
Sincerely.
Philip B. Flynn
President & Chief Executive Officer
William R. Hutchinson Chairman
March 15. 2019|1010|Financial Highlights
¦ fo*MS»0_s li^vljltnimmiii ~ s ri are. d a t a' a ri Annual Averages
Assets Loans
Investment securities Deposits
Operating Results
20.14 V
25,109,997 16,838,994 5,594,232 17,647,084
27.019,216 18,252,264
5,912,849 19,903.087
'.'.201.5,•.v.20i6,;. . , -c2b.37
$ 28,506,112 19,650,667 . 6,048,563 21.005,772
2018
33,053,405 22,718.297 6,912,92.1 24,072,049
Net interest income Noninterest income Total
Noninterest expense
Net income available to common equity
Performance Ratios
680,967 290,861 971,828 679,783 185,507
676,278 329.357 1,005,635 698,347 181,146
707,273 352,883 1.060,156 702.560 191,371
741,220 332,680 1,073.900 709,133 219,917
879.580 355,568 1.235,148 821.799 322,779
Net interest margin
Return on average equity
Return on average common equity Tier 1;1 '¦">
Return on average tangible common equity'1,'
Dividend payout ratio'"
Period End
3.08% 6.63 9 92 9.91 31.62
2.84% 6.50 9.88 9.97 34.17
2.80%
6.63
9.86 10.07 35.43
2.82%
7.23 10.43 10.86 34.48
2.97°.
9.03 13 15 14.06 32.29
Common equity Tier ]<¦" S
Common equity Tier 1 ratio*2'
Allowance for loan losses/nonaccrual loans
Nonperforming assets/total assets
Associated Bank, N.A. Senior Credit Rating (Moody's)
Per Common Share Data
1,808,332 9.74% 150% 0.72% A3
,897,944 9.52% 154% 0.70% Al
2,032.587 9.52% 101% 1.01% Al
,171,508 10.08% 127% 0.75% Al
2,449,721 10.26% 186% 0.42% Al
Common shares outstanding Diluted earnings per share Dividends per share Book value per share Tangible book value per share
.151,542 1.16 0.37 18 32 12.06
151,239 1.19 0.41 18.62 12.10
151,121 1.26 0.45 19.27 12.78
152,846 1.42 0.50 20.13 13.65
164,440 1.89 0.62 21.43 13.86
Growing Loans and Deposits
S24 S20-
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¦t-lateclcosij Men^cie"r>-,ti? ev-^strv?ad iiifjd;-i*iCe -ty!atis:ssintannnm.neca.rsi.- ar:i.i;:nr'_:;;oii-rij;!iyi!':::c:iyTC^;,p:--eir s-v.w-s'o'S.asxJ j-i3l-/ii:;o:vc-.irrn-.-'s:---¦= ¦^.¦''"¦gt.riii
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ASSCCi A" f.D SANK
2018 SUMMARY ANNUAL REPORT
Strengthening Our Roots
2018 Community Commitments1
28% of branches
in low- to moderate-'ncorne (LMI) census tracts.
5,504
residential mortgages
or nearly
$797 million in loans
helping LMI and minority families attain home ownership.
$112 million
in small business loans,
encouraging business expansion in emerging communities.
73,920 or
$1.7 million value
of volunteer hours logged.
$165 million in investments
to provide additional resources to minority and LMI communities.
2,500
colleague volunteers
with more than 4 70 volunteering 50 hours cr more.
$3.6 million in grants
to support Community Reinvestment Act programming at various ro^prc/ t organize; ons.
Tiju'ib arc as C arr: or yea' cot:rr' 0^^:"^ lThroughout our history. Associated has been proud to play an active role in helping our communities grow and prosper. Ultimately, we believe this positions us to better serve our customers, creates opportunity for our colleagues and provides greater value for our shareholders.
We focus on where we can best align our resources. This includes leveraging our expertise and financial support to promote affordable housing, provide small business lending and advance neighborhood development. To extend our reach, we collaborate with local leaders, various nonprofit organizations, governmental entities and other community representatives. These efforts are complemented by our colleagues who volunteer their time to help strengthen our communities.
Core to our efforts is the promotion of homeownership and the revitalization of neighborhoods. We offer mortgage products focused on first-time homebuyers and low- to moderate-income borrowers Some products also provide significant value to qualifying borrowers through direct closing-cost and down-payment subsidies.
DEVELOPING STRONGER COMMUNITIES
Associated and members of its Chicago-based Community Advisory Council are bringing together resources in a special, coordinated way to advance economic development in the Bronzeville neighborhood.
Located along Lake Michigan about four miles from downtown Chicago, this
neighborhood began as home to many of the millions who fled the South
during the Great Migration of the early 1900s. Today it is a growing center of
-African Amencan histor-y-and-culture.- - - —
As part of this effort. Associated is providing investments and grants and is working with local community organizations to stimulate business growth, promote homeownership, and provide financial education programming and outreach.
::, Bronzeville Branch. -.
iCi-i^Cnida'goVlll-:''-': 'V^H'
10
Making Community a Team Sport
Our sports affinity programs, and our long-term relationships with the Green Bay Packers, Milwaukee Brewers1* and Minnesota Wild"', have proven to be effective in adding new customers and creating new connections with our communities.
We have been the Bank of the Packers since their founding in 1919. In 2013, to celebrate our 100-year relationship, Associated sponsored Lambeau Field Live. This traveling exhibit took the Packers and Associated on the road, stopping at major venues across the state of Wisconsin.
Closer to the home field, Associated and the Packers, in partnership with the Green Bay Area Public School District, hosted an annual Stock the Box"" pep rally to benefit Feeding America Eastern Wisconsin. Each school's band competed to collect the largest food donation All were awarded with grants to benefit their music program. Now in its third year, the program has inspired hundreds of students to do goodwill in their communities and helped secure 22.000 pounds of food.
For the fourth consecutive year, Associated and the Milwaukee Brewers Community Foundation teamed up to sponsor Hits for Homes at Miller Park. This program has helped provide more than $400,000 of financial support to low- to moderate-income homeowners through Housing Resources, Inc (HRI). In addition to monetary contributions, Associated volunteers hosted Stock the Box Tool Drives at Miller Park and with local business clients to benefit HRI's Too! Loan Program. This program gives homeowners low-cost access to tools to maintain their homes and sustain their neighborhoods.
To help families dealing with Autism, the Associated Forward Abilities Network, a colleague resource group focused on supporting individuals with disabilities, teamed up with the Autism Society of Minnesota (AuSM) and the Minnesota Wild to host "into the Wild." The unique event was designed to celebrate the fan experience and the students participating Each sponsor brought something different to the day. including the Minnesota Wild practice and tour, personal finance activities with Associated volunteers and "I am Awesome" activities with AuSM staff members.
Our partnerships with some of America's most recognizable sports teams is just one way that Associated captures the interests of fans through interactive game-day experiences, multifaceted campaigns and client and community events.
More than 40% of active personal checking accounts are now tied to our affinity accounts. These fans receive exclusive checking accounts and unique fan benefits.
• Stock the Box for Hunger Pep Rally at
.Lambeau Field . •
n
2018 SUMMARY ANNUAL REPORT
The Power of Inclusion
"Having such strong support allowed me the mentality to focus on the tasks at hand when I was overseas."—
-Tom Irizarry
Associated supports veterans, military personnel and their families through programs including leave time, retention of benefits and full pay for colleagues on training and active military duty In addition the Deployment Trip Program provides financial assistance to colleagues visiting a loved one prior to deployment
It was for these reasons that 17-year colleague and U.S. Army Reserve Sergeant First Class Tom Irizarry knew that work was one less thing he had to worry about when he deployed to the Baltic States last year Not only was his job secure, his fellow colleagues made every effort to stay in touch with emails cards nnci care packages
We are very fortunate to have diverse, committed teams of colleagues who are capable, determined and empowered to drive our company forward. We view the act of building and advancing an inclusive culture as a business imperative, critical to our success. Our results show in the words of our colleagues who have described our culture as diverse, inclusive and transparent in our past three annual workplace surveys. Eighty-three percent of all colleagues participated in the survey in 2018.
In 2018, we advanced our Diversity & Inclusion (D&l) efforts by providing general D&l training for all colleagues and specialized management training that focused on unconscious bias and leading diverse teams. More than 240 leaders completed the specialized training during the year.
We expanded our partnerships with organizations like Tempo Milwaukee and FUEL Milwaukee to build a diverse talent pool for middle- and senior-level positions. Our focused efforts resulted in a 37% increase in minority applicants for professional level positions and 40% of jobs being filled with minority candidates in Milwaukee. We also enhanced career path planning and training to help colleagues advance their careers at Associated.
We exceeded the OFCCP-established 7% individuals with disability workforce requirement.''5 We also partnered with various community organizations to gain knowledge on workforce programs that will help connect future talent with Associated.
-A shining strength-of-our -D&l-culture continues-to-be our- six-Colleague -Resource Groups. Each group works to create greater organizational awareness of and takes specific actions to address the unique needs of diverse populations within our company and our markets.
With more than 43% of colleagues participating, these groups' efforts have resulted in initiatives that influence workforce development; workplace culture, policies and programs: and marketplace practices. In addition, the groups engage with nonprofit community partners, other businesses and organizations to help ensure we are building an inclusive environment for our colleagues, customers and the communities we serve.
12
Managing Our Carbon Footprint
We closely consider our environmental impact in many aspects of our company's operations.
We believe creating energy efficient buildings is the most effective method for reducing our branch network's carbon footprint. Our newly constructed branches exceed the code required energy performance standards by providing.an R-value of 13.5 in excess-of-what-is-required under-ihe current-energy code, and the HVAC systems are selected to be high efficiency units.
In addition, we strive to use "green'' materials wherever possible. For example, our flooring, wall, ceiling and countertop materials are made with either recyclable content or high life-cycle content. We also use occupancy sensors; have implemented power management processes on all personal computers, monitors and printers, and use Energy Star compliant appliances to manage energy use.
We have an aggressive LED lighting program, and have been retrofitting our branch locations where necessary We've complemented this effort with the testing of HVAC equipment in some of our larger facilities. Using our 20'5 expenses as a baseline, we expect approximately $500 thousand in annual savings across all locations updated in the past three years
Finally, through our shredding efforts that protect the environment and our customers' information security, 1 000 tons of materials were recycled dur.ng the year.
Investing in Renewable Energy
Associated's Power & Utilities team supports clients' renewable energy projects.
Associated leverages its financial resources, insights and expertise to support renewable energy proiects throughout the United States. Since 2012, our Power and Utilities specialized lending group has made over $900 million in total credit commitments to support more than 30 wind, solar and hydroelectric projects, representing cumulative generating capacity in excess of 6 500 megawatts.
These projects, spanning across 15 states, generate a significant number of icbs in their surrounding communities while providing clean sustainable power.
-.3
2018 SUMMARY ANNUAL REPORT
Awards and Accolades
#1 Mortgage Lender in Wisconsin0'
2010 - 2017 | Home Mortgage Disclosure Act
46th Largest Broker of U.S. Business"'
2018 | Business Insurance
2020 Women on Boards
2014 - 2018 | Winning 'W' Company
Best Banks in America - Wisconsin
2017 | MONEY
Best for Vets: Employers
2017 - 2018 | Military Times
Best of the Best
2014 - 2016, 2018 I Midwest Real Estate News
Best of the Best Large Business Elite Award13'
2017 - 2018 | National Association for Business Resources
Best Practices Agency
- 2018 I IIABA
Circle of Excellence Agency1'"
| Western National Insurance Group
Corporate Social Responsibility Leadership Award
- 2017 | Financial Services Roundtable
CX Elite Award'"
| MaritzCX
Diversity in Business Award
| Daily Reporter; WI Law Journal
Excellence in Financial Literacy
2018 | Wisconsin Bankers Foundation
Fannie Mae STAR™ Performer""
2012 - 2017
Five Star Mortgage Professional'7'
2010 - 2018 | Milwaukee Magazine
Largest Corporate Charitable Contributor in Wisconsin
2016, 2018 | Milwaukee Business Journal
Mary Ellen Stanek Award for Diversity & Corporate Governance
2018 | The Greater Milwaukee Committee and Milwaukee Women Inc
Milwaukee's Best and Brightest Companies to Work For
- 2019 | National Association for Business Resources
Patriot Award
| Employer Support of the Guard & Reserve
Platinum Million Dollar Lender""
| USDA Rural Development
Reflecting Excellence Award
| Reflejos
Technology Experience and Design Technology Award'9'
I Event Marketers
Top 50 Employer
| CAREERS & the disABLED Magazine
Top 100 Innovators in Diversity & Inclusion
2018 | Mogul
Top 100 Retirement Plan Advisors00'
2017 | PLANADVISOR
Top Defined Contribution Advisor Firm
2017 | National Association of Plan Advisors
Top Ranking Best Banks in Minnesota""
| AdvisoryHQ
Top Veteran-Friendly Company
2016 - 2018 | U.S. Veterans Magazine
Top Workplaces Milwaukee
2012-2015, 2018 I Milwaukee Journal Sentinel
Top Workplaces St. Louis
| St. Louis Post Dispatch
Veteran Friendly Workplaces
2016 - 2017 | USO Wisconsin
Workplace Health Achievement
| American Heart Association
World's Best Banks of 2019
| Forbes
1 Ihe Wisconsin's i*i Mortgage ^onoer des.j.r aiioo is oasrd or; 'inclination gathered lro;i the Home Mortgage ^sdss. e Ac! data ccaioalcj anricolly by I™ Boieon o! Cc'sune f .i-ca! -Voteon- ' v. r.ss^,:s o dala were obtained throiigii :i;s Ess'faii ol "oris,,"';! rina:ii:i,ii P'oreolion rvcrigage Basal:.w (HMDAj. ji;ne v;;|£ Rankings based an 2017 brokerage revenue (cncttetl ayll J» -baiaa clients
Best -f Mm Best large Business £toe*».{>% m seta • calago-e:?, r. ia vice in I- c 'n \% io compensation, toone-lils arid employer: sol.it ons. rec: ¦ Tit. select^n arid orientation and diversity am! iridi'scv
Based on performance ai:d Kmivti' Associated Be1 a'Is i. FiaiConsuiiing places ir in? S5ti) at'oenla'eor r- J1 W;:br!'r!' Na:.;nal partner: overall eer-ormarce i;rrvi;ri and oa-t i;;:i'i|. s.'.jr to nasi si' years 'Hie CX Elite Award reccfiMst eoselience :¦ tvS'ciw e/oe-ence shaiegy enecuiion a,-J rcsul;s
Fannie Mae recognised Assorated tor oais'anijnir, i'srtgage 'jerisral sena-sing" as nail ot ;ls Service'To1 :i AL ceve-arr a :J frewa-iis"'' {S"iR'M: P'ojiar Genera: serw nig enc:mp.e.:.s\i.:is'0:"?r service. adiiiinis!ra;ien aria ot'iar areas.
inc rive Star Mortgage Prstcssio'iai FmgM-ii is ces>gnrc !o identry 'norigagL' orsiessisnais in a g:van market sm sa! si; acaectnc ci. ooo thai are sssnciaici a 1, o"ind:og oudoy sen toct.c 'Is Presented earn year Ic-lend* swim t'ave i-ar'ne'ed m:! and inade ?, signiiran; rciil-sliir: to soojcrVie vs-iscc-isi- ;ni.i: •rsijeiirsluck-, gtecoree 'i.oivoai i:^ i'-vj;ii ike Sj-Z .r.s:i!s*l Scat hnijsing iGFili) Progiain
Associated s interact iviili the P)pt i;'i-.ai in-sii.i cn p-ncaa/piocriae receive:! a silver aware! ,¦= 'r:e ti s ress-.s-csr sc: sr cate:c--y to' hcsi lis; al a sn;;:a t-jiaialuy Based -:n dollar value c'co-alitied oia asse.s . r,:v odninis.raliro fAIJA;. -.veil as 'he rurnre' at plans node- -duseine-l
AuV;SoryHn-ecr^m/os hanks rial ar:: tr,-, i. ally si: a wo' i;r f vakn-j. and i osl-etier.livr lioau al ¦i;;1ii cos ti-'¦!:-.'': y .1 o}-'' ^,ccia ri: Ban'* ^as :;¦•'.it !i'"il s .e;oil,':' \,v.> ,nrea' ¦ ll^l'a iroi-:
Our Leadership
Executive Committee
WILLIAM R. HUTCHINSON
Chairman,
Associated
Banc-Corp
President,
W R Hutchinson
& Associates, lnc
JOHN F. BERGSTROM
Chairman EILEEN A. KAMERICK
Adjunct Professor of Low & Consultant
GALE E. KLAPPA
Executivo Chairman of WEC Energy Croup
PHILIP B. FLYNN
President & Chief Executive Officer
WILLIAM M. BOHN
Head of Wealth Management & Institutional Services
NICOLE M. KITOWSKI
Chief Risk Officer
TIMOTHY J. LAU
Head of
Community Markets A Facilities
MICHAEL T. CROWLEY, JR.
Past Chairman, Bank Mutual Corporation
RICHARD T. LOMMEN
Chairman, Courtesy Corporation
MATTHEW R. BRAEGER
Chief Audit Execut.-ve
MICHAEL O. MEINOLF
Chief Information Officer
PHILIP B. FLYNN
President & Chief Executive Officer. Associated Banc-Corp
CORY L. NETTLES
Founder& Managing Director, Generation Growth Capita!, lnc
CHRISTOPHER J. DEL MORAL-NILES
Chief Financial Officer
CHRISTOPHER C. PIOTROWSKI
Chief Marketing Officer
KAREN T. VAN LITH
Consultant
ANGIE M.
.DEWITT _ .
Chief Human Resouces Officer
PAUL G.
.SCHMIDT...
Head of Commercial Real Fstate
JUDITH P. GREFFIN
Past Chief Investment Officer. Allstate Corporation
JOHN (JAY) B. WILLIAMS
Chairman. Church Mutual Insurance Company
JUDITH M. DOCTER
Executive Vice President
DAVID L. STEIN
Head of Consumer & Business Banking and Madison Maiket President
ROBERT A. JEFFE
Chairman of
RANDALL J. ERICKSON
General Counse
JOHN A. UTZ
Head of
Corporate
ANNUAL MEETING OF SHAREHOLDERS
April 30, 2019 | 11 a.m. (CT)
KI Convention Center, 333 Main St., Green Bay, WI 54301
Proxy materials for the 2018 Annual Meeting of Shareholders are available via the internet. Shareholders as of the March 4, 2019, record date have been mailed a notice regarding the availability of proxy materials, which includes the internet website address where the proxy materials can be viewed and shares voted. It also includes instructions for requesting a paper copy of the proxy materials via telephone, internet website or email.
ANNUAL REPORT ON FORM 10-K
Shareholders and other interested persons may obtain a copy of Associated Banc-Corp's 2018 Annual Report on Form 10-K on the Investor Relations section of our website at lnvestor.AssociatedBank.com or by calling or writing Investor Relations.
SHAREOWNER INQUIRIES
800-468-9716 or 651-450-4064
24/7 automated system or representative from 7 a.m. - 7 p.m. (CT). Monday through Friday Additional information is available at lnvestor.AssociatedBank.com
TRANSFER AGENT AND REGISTRAR CORRESPONDENCE
EQ Shareowner Services 1110 Centre Pointe Curve Suite 101
Mendota Heights, MN 55120 800-468-9716 or 651-450-4064 www.shareowneronline.com
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP
COMMON STOCK LISTING & TRADING
- Traded:-N-YSE-|-Stock Market-Symbol-ASB-¦
CORPORATE HEADQUARTERS
433 Main St, Green Bay. WI 54301 AssociatedBank.com | 920-491-7500
^Associated Bank
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BANK OF AMERICA,
NATIONAL ASSOCIATION
O2019-9946
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal name ofthe Disclosing Party submitting this EDS. Include d/b/a/ if applicable:
Bank of America, National Association
Check ONE ofthe following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[x] the Applicant
OR
[ ] a legal entity currently holding, or anticipated to hold within six months after City action on the contract, transaction or other undertaking to which this EDS pertains (referred to below as the "Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal name:
OR
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name ofthe entity in which the Disclosing Party holds a right of control:
B. Business address of the Disclosing Party: 100 North Tryon Street
Charlotte NC 28255
Telephone: (312) 904-8357 Fax: (312) 453-4568 Email: julie.conenna@bofa.com
Name of contact person: jpijp, conenna
Federal Employer Identification No. (if you have one):
Brief description of the Matter to which this EDS pertains. (Include project number and location of property, if applicable):
Request for Proposal for Payment of Interest on the Monies ofthe City of Chicago and the Chicago Board of Education
G. Which City agency or department is requesting this EDS? Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # and Contract ff
Ver.2018-1 Page 1 oi l 5
SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
NATURE OF THE DISCLOSING PARTY
1. Indicate the nature of the Disclosing Party:
] Person [ ] Limited liability company
] Publicly registered business corporation [ ] Limited liability partnership
] Privately held business corporation [ ] Joint venture
] Sole proprietorship [ ] Not-for-profit corporation
] General partnership (Is the not-for-profit corporation also a 501(c)(3))?
] Limited partnership [ ] Yes [ ] No
] Trust fx] Other (please specify)
National Association
For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
National Banking Association organized under the laws ofthe United States of America
For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [x] No [ ] Organized in Illinois
IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management of the Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title See Exhibit "E"
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest of a member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
BAC North America Holding Company 100 N. Tryon St, Charlotte NC 28255 100%
SECTION III - INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [JYes [x]No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date of this EDS? [ ] Yes [x] No
If "yes" to either of the above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
[ ] Yes [x\ No
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature of the relationship, and the total amount of the fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. If the Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
Page 3 of 15
Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets ifnecessary)
[x] Check here ifthe Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V - CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more ofthe Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [ ] No [ xl No person directly or indirectly owns 10% or more of the Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [ see definition in (5) below] has engaged, in connection with the performance of any public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help, the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment ofany fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment ofany tax administered by the Illinois Department of Revenue.
Page 4 of 15
The Disclosing Party and, ifthe Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) ofthis EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date ofthis EDS, been convicted of a criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any ofthe offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date of this EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization of a business entity following the ineligibility of a business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official of the Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization ofa responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date of this EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity ofa Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the City, the State of Illinois, or any agency of the federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or ofthe United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] ofthe Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee of the City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Ver.2018-1 Page 6 ofl 5 '
contractor/subcontractor that docs not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify to any ofthe above statements in this Part B (Further
Certifications), the Disclosing Party must explain below:
See attached Addendum "A" for additional information related to certifications.
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Parly certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a
complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-
month period preceding the date ofthis EDS, an employee, or elected or appointed official, of the City
of Chicago (if none, indicate with "N/A" or "none").
None
13. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date of this EDS, to an employee, or elected or appointed official, ofthe City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name ofthe City recipient. None
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
Ix] is [ 1 is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none ofour affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate ofa predatory lender may result in the loss ofthe privilege of doing business with the City."
Page 7 ofl 5
If the Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in
MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain
here (attach additional pages if necessary):
Makes the above pledge.
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee ofthe City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[JYes [xJNo
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name of any other person or entity in the purchase ofany property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit of the City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning of this Part D.
Does the Matter involve a City Property Sale?
[ JYes [xJNo
If you checked "Yes" to Item D( 1), provide the names and business addresses of the City officials or employees having such financial interest and identify the nature of the financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
Page 8 ofl5
E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. Ifthe Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply wilh these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
X 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI -- CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: If the Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes ofthis Section VI, tax credits allocated by the City and proceeds of debt obligations ofthe City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets if necessary): N/A
(If no explanation appears or begins on the lines above, or if the letters "NA" or if the word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
of a member of Congress, in connection with the award of any federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is nol an organization described in section 501(c)(4) of the Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) of the Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
If the Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A( 1) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration of the Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
If the Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director ofthe Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes . [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes f ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
SECTION VII -
- FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part of any contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text of this ordinance and a training program is available on line at www.citvofchicago.org/Ethics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages,
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all of the information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy of any information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. If the Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page II of 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) wan-ants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the date furnished to the City.
Bank of America, National Association
(Print or type exact legal name of Disclosing Party)
Julie Conenna
(Print or type name of person signing)
AuthorizedSjionatory
(Print or type title of person signing)
Signed and swom to before mc on (date)"]) LOW H-thfcV , 2o\H ,
Commission expires: Q S lYt 2C Z 2-
Page 12 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any of the following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B. 1 .a., if the Disclosing Party is a corporation; all partners of the Disclosing Party, if the Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Party, if the Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes [X] No
If yes, please identify below (1) the name and title of such person, (2) the name of the legal entity to which such person is connected; (3) the name and title of the elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
Page 13 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x]No
If the Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x] No [ ] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (vvwvv.amleaal.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(l) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes
[ ]No
[x] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of 15
BANKOFAMERICA "^Jj^
EXHIBIT E
BOARD OF DIRECTORS and OFFICERS Bank of America Corporation and Bank of America National Association
Brian Moynihan
Chairman of the Board and Chief Executive Officer, Bank of America Corporation
Sharon L. Allen
Former Chairman, Deloitte
Susan S. Bies
Former Member, Federal Reserve Board
Jack O. Bpvender, Jr.
Lead Independent Director, Bank of America Corporation; Former Chairman and Chief Executive Officer, HCA
Frank P. Bramble, Sr
Former Executive Vice Chairman, MBNA Corporation
Pierre J. P. de Week
Former Chairman and Global Head of Private Wealth Management, Deutsche Bank
Arnold W. Donald
President and Chief Executive Officer, Carnival
Linda P. Hudson
Executive Officer, The Cardea Group, LLC; Former President and Chief Executive Officer, BAE
December 5. 2019
BANK OF AM ERICA
Monica C. Lozano
Chief Executive Officer, College Futures Foundation; Former Chairman, US Hispanic Media Inc.
Thomas J. May Chairman, Viacom Inc.; Former Chairman, President and Chief Executive Officer of Eversource Energy
Lionel L. Nowell, III
Former Senior Vice President and Treasurer, PepsiCo, Inc
Denise L. Ramos
Former Chief Executive Officer and President, ITT Inc.
Clayton S. Rose President Bowdoin College
Michael D. White
Former Chairman, President, and Chief Executive Officer of DIRECTV
Thomas D. Woods
Former Vice Chairman and Senior Executive Vice President of CIBC
R. David Yost
Former Chief Executive Officer,
AmerisourceBergen
v
Maria T. Zuber
Vice President for Research and E. A. Griswold Professor of Geophysics, MIT
December 5. 2019
EXHIBIT "E" Bank of America Corporation Organization Chart
BANK OF AMERICA CORPORATION
I 100%
NB HOLDINGS CORPORATION
100%
BAC NORTH AMERICA HOLDING COMPANY
100%
BANK OF AMERICA NATIONAL ASSOCIATION
CITY OF CHICAGO and CHICAGO BOARD OFEDUCATION ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT ADDENDUM A SECTION V-B 1,2,3 AND 4
INTRODUCTION
Bank of America, N.A. ("BANA") is a wholly owned subsidiary of BAC North America Holding Company ("BACNA"). BANA Holding Corporation merged into BACNA effective November 1, 2019. BANA Holding is a direct, wholly owned subsidiary of BAC North America Holding Company ("BACNAH"). BACNAH is a direct, wholly owned subsidiary of NB Holdings Corporation ("NB Holdings). NB Holdings is a direct, wholly owned subsidiary of Bank of America Corporation. Bank of America Corporation (the "Corporation") is a publicly held company whose shares are traded on the New York Stock Exchange and has no parent corporation. Based on the U.S. Securities and Exchange Commission Rules regarding beneficial ownership, Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, Nebraska 68131, beneficially owns greater than 10% of Bank of America Corporation's outstanding common stock.
Bank of America, N.A. ("BANA") is an indirect, wholly-owned subsidiary of Bank of America Corporation (the "Corporation"), which is a large and diversified, publicly-traded institution. The Corporation and its subsidiaries, is a global franchise, serving customers and clients around the world with operations in all 50 U.S. states, the District of Columbia, and more than 40 foreign countries. Accordingly, it is not reasonably possible to perform definitive due diligence, extending back indefinitely in time, across the full panoply of employees, officers and predecessor banks, with respect to all federal, state or local government contracts. The Corporation makes all disclosures required by its regulators, including all required disclosures in its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K (collectively, the "Reports"), all of which are filed with the U.S. Securities and Exchange Commission. These Reports include disclosures of investigations and other matters as required by federal law and are publicly available. These Reports can also be accessed at the following website:
. These Reports may contain further information responsive to this certification.
The bank is a large and diversified institution and is routinely involved in litigation in various state and federal courts. The bank makes all disclosures required by its regulators, including all required disclosures in its Annual Reports of Form 10K and Quarterly Reports on Form 10Q, which are updated in Reports on Form 8K, all of which are filed with the Securities and Exchange Commission. Those reports include disclosures of investigations and other matters as required by federal law and are publicly available. The bank cannot confirm or deny the existence of any other, non-public investigation conducted by any government investigator unless required to do so by law. These Reports can be provided upon request or can be accessed at the following website:
vestor.banko famerica.com/phoenix.zhtm l?c=71595&p=irol-irhome
Subject to and as set forth in the introductory paragraph directly above, to the best knowledge of the individual signatory signing this questionnaire, without independent inquiry, BANA further clarifies its response to this statement, as follows:
B. FURTHER CERTIFICATIONS
The Corporation, for itself and its affiliates and subsidiaries including BANA, makes all disclosures required by its regulators in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K, all of which are filed with the U.S. Securities and Exchange Commission (collectively, the "Reports"). These Reports include all disclosures as required by federal law including those pertaining to material business matters such as litigation, criminal convictions, and other legal actions, and may contain information which is further responsive to items addressed in the FIES FORM and this Addendum. These Reports are publicly available at the following website: . Further, BANA has been the subject of certain formal enforcement actions by the Office ofthe Comptroller ofthe Currency (the "OCC"), and information which can be publicly disclosed regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at: . In addition, BANA's registered brokerdealcr and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are also publicly available. Outside of such Reports and the publicly available filings as noted above, BANA and the Corporation cannot otherwise disclose such information of material non-public nature except where required by applicable law or legal process.
Bank of America, National Association has been the subject of certain formal enforcement actions by the Office of the Comptroller ofthe Currency (the "OCC"). Information regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at:
In addition, Bank of America, National Association's registered broker-dealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are publicly available. Bank of America, National Association cannot confirm or deny the existence of any other non-public investigation conducted by any governmental agency unless required to do so by law.
Bank of America, National Association's indirect parent, Bank of America Corporation, also makes all required disclosures in its Form 10-K as tiled with the Securities and Exchange Commission and its Annual Report as posted on its website at
.
On December 7, 2010, Bank of America entered into agreements wilh the Internal Revenue Service (IRS), the Office of the Comptroller of Currency (OCC), a Working Group of 28 State Attorneys General and the Federal Reserve Board, and was also subject to an administrative cease and desist order from the U.S. Securities and Exchange Commission (SEC). The global resolution with these federal and state entities provided for payment of restitution to the IRS and to municipal derivative counterparties allegedly harmed by Bank of America's alleged anticompetitive conduct (including bid rigging) in connection with the marketing and sale of municipal bond derivatives from 1998 to 2003, as well as requiring the Bank to take certain remedial measures.
Importantly, Bank of America was the first and only entity to self-report evidence ofthe bid-rigging to the Department of Justice ("DOJ"). The Bank's self-report enabled the various government agencies (including numerous state attorneys general described above) to identify and pursue industry-wide misconduct that may have affected municipalities and others on a nationwide scale, as well as pursue numerous potential violators. In January 2007, as a result ofthe Bank's self-reporting and cooperation, DOJ conditionally accepted the Bank into Part A of its Corporate Leniency Program—the highest level of leniency DOJ can provide. Pursuant to Part A ofthe Leniency Program, subject to the Bank's continuing cooperation, DOJ will not bring any criminal antitrust prosecution against the Bank in connection with the matters that the Bank reported to DOJ. DOJ has acknowledged that through the agreements outlined above, Bank of America met its obligation, under the Leniency Program, to pay full restitution to the IRS and municipalities. Bank of America paid restitution to the IRS on December 8, 2010.
The Bank also promptly agreed to cooperate with the State Attorneys General (including the New York Attorney General) in their industry-wide investigation. As noted above, the Bank reached a settlement agreement with numerous State Attorneys General (including the New York Attorney General). In recognition ofthe Bank's self-reporting and substantial cooperation, the Attorneys General added an exhibit (Exhibit 3) to the end of that settlement agreement. This exhibit describes, in detail, the Bank's extensive cooperation with the investigations in this matter. In addition, this exhibit describes the importance of the Bank's cooperation to the Attorneys General investigation. In recognition of the Bank's agreement to make restitution and its truthful cooperation, the exhibit affirmatively states that "no provision contained in the settlement agreement is intended to be construed as a mandate or recommendation to any independent suspension and/or debarment authority regarding a decision to disqualify, suspend or debar Bank of America . . . from engaging in the provision of any financial services including, but not limited to, the marketing sale or placement of municipal bond derivatives or any other state business . . . ."
On or about March 18, 2008, the Office of the Comptroller ofthe Currency entered a Consent Order against Douglas L. Campbell related to improper payments made to brokers on municipal derivative transactions in 2001 and 2002 while Mr. Campbell was a member of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Campbell was prohibited from a number of activities, including participating in any manner in the conduct of the affairs of various depository and other institutions identified in the Order. The Order also imposed a $25,000 civil monetary penalty on Mr.Campbell. On or about September 9, 2010, Mr. Campbell pled guilty to (i) conspiracy to restrain trade in violation of 15 U.S.C. § 1, (ii) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, and (iii) wire fraud in violation of 18 U.S.C. § 1343 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Campbell was sentenced on April 22, 2014. On or about December 7, 2010, the Securities and Exchange Commission entered an Administrative Order against Mr. Campbell, related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. The Order barred Mr. Campbell from association with any broker, dealer, or investment adviser. Mr. Campbell was suspended by Bank of America on or about July 24, 2002 and was terminated by Bank of America on or about August 16, 2002.
On or about March 30, 201 1, Brian Zwerner pled guilty to conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and §1005 in the United States District Court forthe Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Zwerner was sentenced on July 25. 2014.
On or about December 8, 201 I, the Securities and Exchange Commission entered a Cease and Desist Order against Dean Z. Pinard related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. Among other things, the Order barred Mr. Pinard from association with any broker, dealer, investment adviser, municipal securities dealer, or municipal advisor and required him to pay approximately $41,500 in disgorgement and prejudgment interest. In April 2013, Mr. Pinard entered into a Consent Order with the Office of the Comptroller of the Currency pursuant to which the OCC found that, among other things, Mr. Pinard engaged in improper anticompetitive bidding practices while part of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Pinard was prohibited from, among other things, participating in any manner in the conduct ofthe affairs of various depository and other institutions identified in the Order. Mr. Pinard was suspended by Bank of America on or about November 15, 2006 and was terminated by Bank of America on or about April 26, 2007.
On or about February 10, 2014, Phillip D. Murphy pled guilty to (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, (ii) wire fraud in violation of 18 U.S.C. § 1343, and (iii) conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and § 1005 in the United States District Court for the Western District of North Carolina. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Murphy is awaiting sentencing. Mr. Murphy was suspended by Bank of America on or about July 25, 2002, and resigned from Bank of America on or about September 4, 2002.
ASSISTANT SECRETARY^ CERTIFICATE OF '
BANK OF AMERICA, NATIONAL ASSOCIATION
The undersigned, Carlese E. Linker, an Assistant Secretary of Bank of America, National Association (the "Association"), a national banking association organized and existing under the laws of the United States of America and having its principal place of business in the City of Charlotte, County of Mecklenburg, State of North Carolina, does hereby certify that:
1. The following person has been duly elected or appointed to the office in
the Association as indicated; and that such person holds such office at this time.
Name Title
Julie Conenna Vice President
2. - The following is a true and complete copy of an excerpt from the Bylaws
of said Association, and the same is in full force and effect as of the date hereof.
Section 5.2. Execution of Instruments. All indentures, mortgages, deeds, conveyances, contracts, notes, loan documents, letters of credit, master agreements, swap agreements, guarantees, discharges, releases, satisfactions, settlements, affidavits, bonds, undertakings, powers of attorney, and other instruments or contracts may be signed, executed, acknowledged, verified, attested, delivered or accepted on behalf of the Association by the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman of the Board, any Division President, any Managing Director, any Director (as described in Section 4.7 of these Bylaws), any Principal, any Executive Vice President, any Senior Vice President, any Vice President, any Assistant Vice President, any Officer, or any individual who is listed on the Association's personnel records in a position equal to any of the aforementioned officer positions, or such other officers, employees or agents as the Board of Directors, the Chief Executive Officer or any officer reporting directly to the Chief Executive Officer may direct in a written delegation kept in the minute book of the Association. The provisions of this Section 5.2 are supplementary to any other provision of these Bylaws and shall not be construed to authorize execution of instruments otherwise dictated by law.
IN WITNESS WHEREOF, I have hereupon set my hand and affixed the seal of said Association this 7th day of December, 2017.
(SEAL)
¦o- ' —
Carlese E. Linker Assistant Secretary
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTIONS -- GENERAL INFORMATION
A. Legal name ofthe Disclosing Party submitting this EDS. Include d/b/a/ if applicable:
BAC North America Holding Company
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[X] a legal entity currently holding, or anticipated to hold within six months after City action on
the contract, transaction or other undertaking to which this EDS pertains (referred to below as the
"Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name:
OR
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name of the entity in which the Disclosing Party holds a right of control:
B. Business address of the Disclosing Party: 100 North Tryon Street
Charlotte NC 28255
Telephone: (312) 904-8357 Fax: (312) 453-4568 Email: julie.conenna@bofa.com
Name of contact person: juiif. r.nnenna
Federal Employer Identification No. (if you have one):
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
Request for Proposal for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education
G. Which City agency or department is requesting this EDS? Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # and Contract #
Ver.2018-1 PaszeloflS
SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PARTY
[ ] Person
[x] Publicly registered business corporation
[ ] Privately held business corporation
[ ] Sole proprietorship
[ ] General partnership
[ ] Limited partnership
[ ] Trust
[ ] Limited liability company
[ ] Limited liability partnership
[ ] Joint venture
[ ] Not-for-profit corporation
(Is the not-for-profit corporation also a 501(c)(3))?
[ ] Yes [ ] No [ ] Other (please specify)
2. For legal entities, the state (or foreign country) of incorporation or organization, if applicable: Delaware
3. For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [x] No [ ] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management of the Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title See Exhibit "E"
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest ofa member or manager in a
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limited liability company, or interest of a beneficiary of a trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
NB Holdings Corporation 100 N. Tryon St, Charlotte NC 28255 100%
SECTION III - INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ ] Yes [ x] No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date of this EDS? [ JYes [x] No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party? []Yes [x]No
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s). ;
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature of the relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
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Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets ifnecessary)
[x] Check here if the Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V -- CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [ ] No [X] No person directly or indirectly owns 10% or more ofthe Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only ifthe Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date ofthis EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance of any public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment of any tax administered by the Illinois Department of Revenue.
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The Disclosing Party and, if the Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) ofthis EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date of this EDS, been convicted ofa criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any of the offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date ofthis EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility of a business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee of the Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization of a responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
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Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date of this EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity of a Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the City, the State of Illinois, or any agency ofthe federal government or of any state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense of any state or ofthe United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] ofthe Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee ofthe City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Ver.2018-1 Page 6 of 15
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify to any of the above statements in this Part B (further
Certifications), the Disclosing Party must explain below:
See attached Addendum "A" for additional information related to certifications.
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a
complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-
month period preceding the date ofthis EDS, an employee, or elected or appointed official, ofthe City
of Chicago (if none, indicate with "N/A" or "none").
None
13. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date ofthis EDS, to an employee, or elected or appointed official, of the City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value of less than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient.
None
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[x] is [ ] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none of our affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may result in the loss ofthe privilege of doing business with the City."
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Ifthe Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in
MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain
here (attach additional pages if necessary):
Makes the above pledge.
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ ] Yes [x] No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name of any other person or entity in the purchase ofany property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning of this Part D.
Does the Matter involve a City Property Sale?
[ ] Yes [x] No
If you checked "Yes" to Item D(l), provide the names and business addresses ofthe City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
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E.' CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. If the Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
x 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the J
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI -- CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: If the Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets if necessary):
N/A
(If no explanation appears or begins on the lines above, or if the letters "NA" or ifthe word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee ofany agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Vcr.2018-1 Page 9 of 15
ofa member of Congress, in connection with the award of any federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy ofthe statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) of the Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
If the Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration of the Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director of the Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
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SECTION VII - FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part of any contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text ofthis ordinance and a training program is available on line at www.cityofchicago.org/Ethics . and.may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all ofthe information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy of any information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. Ifthe Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
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CERTIFICATION
Under penalty of perjury, the person signing below: 0) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf ofthe Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as ofthe date furnished to the City.
BAC North America Holding Company
(Print or type exact legal name of Disclosing Party)
(Sign here)
Julie Conenna
(Print or type name of person signing)
Authorized Signatory
(Print or type title of person signing)
at TiTQW- County, XlJ tr^-PiS (state).
Commission expires: Q'l I Q\ [loTJZ-
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any of the following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B.l.a., if the Disclosing Party is a corporation; all partners ofthe Disclosing Party, if the Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members ofthe Disclosing Party, ifthe Disclosing Party is a limited liability company; (2) all principal officers ofthe Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes [X] No
If yes, please identify below (1) the name and title of such person, (2) the name of the legal entity to which such person is connected; (3) the name and title ofthe elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x]No
If the Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x] No [ ] The Applicant is not publicly traded on any exchange.
If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.amlegal.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(1) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes
[ ]No
[x] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
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EXHIBIT E
BAC North America Holding Company Directors
Athanasia, Dean C Bessant, Catherine P. Scrivener, Thomas Matthew
Officers fc
Position.
Assistant
General
Counsel
Assistant
General
Counsel
<2>
V
e
V|10 10|Bennett, Jennifer E.
Chang, Gale
Costamagna, Christine M.
Gilliam, Allison L. Johnson, Colleen 0.
Assistant Secretary
Assistant Secretary
Assistant Secretary
Assistant Secretary
Assistant Secretary
^ Perrin, Ellen A.
Scrivener, Thomas Matthew
Chief
Financial
Officer
Bennett, Jennifer E.
Managing Director
v Standing Resolutions, Vice President -/7) Tax
Scrivener, Thomas Matthew
Jeffries, Ross E.
Bodien, Elizabeth C.
Senior Vice President
Senior Vice President
Senior Vice President
Lorenz, William Richard
Senior Vice President
Senior Vice President
Senior Vice President
Templeton, William W.
Senior Vice President
Magasiner, Andrei Grischa
Senior Vice
President,
Tax
v 0
Chairman
ofthe
Board
Chief
Accounting Officer
Bennett, Jennifer E.
Associate
General
Counsel
Associate
General
Counsel
Templeton, William W.
v|10 10 10|Associate
General
Counsel
Deputy General Counsel
Ankrom, Michael
EXHIBIT "E"
Bank of America Corporation Organization Chart
BANK OF AMERICA CORPORATION
100%
NB HOLDINGS CORPORATION
100%
BAC NORTH AMERICA HOLDING COMPANY
100%
BANK OF AMERICA NATIONAL ASSOCIATION
CITY OF CHICAGO and CHICAGO BOARD OF EDUCATION ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT ADDENDUM A SECTION V -li 1, 2, 3 AND 4
INTRODUCTION
Bank of America, N.A. ("BANA") is a wholly owned subsidiary of BAC North America Holding Company ("BACNA"). BANA Holding Corporation merged into BACNA effective November 1, 2019. BANA Holding is a direct, wholly owned subsidiary of BAC North America Holding Company ("BACNAH"). BACNAH is a direct, wholly owned subsidiary of NB Holdings Corporation ("NB Holdings). NB Holdings is a direct, wholly owned subsidiary of Bank of America Corporation. Bank of America Corporation (the "Corporation") is a publicly held company whose shares are traded on the New York Stock Exchange and has no parent corporation. Based on the U.S. Securities and Exchange Commission Rules regarding beneficial ownership, Berkshire I lathaway Inc., 3555 Farnam Street, Omaha, Nebraska 68131, beneficially owns greater than 10% of Bank of America Corporation's outstanding common stock.
Bank of America, N.A. ("BANA") is an indirect, wholly-owned subsidiary of Bank of America Corporation (the "Corporation"), which is a large and diversified, publicly-traded institution. The Corporation and its subsidiaries, is a global franchise, serving customers and clients around the world with operations in all 50 U.S. states, the District of Columbia, and more than 40 foreign countries. Accordingly, it is not reasonably possible to perform definitive due diligence, extending back indefinitely in time, across the full panoply of employees, officers and predecessor banks, with respect to all federal, state or local government contracts. The Corporation makes all disclosures required by its regulators, including all required disclosures in its Annual Report on Form 10-K and Quarterly Reports on Fonn 10-Q, which are updated in Reports on Form 8-K (collectively, the "Reports"), all of which are filed with the U.S. Securities and Exchange Commission. These Reports include disclosures of investigations and other matters as required by federal law and are publicly available. These Reports can also be accessed at the following website:
. These Reports may contain further information responsive to this certification.
The bank is a large and diversified institution and is routinely involved in litigation in various state and federal courts. The bank makes all disclosures required by its regulators, including all required disclosures in its Annual Reports of Form 10K and Quarterly Reports on Form 10Q, which are updated in Reports on Form 8K, all of which are filed with the Securities and Exchange Commission. Those reports include disclosures of investigations and other matters as required by federal law and are publicly available. The bank cannot confirm or deny the existence of any other, non-public investigation conducted by any government investigator unless required to do so by law. These Reports can be provided upon request or can be accessed at the following website:
vestor.bankofamerica.com/phoenix.zhtm l?c=71595&p=irol-irhome
Subject to and as set forth in the introductory paragraph directly above, to the best knowledge ofthe individual signatory signing this questionnaire, without independent inquiry. BANA further clarifies its response lo this statement, as follows:
B. FURTHER CERTIFICATIONS
The Corporation, for itself and its affiliates and subsidiaries including BANA, makes all disclosures required by its regulators in its Annual Reports on Form 10-K and Quarterly Reports on Fonn 10-Q, which are updated in Reports on Form 8-K, all of which are filed with the U.S. Securities and Exchange Commission (collectively, the "Reports"). These Reports include all disclosures as required by federal law including those pertaining to material business matters such as litigation, criminal convictions, and other legal actions, and may contain information which is further responsive to items addressed in the FIES FORM and this Addendum. These Reports are publicly available at the following website: . Further, BANA has been the subject of certain formal enforcement actions by the Office ofthe Comptroller ofthe Currency (the "OCC"), and information which can be publicly disclosed regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at: . In addition, BANA's registered brokerdealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are also publicly available. Outside of such Reports and the publicly available filings as noted above, BANA and the Corporation cannot otherwise disclose such information of material non-public nature except where required by applicable law or legal process.
Bank of America, National Association has been the subject of certain formal enforcement actions by the Office of the Comptroller of the Currency (the "OCC"). Information regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at:
In addition, Bank of America, National Association's registered broker-dealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are publicly available. Bank of America, National Association cannot confirm or deny the existence ofany other non-public investigation conducted by any governmental agency unless required to do so by law.
Bank of America, National Association's indirect parent, Bank of America Corporation, also makes all required disclosures in its Form 10-K as filed with the Securities and Exchange Commission and its Annual Report as posted on its website at
famerica.com/phoenix.zhtm l?c=71595&p=irol-reportsannual.
On December 7, 2010, Bank of America entered into agreements with the Internal Revenue Service (IRS), the Office ofthe Comptroller of Currency (OCC), a Working Group of 28 State Attorneys General and the Federal Reserve Board, and was also subject to an administrative cease and desist order from the U.S. Securities and Exchange Commission (SEC). The global resolution with these federal and state entities provided for payment of restitution to the IRS and to municipal derivative counterparties allegedly harmed by Bank of America's alleged anticompetitive conduct (including bid rigging) in connection with the marketing and sale of municipal bond derivatives from 1998 to 2003, as well as requiring the Bank to take certain remedial measures.
Importantly, Bank of America was the first and only entity to self-report evidence ofthe bid-rigging to the Department of Justice ("DOJ"). The Bank's self-report enabled the various government agencies (including numerous state attorneys general described above) to identify and pursue industry-wide misconduct that may have affected municipalities and others on a nationwide scale, as well as pursue numerous potential violators. In January 2007, as a result ofthe Bank's self-reporting and cooperation, DOJ conditionally accepted the Bank into Part A of its Corporate Leniency Program—the highest level of leniency DOJ can provide. Pursuant to Part A ofthe Leniency Program, subject to the Bank's continuing cooperation, DOJ will not bring any criminal antitrust prosecution against the Bank in connection with the matters that the Bank reported to DOJ. DOJ has acknowledged that through the agreements outlined above, Bank of America met its obligation, under the Leniency Program, to pay full restitution to the IRS and municipalities. Bank of America paid restitution to the IRS on December 8, 2010.
The Bank also promptly agreed to cooperate with the State Attorneys General (including the New York Attorney General) in their industry-wide investigation. As noted above, the Bank reached a settlement agreement with numerous State Attorneys General (including the New York Attorney General). In recognition of the Bank's self-reporting and substantial cooperation, the Attorneys General added an exhibit (Exhibit 3) to the end of that settlement agreement. This exhibit describes, in detail, the Bank's extensive cooperation with the investigations in this matter. In addition, this exhibit describes the importance of the Bank's cooperation to the Attorneys General investigation. In recognition of the Bank's agreement to make restitution and its truthful cooperation, the exhibit affirmatively states that "no provision contained in the settlement agreement is intended to be construed as a mandate or recommendation to any independent suspension and/or debarment authority regarding a decision to disqualify, suspend or debar Bank of America . . . from engaging in the provision of any financial services including, but not limited to, the marketing sale or placement of municipal bond derivatives or any other state business . ..."
On or about March 18, 2008, the Office of the Comptroller of the Currency entered a Consent Order against Douglas L. Campbell related to improper payments made to brokers on municipal derivative transactions in 2001 and 2002 while Mr. Campbell was a member of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Campbell was prohibited from a number of activities, including participating in any manner in the conduct of the affairs of various depository and other institutions identified in the Order. The Order also imposed a $25,000 civil monetary penalty on Mr.Campbell. On or about September 9, 2010, Mr. Campbell pled guilty to (i) conspiracy to restrain trade in violation of 15 U.S.C. § 1, (ii) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, and (iii) wire fraud in violation of 18 U.S.C. § 1343 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Campbell was sentenced on April 22, 2014. On or about December 7, 2010, the Securities and Exchange Commission entered an Administrative Order against Mr. Campbell, related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. The Order barred Mr. Campbell from association with any broker, dealer, or investment adviser. Mr. Campbell was suspended by Bank of America on or about July 24, 2002 and was terminated by Bank of America on or about August 16, 2002.
On or about March 30, 201 I. Brian Zwerner pled guilty to conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and §1005 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Zwerner was sentenced on July 25. 2014.
On or about December 8, 2011, the Securities and Exchange Commission entered a Cease and Desist Order against Dean Z. Pinard related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. Among other things, the Order barred Mr. Pinard from association with any broker, dealer, investment adviser, municipal securities dealer, or municipal advisor and required him to pay approximately $41,500 in disgorgement and prejudgment interest. In April 2013, Mr. Pinard entered into a Consent Order with the Office ofthe Comptroller of the Currency pursuant to which the OCC found that, among other things, Mr. Pinard engaged in improper anticompetitive bidding practices while part of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Pinard was prohibited from, among other things, participating in any manner in the conduct ofthe affairs of various depository and other institutions identified in the Order. Mr. Pinard was suspended by Bank of America on or about November 15, 2006 and was terminated by Bank of America on or about April 26, 2007.
On or about February 10, 2014, Phillip D. Murphy pled guilty to (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, (ii) wire fraud in violation of 18 U.S.C. § 1343, and (iii) conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and § 1005 in the United States District Court for the Western District of North Carolina. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Murphy is awaiting sentencing. Mr. Murphy was suspended by Bank of America on or about July 25, 2002, and resigned from Bank of America on or about September 4, 2002.
BAC NORTH AMERICA HOLDING COMPANY
LIMITED POWER OF ATTORNEY
BAC NORTH AMERICA HOLDING COMPANY, a Delaware corporation (the "Corporation"), does hereby make, constitute, and appoint Julie Conenna as Attorney-in-Fact for the Corporation acting for the Corporation and in the Corporation's name, place and stead, for the limited purpose of authorizing, preparing, revising or signing a City of Chicago's Economic Disclosure Statement form ("the Form") related to Bank of America, N.A.("BANA's") participation in the City of Chicago's qualified firms for Municipal Depositories in connection with the Request for Proposal for Payment of Interest on the Monies ofthe City of Chicago and the Chicago Board of Education.
Any execution by the Anorney-in-Fact ofthe Form shall fully bind and commit the Corporation and the City of Chicago may rely upon the execution thereof by the Attorney-in-Fact as if executed by the Corporation and as the true and lawful act of the Corporation.
This Limited Power of Attorney shall automatically terminate as to the authority of the named Attorney-in-Fact upon such Attorney-in-Fact's resignation or termination from BANA or her realignment to a role outside of the Public Sector division of BANA; however; such termination or realignment shall have no impact on the Form executed by the above named attorney-in-fact for the Corporation prior to such termination or realignment.
IN WITNESS WHEREOF, this Power of Attorney has-been executed and delivered by the Corporation to each Attorney-in-Fact on this )K day of November, 2019.
BAC NORTH AMERICA HOLDING COMPANY
Ellen A. Perrin Associate General Counsel, Senior Vice President and Assistant Secretary
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal name of the Disclosing Party submitting this EDS. Include d/b/a/ if applicable:
NB Holdings Corporation
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[x] a legal entity currently holding, or anticipated to hold within six months after City action on
the contract, transaction or other undertaking to which this EDS pertains (referred to below as the
"Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name:
OR
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name of the entity in which the Disclosing Party holds a right of control:
B. Business address of the Disclosing Party: 100 North Tryon Street
Charlotte NC 28255
Telephone: (312) 904-8357 Fax: (312) 453-4568 Email: julie.conenna@bofa.com
Name of contact person: ,iuiip Cnnenna
Federal Employer Identification No. (if you have one):
Brief description ofthe Matter to which this EDS pertains. (Include project number and location of property, if applicable):
Request for Proposal for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education
G. Which City agency or department is requesting this EDS? Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # Ver~2018-1
and Contract #
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SECTION II - DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF THE DISCLOSING PARTY
1. Indicate the nature of the Disclosing Party:
[ ] Person [ ] Limited liability company
[X] Publicly registered business corporation [ ] Limited liability partnership
[ ] Privately held business corporation [ ] Joint venture
[ J Sole proprietorship [ ] Not-for-profit corporation
[ ] General partnership (Is the not-for-profit corporation also a 501(c)(3))?
[ ] Limited partnership [ ] Yes [ ] No
[ ] Trust [ ] Other (please specify)
For legal entities, the state (or foreign country) of incorporation or organization, if applicable:
Delaware
For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [x]No [ ] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of the entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management ofthe Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title
See Exhibit "E"
2. Please provide the following information concerning each person or legal entity having a direct or indirect, current or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest ofa member or manager in a
Page 2 of 15
limiled liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
Bank of America Corporation 100 N. Tryon St, Charlotte NC 28255 100%
SECTION III - INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ ] Yes [XJ No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date ofthis EDS? [ J Yes [xj No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party? [JYes [xJNo.
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION IV ~ DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount of the fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. If the Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
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Name (indicate whether Business Relationship to Disclosing Party Fees ("indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets if necessary)
[X] Check here if the Disclosing Party has not retained, nor expects to retain, any such persons or entities.
i
SECTION V - CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more of the Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [ ] No [x] No person directly or indirectly owns 10% or more ofthe Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph I applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance ofany public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment ofany fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but not limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment of any tax administered by the Illinois Department of Revenue.
Page 4 of 15
3. The Disclosing Party and, ifthe Disclosing Party is a legal entity, all of those persons or entities
identified in Section 11(B)(1) of this EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date of this EDS, been convicted of a criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting to obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any of the offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date of this EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date of this EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General) and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization ofa business entity following the ineligibility of a business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee ofthe Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization of a responsible official of the Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
Ver.2018-1 Page 5 of 15
Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date of this EDS, or, with respect to a Contractor, an Affiliated Entity, or an Affiliated Entity of a Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the City, the State of Illinois, or any agency ofthe federal government or ofany state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense ofany state or ofthe United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United States Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] of the Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee of the City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Ver.2018-1 Page 6 of 15
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. Ifthe Disclosing Party is unable to certify to any of the above statements in this Part B (Further
Certifications), the Disclosing Party must explain below:
See attached Addendum "A" for additional information related to certifications.
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees ofthe Disclosing Party who were, at any time during the 12-month period preceding the date of this EDS, an employee, or elected or appointed official, ofthe City of Chicago (if none, indicate with "N/A" or "none").
None
13. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date ofthis EDS, to an employee, or elected or appointed official, of the City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient. None
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
[x] is [ ] is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Party pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none of our affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may result in the loss of the privilege of doing business with the City."
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Jf the Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in
MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain
here (attach additional pages if necessary):
Makes the above pledge.
Ifthe letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee of the City have a financial interest in his or her own name /or in the name ofany other person or entity in the Matter?
[]Yes [x]No
NOTE: If you checked "Yes" to Item D( 1), proceed to Items D(2) and D(3). If you checked "No" to Item D( 1), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name of any other person or entity in the purchase of any property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit of the City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning of this Part D.
Does the Matter involve a City Property Sale?
[ ] Yes [x] No
If you checked "Yes" to Item D(l), provide the names and business addresses of the City officials or employees having such financial interest and identify the nature ofthe financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
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E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. If the Disclosing Party checks (2), the Disclosing Party must disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
X 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of the Disclosing Party and any and all predecessor entities regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued to slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI - CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: Ifthe Matter is federally funded, complete this Section VI. If the Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf ofthe Disclosing Party with respect to the Matter: (Add sheets if necessary):
N/A
(If no explanation appears or begins on the lines above, or if the letters "NA" or if the word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities -registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any person or entity to influence or attempt to influence an officer or employee ofany agency, as defined by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
of a member of Congress, in connection with the award ofany federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
If the Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration ofthe Matter and must make such certifications promptly available to the City upon request.
B. CERTIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
Ifthe Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ ] Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director of the Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
Page 10 of 15
- FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part of any contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution of any contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text of this ordinance and a training program is available on line at www.cityofchicago.org/Ethics , and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all of the information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy of any infonnation submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. Ifthe Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page 11 of 15
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the date furnished to the City.
NB Holdings Corporation
(Print or type exacjuleeal name of Disclosing Party)
Julie Conenna
(Print or type name of person signing)
Authorized Signatory
(Print or type title of person signing)
JAMIE3IIA ¦'¦ VINDOM
Notai y Public - btoto of iihnoio My Commaaion ^xpiraa Merc*i 06. 't< -
Page 12 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any ofthe following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B.l.a., ifthe Disclosing Party is a corporation; all partners ofthe Disclosing Party, if the Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Party, if the Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary of a legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes [X] No
If yes, please identify below (1) the name and title of such person, (2) the name ofthe legal entity to which such person is connected; (3) the name and title ofthe elected city, official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
Page 13 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW/PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ]Yes [x] No
If the Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [X] No [ ] The Applicant is not publicly traded on any exchange.
3. If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.amleual.com ). generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(1) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ]Yes
[ ]No
[x] N/A -1 am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of 15
Exhibit E
NB Holdings Corporation
Donofrio, Paul M.
v <3 Magasiner. Andrei GrischaDircctor
v 0 Smith. Andrea B.
Officers fc
Name
Bodien. Elizabeth C.
Perrin. Ellen A.
Bennett. Jennifer E.
Assistant Secretary
Costamagna. Christine M.
Gilliam, Allison L.
Perrin. Ellen A.
0 v|10 10|Magasiner. Andrei Grischa
James. John M.
0_
|10 10|Bennett. Jennifer E.
Jeffries. Ross E.
0_
v|10 9| _
^ Standing Resolutions. Vice President ¦ 0 IS*
Assistant Secretary
Assistant Secretary
Chief
Executive
Officer
Chief
Financial
Officer
Managing Director
Managing Director
Officer
Magasiner, Andrei Grischa|10 10 9|"_ "¦|10 10|Jeffries. Ross E.|10 10|Bodien, Elizabeth C.|10 10|Chang. Gale|10 10|
Fox. William J.|10 10|Lilly. Shannon|10 10|Lorcn?, William Richard
v|10 10|Louis, Walter R.|10 10|
Olson. Mary Ann|10 10|Perrin. Ellen A.
Sak, Pamela
Templeton. William W.
Watts, David
Wertz. Phillip A.
President
Secretary
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Senior Vice
President
Senior Vice
President
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Senior
Vice
President
Magasiner. Andrei Grischa
McNairv. William L.
Magasiner. Andrei Grischa
e 0
v|10 10|v|10 10|v|10 10 10 10|Chief
Accounting
Officer
Associate
General
Counsel
Associate
General
Counsel
Associate
General
Counsel
Associate
General
Counsel
Associate
General
Counsel
Deputy General Counsel
Ankrom, Michael
EXHIBIT "E" Bank of America Corporation Organization Chart
BANK OF AMERICA CORPORATION
I 100%
NB HOLDINGS CORPORATION
100%
BAC NORTH AMERICA HOLDING COMPANY
100%
BANK OF AMERICA NATIONAL ASSOCIATION
CITY OF CHICAGO and CHICAGO BOARD OF EDUCATION ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT ADDENDUM A SECTION V -B 1, 2, 3 AND 4
INTRODUCTION
Bank of America, N.A. ("BANA") is a wholly owned subsidiary of BAC North America I lolding Company ("BACNA"). BANA Holding Corporation merged into BACNA effective November L 2019. BANA Holding is a direct, wholly owned subsidiary of BAC North America Holding Company ("BACNAH"). BACNAH is a direct, wholly owned subsidiary of NB Holdings Corporation ("NB Holdings). NB Holdings is a direct, wholly owned subsidiary of Bank of America Corporation. Bank of America Corporation (the "Corporation") is a publicly held company whose shares are traded on the New York Stock Exchange and has no parent corporation. Based on the U.S. Securities and Exchange Commission Rules regarding beneficial ownership, Berkshire Hathaway Inc 3555 Farnam Street, Omaha, Nebraska 68131, beneficially owns greater than 10% of Bank of America Corporation's outstanding common stock.
Bank of America, N.A. ("BANA") is an indirect, wholly-owned subsidiary of Bank of America Corporation (the "Corporation"), which is a large and diversified, publicly-traded institution. The Corporation and its subsidiaries, is a global franchise, serving customers and clients around the world with operations in all 50 U.S. states, the District of Columbia, and more than 40 foreign countries. Accordingly, it is not reasonably possible to perform definitive due diligence, extending back indefinitely in time, across the full panoply of employees, officers and predecessor banks, with respect to all federal, state or local government contracts. The Corporation makes all disclosures required by its regulators, including all required disclosures in its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K (collectively, the "Reports"), all of which are filed with the U.S. Securities and Exchange Commission. These Reports include disclosures of investigations and other matters as required by federal law and are publicly available. These Reports can also be accessed at the following website:
. These Reports may contain further information responsive to this certification.
The bank is a large and diversified institution and is routinely involved in litigation in various state and federal courts. The bank makes all disclosures required by its regulators, including all required disclosures in its Annual Reports of Form 10K and Quarterly Reports on Form 10Q, which are updated in Reports on Form 8K, all of which are filed with the Securities and Exchange Commission. Those reports include disclosures of investigations and other matters as required by federal law and are publicly available. The bank cannot confirm or deny the existence of any other, non-public investigation conducted by any government investigator unless required to do so by law. These Reports can be provided upon request or can be accessed at the following website:
Subject to and as set forth in the introductory paragraph directly above, to the best knowledge ofthe individual signatory signing this questionnaire, without independent inquiry. BANA further clarifies its response to this statement, as follows:
B. FURTHER CERTIFICATIONS
The Corporation, for itself and its affiliates and subsidiaries including BANA, makes all disclosures required by its regulators in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K, all of which are filed with the U.S. Securities and Exchange Commission (collectively, the "Reports"). These Reports include all disclosures as required by federal law including those pertaining to material business matters such as litigation, criminal convictions, and other legal actions, and may contain information which is further responsive to items addressed in the FIES FORM and this Addendum. These Reports are publicly available at the following website: hltp://investor.bankofamerica.com/phoenix.zhtml?c=7l595&p=irol-sec. Further, BANA has been the subject of certain formal enforcement actions by the Office ofthe Comptroller ofthe Currency (the "OCC"), and information which can be publicly disclosed regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at: . In addition, BANA's registered brokerdcaler and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are also publicly available. Outside of such Reports and the publicly available filings as noted above, BANA and the Corporation cannot otherwise disclose such information of material non-public nature except where required by applicable law or legal process.
Bank of America, National Association has been the subject of certain formal enforcement actions by the Office of the Comptroller of the Currency (the "OCC"). Information regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at:
In addition, Bank of America, National Association's registered broker-dealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are publicly available. Bank of America, National Association cannot confirm or deny the existence of any other non-public investigation conducted by any governmental agency unless required to do so by law.
Bank of America, National Association's indirect parent, Bank of America Corporation, also makes all required disclosures in its Form 10-K as filed with the Securities and Exchange Commission and its Annual Report as posted on its website at
.
On December 7, 2010, Bank of America entered into agreements with the Internal Revenue Service (IRS), the Office of the Comptroller of Currency (OCC), a Working Group of 28 State Attorneys General and the Federal Reserve Board, and was also subject to an administrative cease and desist order from the U.S. Securities and Exchange Commission (SEC). The global resolution with these federal and state entities provided for payment of restitution to the IRS and to municipal derivative counterparties allegedly harmed by Bank of America's alleged anticompetitive conduct (including bid rigging) in connection with the marketing and sale of municipal bond derivatives from 1998 to 2003. as well as requiring the Bank to take certain remedial measures.
Importantly, Bank of America was the first and only entity to scif-report evidence ofthe bid-rigging to the Department of Justice ("DOJ")- The Bank's self-report enabled the various government agencies (including numerous state attorneys general described above) to identify and pursue industry-wide misconduct that may have affected municipalities and others on a nationwide scale, as well as pursue numerous potential violators. In January 2007, as a result ofthe Bank's self-reporting and cooperation, DOJ conditionally accepted the Bank into Part A of its Corporate Leniency Program—the highest level of leniency DOJ can provide. Pursuant to Part A of the Leniency Program, subject to the Bank's continuing cooperation, DOJ will not bring any criminal antitrust prosecution against the Bank in connection with the matters that the Bank reported to DOJ. DOJ has acknowledged that through the agreements outlined above, Bank of America met its obligation, under the Leniency Program, to pay full restitution to the IRS and municipalities. Bank of America paid restitution to the IRS on December 8. 2010.
The Bank also promptly agreed to cooperate with the State Attorneys General (including the New York Attorney General) in their industry-wide investigation. As noted above, the Bank reached a settlement agreement with numerous State Attorneys General (including the New York Attorney General). In recognition of the Bank's self-reporting and substantial cooperation, the Attorneys General added an exhibit (Exhibit 3) to the end of that settlement agreement. This exhibit describes, in detail, the Bank's extensive cooperation with the investigations in this matter. In addition, this exhibit describes the importance ofthe Bank's cooperation to the Attorneys General investigation. In recognition ofthe Bank's agreement to make restitution and its truthful cooperation, the exhibit affirmatively states that "no provision contained in the settlement agreement is intended to be construed as a mandate or recommendation to any independent suspension and/or debarment authority regarding a decision to disqualify, suspend or debar Bank of America ... from engaging in the provision ofany financial services including, but not limited to, the marketing sale or placement of municipal bond derivatives or any other state business . . . ."
On or about March 18, 2008, the Office of the Comptroller of the Currency entered a Consent Order against Douglas L. Campbell related to improper payments made to brokers on municipal derivative transactions in 2001 and 2002 while Mr. Campbell was a member of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Campbell was prohibited from a number of activities, including participating in any manner in the conduct of the affairs of various depository and other institutions identified in the Order. The Order also imposed a $25,000 civil monetary penalty on Mr.Campbell. On or about September 9, 2010, Mr. Campbell pled guilty to (i) conspiracy to restrain trade in violation of 15 U.S.C. § 1, (ii) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and § 1343, and (iii) wire fraud in violation of 18 U.S.C. § 1343 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Campbell was sentenced on April 22, 2014. On or about December 7, 2010, the Securities and Exchange Commission entered an Administrative Order against Mr. Campbell, related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. The Order barred Mr. Campbell from association with any broker, dealer, or investment adviser. Mr. Campbell was suspended by Bank of America on or about July 24, 2002 and was terminated by Bank of America on or about August 16, 2002.
On or about March 30, 2011, Brian Zwerner pled guilty to conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and §1005 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Zwerner was sentenced on July 25. 2014.
On or about December 8, 201 1, the Securities and Exchange Commission entered a Cease and Desist Order against Dean Z. Pinard related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. Among other things, the Order barred Mr. Pinard from association with any broker, dealer, investment adviser, municipal securities dealer, or municipal advisor and required him to pay approximately $41,500 in disgorgement and prejudgment interest. In April 2013, Mr. Pinard entered into a Consent Order with the Office ofthe Comptroller of the Currency pursuant to which the OCC found that, among other things, Mr. Pinard engaged in improper anticompetitive bidding practices while part of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Pinard was prohibited from, among other things, participating in any manner in the conduct ofthe affairs of various depository and other institutions identified in the Order. Mr. Pinard was suspended by Bank of America on or about November 15, 2006 and was terminated by Bank of America on or about April 26, 2007.
On or about February 10, 2014, Phillip D. Murphy pled guilty to (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, (ii) wire fraud in violation of 18 U.S.C. § 1343, and (iii) conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and § 1005 in the United States District Court for the Western District of North Carolina. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Murphy is awaiting sentencing. Mr. Murphy was suspended by Bank of America on or about July 25, 2002, and resigned from Bank of America on or about September 4, 2002.
NB HOLDINGS CORPORATION
LIMITED POWER OF ATTORNEY
NB HOLDINGS CORPORATION, a Delaware corporation (the "Corporation"), does hereby make, constitute, and appoint Julie Conenna as Attorney-in-Fact for the Corporation acting for the Corporation and in the Corporation's name, place and stead, for the limited purpose of authorizing, preparing, revising or signing City of Chicago's Economic Disclosure Statement form (the "Form") related to Bank of America, N.A. ("BANA's") participation in the City of Chicago's qualified firms for Banking Services in connection with tlie Request for Proposal for Payment of Interest on the Monies of the City of Chicago and the Chicago Board of Education.
Any execution by the Attorney-in-Fact of the Form shall fully bind and commit the Corporation and the City of Chicago may rely upon the execution thereof by the Attorney-in-Fact as if executed by the Corporation and as the true and lawful act of the Corporation.
This Limited Power of Attorney shall automatically terminate as to the authority of the named Attorney-in-Fact upon such Attorney-in-Fact's resignation or termination from BANA or her realignment to a role outside of the Public Sector division of BANA however; such termination or realignment shall have no impact on the Form executed by the above named attorney-in-fact for the Corporation prior to such termination or realignment.
IN WITNESS WHEREOF, this Power of Attorney has ljcen executed and delivered by the Corporation to each Attorney-in-Fact on this / ft day of November,
2019.
NB HOLDINGS CORPORATION
Ellen A. Perrin
Associate General Counsel, Senior Vice President and Assistant Secretary
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
SECTION I - GENERAL INFORMATION
A. Legal name ofthe Disclosing Party submitting this EDS. Include d/b/a/ if applicable:
Bank of America Corporation
Check ONE of the following three boxes:
Indicate whether the Disclosing Party submitting this EDS is:
[ ] the Applicant
OR
[x] a legal entity currently holding, or anticipated to hold within six months after City action on
the contract, transaction or other undertaking to which this EDS pertains (referred to below as the
"Matter"), a direct or indirect interest in excess of 7.5% in the Applicant. State the Applicant's legal
name:
OR
[ ] a legal entity with a direct or indirect right of control of the Applicant (see Section 11(B)(1)) State the legal name of the entity in which the Disclosing Party holds a right of control:
B. Business address of the Disclosing Party: 100 North Tryon Street
Charlotte NC 28255
Telephone: (312) 904-8357 Fax: (312) 453-4568 Email: julie.conenna@bofa.com
Name of contact person: Julie Conenna
Federal Employer Identification No. (if you have one):
Brief description of the Matter to which this EDS pertains. (Include project number and location of property, if applicable):
Request for Proposal for Payment of Interest on the Monies ofthe City of Chicago and the Chicago Board of Education
Which City agency or department is requesting this EDS? Department of Finance
Ifthe Matter is a contract being handled by the City's Department of Procurement Services, please complete the following:
Specification # and Contract #
Ver.2018-1 Page lot 15
SECTION n -
- DISCLOSURE OF OWNERSHIP INTERESTS
A. NATURE OF I HE DISCLOSING PARTY
1. Indicate the nature of the Disclosing ?i \ ] Person
X] Publicly registered business coiporation " ] Privately held business corporation
] Sole proprietorship \ ] General partnership ' ] Limited partnership \ ] Trust
[ ] Limited liability company
[ ] Limited liability partnership
[ ] Joint venture
[ ] Not-for-profit coiporation
(Is the not-for-profit corporation also a 501(c)(3))?
[ ] Yes [ ] No [ ] Other (please specify)
2. For legal entities, the state (or foreign country) of incorporation or organization, if applicable: Delaware
3. For legal entities not organized in the State of Illinois: Has the organization registered to do business in the State of Illinois as a foreign entity?
[ ] Yes [x] No [ ] Organized in Illinois
B. IF THE DISCLOSING PARTY IS A LEGAL ENTITY:
1. List below the full names and titles, if applicable, of: (i) all executive officers and all directors of tlie entity; (ii) for not-for-profit corporations, all members, if any, which are legal entities (if there are no such members, write "no members which are legal entities"); (iii) for trusts, estates or other similar entities, the trustee, executor, administrator, or similarly situated party; (iv) for general or limited partnerships, limited liability companies, limited liability partnerships or joint ventures, each general partner, managing member, manager or any other person or legal entity that directly or indirectly controls the day-to-day management ofthe Applicant.
NOTE: Each legal entity listed below must submit an EDS on its own behalf.
Name Title
See Exhibit "E"
2. Please provide the following information concerning each person or legal entity having a direct or indirect, cun-ent or prospective (i.e. within 6 months after City action) beneficial interest (including ownership) in excess of 7.5% ofthe Applicant. Examples of such an interest include shares in a corporation, partnership interest in a partnership or joint venture, interest ofa member or manager in a
Page 2 of 15
limited liability company, or interest ofa beneficiary ofa trust, estate or other similar entity. If none, state "None."
NOTE: Each legal entity listed below may be required to submit an EDS on its own behalf.
Name Business Address Percentage Interest in the Applicant
Please refer to Form 10-K
SECTION III - INCOME OR COMPENSATION TO, OR OWNERSHIP BY, CITY ELECTED OFFICIALS
Has the Disclosing Party provided any income or compensation to any City elected official during the
12-month period preceding the date of this EDS? [ ] Yes [x]No
Does the Disclosing Party reasonably expect to provide any income or compensation to any City
elected official during the 12-month period following the date ofthis EDS? [ ] Yes [x] No
If "yes" to either ofthe above, please identify below the name(s) of such City elected official(s) and describe such income or compensation:
Does any City elected official or, to the best of the Disclosing Party's knowledge after reasonable
inquiry, any City elected official's spouse or domestic partner, have a financial interest (as defined in
Chapter 2-156 ofthe Municipal Code of Chicago ("MCC")) in the Disclosing Party?
[ ] Yes [x] No -
If "yes," please identify below the name(s) of such City elected official(s) and/or spouse(s)/domestic partner(s) and describe the financial interest(s).
SECTION IV - DISCLOSURE OF SUBCONTRACTORS AND OTHER RETAINED PARTIES
The Disclosing Party must disclose the name and business address of each subcontractor, attorney, lobbyist (as defined in MCC Chapter 2-156), accountant, consultant and any other person or entity whom the Disclosing Party has retained or expects to retain in connection with the Matter, as well as the nature ofthe relationship, and the total amount ofthe fees paid or estimated to be paid. The Disclosing Party is not required to disclose employees who are paid solely through the Disclosing Party's regular payroll. Ifthe Disclosing Party is uncertain whether a disclosure is required under this Section, the Disclosing Party must either ask the City whether disclosure is required or make the disclosure.
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Name (indicate whether Business Relationship to Disclosing Party Fees (indicate whether
retained or anticipated Address (subcontractor, attorney, paid or estimated.) NOTE:
to be retained) lobbyist, etc.) "hourly rate" or "t.b.d." is
not an acceptable response.
(Add sheets ifnecessary)
[x] Check here if the Disclosing Party has not retained, nor expects to retain, any such persons or entities. SECTION V - CERTIFICATIONS
COURT-ORDERED CHILD SUPPORT COMPLIANCE
Under MCC Section 2-92-415, substantial owners of business entities that contract with the City must remain in compliance with their child support obligations throughout the contract's term.
Has any person who directly or indirectly owns 10% or more ofthe Disclosing Party been declared in arrearage on any child support obligations by any Illinois court of competent jurisdiction?
[ ] Yes [x] No [ ] No person directly or indirectly owns 10% or more of the Disclosing Party.
If "Yes," has the person entered into a court-approved agreement for payment of all support owed and is the person in compliance with that agreement?
[ ] Yes [ ] No
FURTHER CERTIFICATIONS
[This paragraph 1 applies only if the Matter is a contract being handled by the City's Department of Procurement Services.] In the 5-year period preceding the date of this EDS, neither the Disclosing Party nor any Affiliated Entity [see definition in (5) below] has engaged, in connection with the performance of any public contract, the services of an integrity monitor, independent private sector inspector general, or integrity compliance consultant (i.e., an individual or entity with legal, auditing, investigative, or other similar skills, designated by a public agency to help the agency monitor the activity of specified agency vendors as well as help the vendors reform their business practices so they can be considered for agency contracts in the future, or continue with a contract in progress).
The Disclosing Party and its Affiliated Entities are not delinquent in the payment of any fine, fee, tax or other source of indebtedness owed to the City of Chicago, including, but nol limited to, water and sewer charges, license fees, parking tickets, property taxes and sales taxes, nor is the Disclosing Party delinquent in the payment of any tax administered by the Illinois Department of Revenue. -
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The Disclosing Party and, if the Disclosing Party is a legal entity, all of those persons or entities identified in Section 11(B)(1) of this EDS:
are not presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any transactions by any federal, state or local unit of government;
have not, during the 5 years before the date ofthis EDS, been convicted ofa criminal offense, adjudged guilty, or had a civil judgment rendered against them in connection with: obtaining, attempting lo obtain, or performing a public (federal, state or local) transaction or contract under a public transaction; a violation of federal or state antitrust statutes; fraud; embezzlement; theft; forgery; bribery; falsification or destruction of records; making false statements; or receiving stolen property;
are not presently indicted for, or criminally or civilly charged by, a governmental entity (federal, state or local) with committing any of the offenses set forth in subparagraph (b) above;
have not, during the 5 years before the date ofthis EDS, had one or more public transactions (federal, state or local) terminated for cause or default; and
have not, during the 5 years before the date ofthis EDS, been convicted, adjudged guilty, or found liable in a civil proceeding, or in any criminal or civil action, including actions concerning environmental violations, instituted by the City or by the federal government, any state, or any other unit of local government.
The Disclosing Party understands and shall comply with the applicable requirements of MCC Chapters 2-56 (Inspector General).and 2-156 (Governmental Ethics).
Certifications (5), (6) and (7) concern:
the Disclosing Party;
any "Contractor" (meaning any contractor or subcontractor used by the Disclosing Party in connection with the Matter, including but not limited to all persons or legal entities disclosed under Section IV, "Disclosure of Subcontractors and Other Retained Parties");
any "Affiliated Entity" (meaning a person or entity that, directly or indirectly: controls the Disclosing Party, is controlled by the Disclosing Party, or is, with the Disclosing Party, under common control of another person or entity). Indicia of control include, without limitation: interlocking management or ownership; identity of interests among family members, shared facilities and equipment; common use of employees; or organization of a business entity following the ineligibility of a business entity to do business with federal or state or local government, including the City, using substantially the same management, ownership, or principals as the ineligible entity. With respect to Contractors, the term Affiliated Entity means a person or entity that directly or indirectly controls the Contractor, is controlled by it, or, with the Contractor, is under common control of another person or entity;
any responsible official ofthe Disclosing Party, any Contractor or any Affiliated Entity or any other official, agent or employee of the Disclosing Party, any Contractor or any Affiliated Entity, acting pursuant to the direction or authorization of a responsible official of the Disclosing Party, any Contractor or any Affiliated Entity (collectively "Agents").
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Neither the Disclosing Party, nor any Contractor, nor any Affiliated Entity of either the Disclosing Party or any Contractor, nor any Agents have, during the 5 years before the date ofthis EDS, or, with respect to a Contractor, an Affiliated-Entity, or an Affiliated Entity of a Contractor during the 5 years before the date of such Contractor's or Affiliated Entity's contract or engagement in connection with the Matter:
bribed or attempted to bribe, or been convicted or adjudged guilty of bribery or attempting to bribe, a public officer or employee of the City, the State of Illinois, or any agency of the federal government or of any state or local government in the United States of America, in that officer's or employee's official capacity;
agreed or colluded with other bidders or prospective bidders, or been a party to any such agreement, or been convicted or adjudged guilty of agreement or collusion among bidders or prospective bidders, in restraint of freedom of competition by agreement to bid a fixed price or otherwise; or
made an admission of such conduct described in subparagraph (a) or (b) above that is a matter of record, but have not been prosecuted for such conduct; or
violated the provisions referenced in MCC Subsection 2-92-320(a)(4)(Contracts Requiring a Base Wage); (a)(5)(Debarment Regulations); or (a)(6)(Minimum Wage Ordinance).
Neither the Disclosing Party, nor any Affiliated Entity or Contractor, or any of their employees, officials, agents or partners, is barred from contracting with any unit of state or local government as a result of engaging in or being convicted of (1) bid-rigging in violation of 720 ILCS 5/33E-3; (2) bid-rotating in violation of 720 ILCS 5/33E-4; or (3) any similar offense of any state or of the United States of America that contains the same elements as the offense of bid-rigging or bid-rotating.
Neither the Disclosing Party nor any Affiliated Entity is listed on a Sanctions List maintained by the United Slates Department of Commerce, State, or Treasury, or any successor federal agency.
[FOR APPLICANT ONLY] (i) Neither the Applicant nor any "controlling person" [see MCC Chapter 1-23, Article I for applicability and defined terms] ofthe Applicant is currently indicted or charged with, or has admitted guilt of, or has ever been convicted of, or placed under supervision for, any criminal offense involving actual, attempted, or conspiracy to commit bribery, theft, fraud, forgery, perjury, dishonesty or deceit against an officer or employee ofthe City or any "sister agency"; and (ii) the Applicant understands and acknowledges that compliance with Article I is a continuing requirement for doing business with the City. NOTE: If MCC Chapter 1-23, Article I applies to the Applicant, that Article's permanent compliance timeframe supersedes 5-year compliance timeframes in this Section V.
[FOR APPLICANT ONLY] The Applicant and its Affiliated Entities will not use, nor permit their subcontractors to use, any facility listed as having an active exclusion by the U.S. EPA on the federal System for Award Management ("SAM").
[FOR APPLICANT ONLY] The Applicant will obtain from any contractors/subcontractors hired or to be hired in connection with the Matter certifications equal in form and substance to those in Certifications (2) and (9) above and will not, without the prior written consent ofthe City, use any such
Ver.2018-1 Page 6 of 15
contractor/subcontractor that does not provide such certifications or that the Applicant has reason to believe has not provided or cannot provide truthful certifications.
11. If the Disclosing Party is unable to certify to any ofthe above statements in this Part B (Further Certifications), the Disclosing Party must explain below:
See attached Addendum "A" for additional information related to certifications.
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
12. To the best ofthe Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all current employees of the Disclosing Party who were, at any time during the 12-month period preceding the date of this EDS, an employee, or elected or appointed official, of the City of Chicago (if none, indicate with "N/A" or "none").
None
13. To the best of the Disclosing Party's knowledge after reasonable inquiry, the following is a complete list of all gifts that the Disclosing Party has given or caused to be given, at any time during the 12-month period preceding the execution date of this EDS, to an employee, or elected or appointed official, of the City of Chicago. For purposes of this statement, a "gift" does not include: (i) anything made generally available to City employees or to the general public, or (ii) food or drink provided in the course of official City business and having a retail value ofless than $25 per recipient, or (iii) a political contribution otherwise duly reported as required by law (if none, indicate with "N/A" or "none"). As to any gift listed below, please also list the name of the City recipient.
None
C. CERTIFICATION OF STATUS AS FINANCIAL INSTITUTION
The Disclosing Party certifies that the Disclosing Party (check one)
fx] is [ J is not
a "financial institution" as defined in MCC Section 2-32-455(b).
If the Disclosing Party IS a financial institution, then the Disclosing Parly pledges:
"We are not and will not become a predatory lender as defined in MCC Chapter 2-32. We further pledge that none of our affiliates is, and none of them will become, a predatory lender as defined in MCC Chapter 2-32. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may result in the loss ofthe privilege of doing business with the City."
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If the Disclosing Party is unable to make this pledge because it or any of its affiliates (as defined in MCC Section 2-32-455(b)) is a predatory lender within the meaning of MCC Chapter 2-32, explain here (attach additional pages ifnecessary):
Makes the above pledge,
If the letters "NA," the word "None," or no response appears on the lines above, it will be conclusively presumed that the Disclosing Party certified to the above statements.
D. CERTIFICATION REGARDING FINANCIAL INTEREST IN CITY BUSINESS
Any words or terms defined in MCC Chapter 2-156 have the same meanings if used in this Part D.
In accordance with MCC Section 2-156-110: To the best of the Disclosing Party's knowledge after reasonable inquiry, does any official or employee ofthe City have a financial interest in his or her own name or in the name of any other person or entity in the Matter?
[ ] Yes [x] No
NOTE: If you checked "Yes" to Item D(l), proceed to Items D(2) and D(3). If you checked "No" to Item D(l), skip Items D(2) and D(3) and proceed to Part E.
Unless sold pursuant to a process of competitive bidding, or otherwise permitted, no City elected official or employee shall have a financial interest in his or her own name or in the name of any other person or entity in the purchase of any property that (i) belongs to the City, or (ii) is sold for taxes or assessments, or (iii) is sold by virtue of legal process at the suit ofthe City (collectively, "City Property Sale"). Compensation for property taken pursuant to the City's eminent domain power does not constitute a financial interest within the meaning of this Part D.
Does the Matter involve a City Property Sale?
1. ] Yes [x] No
If you checked "Yes" to Item D(l), provide the names and business addresses of the City officials or employees having such financial interest and identify the nature of the financial interest:
Name Business Address Nature of Financial Interest
4. The Disclosing Party further certifies that no prohibited financial interest in the Matter will be acquired by any City official or employee.
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E. CERTIFICATION REGARDING SLAVERY ERA BUSINESS
Please check either (1) or (2) below. If the Disclosing Party checks (2), the Disclosing Party must, disclose below or in an attachment to this EDS all information required by (2). Failure to comply with these disclosure requirements may make any contract entered into with the City in connection with the Matter voidable by the City.
J< 1. The Disclosing Party verifies that the Disclosing Party has searched any and all records of
the Disclosing Party and any and all predecessor entitles regarding records of investments or profits from slavery or slaveholder insurance policies during the slavery era (including insurance policies issued lo slaveholders that provided coverage for damage to or injury or death of their slaves), and the Disclosing Party has found no such records.
2. The Disclosing Party verifies that, as a result of conducting the search in step (1) above, the
Disclosing Party has found records of investments or profits from slavery or slaveholder insurance policies. The Disclosing Party verifies that the following constitutes full disclosure of all such records, including the names of any and all slaves or slaveholders described in those records:
SECTION VI - CERTIFICATIONS FOR FEDERALLY FUNDED MATTERS
NOTE: If the Matter is federally funded, complete this Section VI. Ifthe Matter is not federally funded, proceed to Section VII. For purposes of this Section VI, tax credits allocated by the City and proceeds of debt obligations of the City are not federal funding.
A. CERTIFICATION REGARDING LOBBYING
1. List below the names of all persons or entities registered under the federal Lobbying Disclosure Act of 1995, as amended, who have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter: (Add sheets ifnecessary):
N/A
(If no explanation appears or begins on the lines above, or if the letters "NA" or if the word "None" appear, it will be conclusively presumed that the Disclosing Party means that NO persons or entities registered under the Lobbying Disclosure Act of 1995, as amended, have made lobbying contacts on behalf of the Disclosing Party with respect to the Matter.)
2. The Disclosing Party has not spent and will not expend any federally appropriated funds to pay
any person or entity listed in paragraph A(l) above for his or her lobbying activities or to pay any
person or entity to influence or attempt to influence an officer or employee of any agency, as defined
by applicable federal law, a member of Congress, an officer or employee of Congress, or an employee
Ver.2018-1 Page 9 of 15
of a member of Congress, in connection with the award ofany federally funded contract, making any federally funded grant or loan, entering into any cooperative agreement, or to extend, continue, renew, amend, or modify any federally funded contract, grant, loan, or cooperative agreement.
The Disclosing Party will submit an updated certification at the end of each calendar quarter in which there occurs any event that materially affects the accuracy of the statements and information set forth in paragraphs A(l) and A(2) above.
The Disclosing Party certifies that either: (i) it is not an organization described in section 501(c)(4) of the Internal Revenue Code of 1986; or (ii) it is an organization described in section 501(c)(4) ofthe Internal Revenue Code of 1986 but has not engaged and will not engage in "Lobbying Activities," as that term is defined in the Lobbying Disclosure Act of 1995, as amended.
Ifthe Disclosing Party is the Applicant, the Disclosing Party must obtain certifications equal in form and substance to paragraphs A(l) through A(4) above from all subcontractors before it awards any subcontract and the Disclosing Party must maintain all such subcontractors' certifications for the duration of the Matter and must make such certifications promptly available to the City upon request.
B. CER TIFICATION REGARDING EQUAL EMPLOYMENT OPPORTUNITY
If the Matter is federally funded, federal regulations require the Applicant and all proposed subcontractors to submit the following information with their bids or in writing at the outset of negotiations.
Is the Disclosing Party the Applicant?
[ ] Yes [ ] No
If "Yes," answer the three questions below:
i
Have you developed and do you have on file affirmative action programs pursuant to applicable federal regulations? (See 41 CFR Part 60-2.)
[ J Yes [ ] No
Have you filed with the Joint Reporting Committee, the Director ofthe Office of Federal Contract Compliance Programs, or the Equal Employment Opportunity Commission all reports due under the applicable filing requirements?
[ ] Yes [ ] No [ ] Reports not required
Have you participated in any previous contracts or subcontracts subject to the equal opportunity clause?
[ ] Yes [ ] No
If you checked "No" to question (1) or (2) above, please provide an explanation:
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SECTION VII - FURTHER ACKNOWLEDGMENTS AND CERTIFICATION
The Disclosing Party understands and agrees that:
The certifications, disclosures, and acknowledgments contained in this EDS will become part ofany contract or other agreement between the Applicant and the City in connection with the Matter, whether procurement, City assistance, or other City action, and are material inducements to the City's execution ofany contract or taking other action with respect to the Matter. The Disclosing Party understands that it must comply with all statutes, ordinances, and regulations on which this EDS is based.
The City's Governmental Ethics Ordinance, MCC Chapter 2-156, imposes certain duties and obligations on persons or entities seeking City contracts, work, business, or transactions. The full text of this ordinance and a training program is available on line at www.cityofchicago.org/Ethics . and may also be obtained from the City's Board of Ethics, 740 N. Sedgwick St., Suite 500, Chicago, IL 60610, (312) 744-9660. The Disclosing Party must comply fully with this ordinance.
If the City determines that any information provided in this EDS is false, incomplete or inaccurate, any contract or other agreement in connection with which it is submitted may be rescinded or be void or voidable, and the City may pursue any remedies under the contract or agreement (if not rescinded or void), at law, or in equity, including terminating the Disclosing Party's participation in the Matter and/or declining to allow the Disclosing Party to participate in other City transactions. Remedies at law for a false statement of material fact may include incarceration and an award to the City of treble damages.
It is the City's policy to make this document available to the public on its Internet site and/or upon request. Some or all ofthe information provided in, and appended to, this EDS may be made publicly available on the Internet, in response to a Freedom of Information Act request, or otherwise. By completing and signing this EDS, the Disclosing Party waives and releases any possible rights or claims which it may have against the City in connection with the public release of information contained in this EDS and also authorizes the City to verify the accuracy of any information submitted in this EDS.
The information provided in this EDS must be kept current. In the event of changes, the Disclosing Party must supplement this EDS up to the time the City takes action on the Matter. If the Matter is a contract being handled by the City's Department of Procurement Services, the Disclosing Party must update this EDS as the contract requires. NOTE: With respect to Matters subject to MCC Chapter 1-23, Article I (imposing PERMANENT INELIGIBILITY for certain specified offenses), the information provided herein regarding eligibility must be kept current for a longer period, as required by MCC Chapter 1-23 and Section 2-154-020.
Page 11 ofl5
CERTIFICATION
Under penalty of perjury, the person signing below: (1) warrants that he/she is authorized to execute this EDS, and all applicable Appendices, on behalf of the Disclosing Party, and (2) warrants that all certifications and statements contained in this EDS, and all applicable Appendices, are true, accurate and complete as of the date furnished to the City.
Bank of America Corporation .--i
(Print or type exact legal* name of Disclosing Party)
Julie Conenna
(Print or type name of person signing)
Authorized Signatory
(Print or type title of person signing)
Signed and sworn to before me on (datefj/Uv^yvq*^- IS , 1.1
at \l County, Xf \ \^jb \ 5 (state).
Commission expires: D ^' 0j 2D 2.2.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX A
FAMILIAL RELATIONSHIPS WITH ELECTED CITY OFFICIALS AND DEPARTMENT HEADS
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5%. It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Under MCC Section 2-154-015, the Disclosing Party must disclose whether such Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently has a "familial relationship" with any elected city official or department head. A "familial relationship" exists if, as of the date this EDS is signed, the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof is related to the mayor, any alderman, the city clerk, the city treasurer or any city department head as spouse or domestic partner or as any of the following, whether by blood or adoption: parent, child, brother or sister, aunt or uncle, niece or nephew, grandparent, grandchild, father-in-law, mother-in-law, son-in-law, daughter-in-law, stepfather or stepmother, stepson or stepdaughter, stepbrother or stepsister or half-brother or half-sister.
"Applicable Party" means (1) all executive officers of the Disclosing Party listed in Section II.B.l.a., if the Disclosing Party is a corporation; all partners of the Disclosing Party, ifthe Disclosing Party is a general partnership; all general partners and limited partners of the Disclosing Party, if the Disclosing Party is a limited partnership; all managers, managing members and members of the Disclosing Party, ifthe Disclosing Party is a limited liability company; (2) all principal officers of the Disclosing Party; and (3) any person having more than a 7.5% ownership interest in the Disclosing Party. "Principal officers" means the president, chief operating officer, executive director, chief financial officer, treasurer or secretary ofa legal entity or any person exercising similar authority.
Does the Disclosing Party or any "Applicable Party" or any Spouse or Domestic Partner thereof currently have a "familial relationship" with an elected city official or department head?
[ ] Yes [x] No
If yes, please identify below (1) the name and title of such person, (2) the name ofthe legal entity to which such person is connected; (3) the name and title ofthe elected city official or department head to whom such person has a familial relationship, and (4) the precise nature of such familial relationship.
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CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX B
BUILDING CODE SCOFFLAW7PROBLEM LANDLORD CERTIFICATION
This Appendix is to be completed only by (a) the Applicant, and (b) any legal entity which has a direct ownership interest in the Applicant exceeding 7.5% (an "Owner"). It is not to be completed by any legal entity which has only an indirect ownership interest in the Applicant.
Pursuant to MCC Section 2-154-010, is the Applicant or any Owner identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x] No
If the Applicant is a legal entity publicly traded on any exchange, is any officer or director of the Applicant identified as a building code scofflaw or problem landlord pursuant to MCC Section 2-92-416?
[ ] Yes [x] No [ ] The Applicant is not publicly traded on any exchange.
3. If yes to (1) or (2) above, please identify below the name of each person or legal entity identified as a building code scofflaw or problem landlord and the address of each building or buildings to which the pertinent code violations apply.
Page 14 of 15
CITY OF CHICAGO ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
APPENDIX C
PROHIBITION ON WAGE & SALARY HISTORY SCREENING - CERTIFICATION
This Appendix is to be completed only by an Applicant that is completing this EDS as a "contractor" as defined in MCC Section 2-92-385. That section, which should be consulted (www.amleeal.com ), generally covers a party to any agreement pursuant to which they: (i) receive City of Chicago funds in consideration for services, work or goods provided (including for legal or other professional services), or (ii) pay the City money for a license, grant or concession allowing them to conduct a business on City premises.
On behalf of an Applicant that is a contractor pursuant to MCC Section 2-92-385,1 hereby certify that the Applicant is in compliance with MCC Section 2-92-385(b)(l) and (2), which prohibit: (i) screening job applicants based on their wage or salary history, or (ii) seeking job applicants' wage or salary history from current or former employers. I also certify that the Applicant has adopted a policy that includes those prohibitions.
[ ] Yes
[ ] No
[xl N/A - I am not an Applicant that is a "contractor" as defined in MCC Section 2-92-385. This certification shall serve as the affidavit required by MCC Section 2-92-385(c)(l). If you checked "no" to the above, please explain.
Page 15 of 15
BANK OF AMERICA
EXHIBIT E
BOARD OF DIRECTORS and OFFICERS Bank of America Corporation and Bank of America National Association
Brian Moynihan
Chairman ofthe Board and Chief Executive Officer, Bank of America Corporation
Sharon L. Allen
Former Chairman, Deloitte
Susan S. Bies
Former Member, Federal Reserve Board
Jack O. Bovender, Jr.
Lead Independent Director, Bank of America Corporation; Former Chairman and Chief Executive Officer, HCA
Frank P. Bramble, Sr
Former Executive Vice Chairman, MBNA Corporation
Pierre J. P. de Week
Former Chairman and Global Head of Private Wealth Management, Deutsche Bank
Arnold W. Donald
President and Chief Executive Officer, Carnival
Linda P. Hudson
Executive Officer, The Cardea Group, LLC; Former President and Chief Executive Officer, BAE
December 5, 2019
BANK OF AM ERICA
Monica C. Lozano
Chief Executive Officer, College Futures Foundation; Former Chairman, US Hispanic Media Inc.
Thomas J. May
Chairman, Viacom Inc.; Former Chairman, President and Chief Executive Officer of Eversource Energy
Lionel L. Nowell, III
Former Senior Vice President and Treasurer, PepsiCo, Inc
Denise L. Ramos
Former Chief Executive Officer and President, ITT Inc.
Clayton S. Rose
President Bowdoin College
Michael D. White
Former Chairman, President, and Chief Executive Officer of DIRECTV
Thomas D. Woods
Former Vice Chairman and Senior Executive Vice President of CIBC
R. David Yost
Former Chief Executive Officer, AmerisourceBergen
Maria T. Zuber
Vice President for Research and E. A. Griswold Professor of Geophysics, MIT
December 5, 2019
EXHIBIT "E" Bank of America Corporation Organization Chart
BANK OF AMERICA CORPORATION
I 100%
NB HOLDINGS CORPORATION
100%
BAC NORTH AMERICA HOLDING COMPANY
100%
BANK OF AMERICA NATIONAL ASSOCIATION
CITY 0I: CHICAGO and CHICAGO BOARD OF EDUCATION ECONOMIC DISCLOSURE STATEMENT AND AFFIDAVIT
ADDENDUM A SECTION V-B 1, 2, 3 AND 4 v \l)
IN TRODUCTION 1->U. &
Bank of America, N.A. ("BANA") is a wholly owned subsidiary of BAC North America Hoi 0^ fr^ Company ("BACNA"). BANA Holding Corporation merged into BACNA effective Novemb (JV-BANA Holding is a direct, wholly owned subsidiary of BAC North America Holding Compai ("BACNAH"). BACNAH is a direct, wholly owned subsidiary of NB Holdings Corporation ("NB Holdings). NB Holdings is a direct, wholly owned subsidiary of Bank of America Corporation. Bank of America Corporation (the "Corporation") is a publicly held company whose shares are traded on the New York Stock Exchange and has no parent corporation. Based on the U.S. Securities and Exchange Commission Rules regarding beneficial ownership, Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, Nebraska 68131, beneficially owns greater than 10% of Bank of America Corporation's outstanding common stock.
Bank of America, N.A. ("BANA") is an indirect, wholly-owned subsidiary of Bank of America Corporation (the "Corporation"), which is a large and diversified, publicly-traded institution. The Corporation and its subsidiaries, is a global franchise, serving customers and clients around the world with operations in all 50 U.S. states, the District of Columbia, and more than 40 foreign countries. Accordingly, it is not reasonably possible to perform definitive due diligence, extending back indefinitely in time, across the full panoply of employees, officers and predecessor banks, with respect to all federal, state or local government contracts. The Corporation makes all disclosures required by its regulators, including all required disclosures in its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K (collectively, the "Reports"), all of which are filed with the U.S. Securities and Exchange Commission. These Reports include disclosures of investigations and other matters as required by federal law and are publicly available. These Reports can also be accessed at the following website:
. These Reports may contain further information responsive to this certification.
The bank is a large and diversified institution and is routinely involved in litigation in various state and federal courts. The bank makes all disclosures required by its regulators, including all required disclosures in its Annual Reports of Form 10K and Quarterly Reports on Form 10Q, which are updated in Reports on Form 8K, all of which are filed with the Securities and Exchange Commission. Those reports include disclosures of investigations and other matters as required by federal law and are publicly available. The bank cannot confirm or deny the existence of any olher, non-public investigation conducted by any government investigator unless required to do so by law. These Reports can be provided upon request or can be accessed at the following website:
vestor.bankofamerica.com/phoenix.zhtm l?c=71 SgS&p^irol-irhome
Subject to and as set forth in the introductory paragraph directly above, to the best knowledge ofthe individual signatory signing this questionnaire, without independent inquiry. BANA further clarifies its response to this statement, as follows:
B. FURTHER CERTIFICATIONS
The Corporation, for itself and its affiliates and subsidiaries including BANA, makes all disclosures required by its regulators in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are updated in Reports on Form 8-K, all of which are filed with the U.S. Securities and Exchange Commission (collectively, the "Reports"). These Reports include all disclosures as required by federal law including those pertaining to material business matters such as litigation, criminal convictions, and other legal actions, and may contain information which is further responsive to items addressed in the FIES FORM and this Addendum. These Reports are publicly available at the following website: . Further, BANA has been the subject of certain formal enforcement actions by the Office ofthe Comptroller of the Currency (the "OCC"), and information which can be publicly disclosed regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at: . ln addition, BANA's registered brokerdealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are also publicly available. Outside of such Reports and the publicly available filings as noted above, BANA and the Corporation cannot otherwise disclose such information of material non-public nature except where required by applicable law or legal process.
Bank of America, National Association has been the subject of certain formal enforcement actions by the Office of the Comptroller of the Currency (the "OCC"). Information regarding these formal enforcement actions may be found on the Legal and Regulatory: Enforcement Actions page on the OCC's website at:
In addition, Bank of America, National Association's registered broker-dealer and investment adviser subsidiaries make all required disclosures on their Form BDs as filed with FINRA (formerly the NASD) and their Form ADVs as filed with the SEC. These filings include disclosures of investigations and litigation as required by the SRO's and federal law, and are publicly available. Bank of America, National Association cannot confirm or deny the existence of any other non-public investigation conducted by any governmental agency unless required to do so by law.
Bank of America, National Association's indirect parent, Bank of America Corporation, also makes all required disclosures in its Form 10-K as filed with the Securities and Exchange Commission and its Annual Report as posted on its website at
vestor.banko famerica.com/phoenix.zhtm l?c=71595&p=irol-reportsannual.
On December 7, 2010, Bank of America entered into agreements with the Internal Revenue Service (IRS), the Office of the Comptroller of Currency (OCC), a Working Group of 28 State Attorneys General and the Federal Reserve Board, and was also subject to an administrative cease and desist order from the U.S. Securities and Exchange Commission (SEC). The global resolution with these federal and state entities provided for payment of restitution to the IRS and to municipal derivative counterparties allegedly harmed by Bank of America's alleged anticompetitive conduct (including bid rigging) in connection with the marketing and sale of municipal bond derivatives from 1998 to 2003. as well as requiring the Bank to take certain remedial measures.
Importantly, Bank of America was the first and only entity to self-report evidence ofthe bid-rigging to the Department of Justice ("DOJ"). T he Bank's self-report enabled the various government agencies (including numerous state attorneys general described above) to identify and pursue industry-wide misconduct that may have affected municipalities and others on a nationwide scale, as well as pursue numerous potential violators. In January 2007, as a result ofthe Bank's self-reporting and cooperation, DOJ conditionally accepted the Bank into Part A of its Corporate Leniency Program—the highest level of leniency DOJ can provide. Pursuant to Part A of the Leniency Program, subject to the Bank's continuing cooperation, DOJ will not bring any criminal antitrust prosecution against the Bank in connection with the matters that the Bank reported to DOJ. DOJ has acknowledged that through the agreements outlined above, Bank of America met its obligation, under the Leniency Program, to pay full restitution to the IRS and municipalities. Bank of America paid restitution to the IRS on December 8, 2010.
The Bank also promptly agreed to cooperate with the State Attorneys General (including the New York Attorney General) in their industry-wide investigation. As noted above, the Bank reached a settlement agreement with numerous State Attorneys General (including the New York Attorney General). In recognition ofthe Bank's self-reporting and substantial cooperation, the Attorneys General added an exhibit (Exhibit 3) to the end of that settlement agreement. This exhibit describes, in detail, the Bank's extensive cooperation with the investigations in this matter. In addition, this exhibit describes the importance ofthe Bank's cooperation to the Attorneys General investigation. In recognition of the Bank's agreement to make restitution and its truthful cooperation, the exhibit affirmatively states that "no provision contained in the settlement agreement is intended to be construed as a mandate or recommendation to any independent suspension and/or debarment authority regarding a decision to disqualify, suspend or debar Bank of America . . . from engaging in the provision ofany financial services including, but not limited to, the marketing sale or placement of municipal bond derivatives or any other state business . . . ."
On or about March 18, 2008, the Office of the Comptroller ofthe Currency entered a Consent Order against Douglas L. Campbell related to improper payments made to brokers on municipal derivative transactions in 2001 and 2002 while Mr. Campbell was a member of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Campbell was prohibited from a number of activities, including participating in any manner in the conduct ofthe affairs of various depository and other institutions identified in the Order. The Order also imposed a $25,000 civil monetary penalty on Mr.Campbell. On or about September 9, 2010, Mr. Campbell pled guilty to (i) conspiracy to restrain trade in violation of 15 U.S.C. § 1, (ii) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and §1343, and (iii) wire fraud in violation of 18 U.S.C. § 1343 in the United States District Court for the Southern District of New York. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Campbell was sentenced on April 22, 2014. On or about December 7, 2010, the Securities and Exchange Commission entered an Administrative Order against Mr. Campbell, related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. The Order barred Mr. Campbell from association with any broker, dealer, or investment adviser. Mr. Campbell was suspended by Bank of America on or about July 24. 2002 and was terminated by Bank of America on or about August 16, 2002.
On or about March 30, 201 1, Brian Zwerner pled guilty to conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and §1005 in the United States District Court forthe Southern District of New York. This conduct related lo improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Zwerner was sentenced on July 25, 2014.
On or about December 8, 201 I, the Securities and Exchange Commission entered a Cease and Desist Order against Dean Z. Pinard related to alleged improper bidding practices on Bank of America's Municipal Derivatives Desk. Among other things, the Order barred Mr. Pinard from association with any broker, dealer, investment adviser, municipal securities dealer, or municipal advisor and required him to pay approximately $41,500 in disgorgement and prejudgment interest. In April 2013, Mr. Pinard entered into a Consent Order with the Office of the Comptroller of the Currency pursuant to which the OCC found that, among other things, Mr. Pinard engaged in improper anticompetitive bidding practices while part of Bank of America's Municipal Derivatives Desk. Pursuant to the Order, Mr. Pinard was prohibited from, among other things, participating in any manner in the conduct ofthe affairs of various depository and other institutions identified in the Order. Mr. Pinard was suspended by Bank of America on or about November 15, 2006 and was terminated by Bank of America on or about April 26, 2007.
On or about February 10, 2014, Phillip D. Murphy pled guilty to (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 371 and § 1343, (ii) wire fraud in violation of 18 U.S.C. § 1343, and (iii) conspiracy to make false entries in bank records in violation of 18 U.S.C. § 371 and § 1005 in the United States District Court for the Western District of North Carolina. This conduct related to improper bidding practices on Bank of America's Municipal Derivatives Desk. Mr. Murphy is awaiting sentencing. Mr. Murphy was suspended by Bank of America on or about July 25, 2002, and resigned from Bank of America on or about September 4, 2002.
BANK OF AMERICA CORPORATION
LIMITED POWER OF ATTORNEY
BANK OF AMERICA CORPORATION, a Delaware coiporation (the "Corporation"), hereby appoints Julie Conenna as Attorney-in-Fact for the Corporation acting for the Corporation and in the Corporation's name, place and stead, for the limited purpose of authorizing, preparing, revising or signing City of Chicago's Economic Disclosure Statement form (the "Form") related to Bank of America, N.A. ("BANA") participation in the City of Chicago's qualified firms for Municipal Depositories in connection with the Request for Proposal for Payment of Interest on the Monies ofthe City of Chicago and the Chicago Board of Education.
Any execution by the Attorney-in-Fact of the Form shall fully bind and commit the Corporation and the City of Chicago may rely upon the execution thereof by the Attorney-in-Fact as if executed by the Corporation and as the true and lawful act of the Corporation.
This Limited Power of Attorney shall automatically terminate as to the authority of the named Attorney-in-Fact upon such Attorney-in-Fact's resignation or termination from BANA or her realignment to a role outside ofthe Public Sector division of BANA however; such termination or realignment shall have no impact on the Form executed by the above named attorney-in-fact for the Corporation prior to such termination or realignment.
BANK OF AMERICA CORPORATION
Ellen A. Perrin
Associate General Counsel, Senior Vice President and Assistant Secretary
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[Y] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For lhe transition period from to
Commission file number:
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other Jurisdiction of incorporation or organization:
Delaware
IRS Emn,nvtt* Irfnnllflratlnn Nn.-
AddreSj vi liimvi^ai uctuun: unices:
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
Common Stock, par value $0.01 per share Depositary Shares, each representing a l/l,000th Preferred Stock, Series E
Depositary Shares, each representing a l/l,000th Preferred Stock, Series W
Depositary Shares, each representing a l/l,000th Preferred Stock, Series Y
Depositary Shares, each representing a l/l,000th Preferred Stock, Series CC
Depositary Shares, each representing a l/l,00Oth
Depositary Shares, each representing a l/1.000th
Depositary Shares, each representing a l/l,000th
interest in a share of Floating Rate Non-Cumulative interest in a share of 6.625% Non-Cumulative interest in a share of 6.500% Non-Cumulative interest in a share of 6.200% Non-Cumulative
interest in a share of 6.000% interest in a share of 6.000% interest in a share of 6.000%
Name of each exchange on which registered
New York Stock Exchange New York Stock Exchange
New York Stock Exchange
Now York Stock Exchange
New York Stock Exchange
New York Stock Exchange New York Stock Exchange New York Stock Exchange
7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L New York Stock Exchange
Depositary Shares, each representing a 1/1,200th interest in a share of Bank of America Corporation Floating Rate Non- New York Stock Exchange
Cumulative Preferred Stock, Series 1
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Name of each exchange on which registered
Depositary Shares, each representing a 1/1,200th mlerest in a share ol Bank ot America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 2
Depositary Shares, each representing a 1/1,200th Interest in a share 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 of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series 5
Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIII (and the guarantee related thereto)
5.63% Fixed to Floating Rate Preferred Hybrid Income Term Securities of BAC Capital Trust XIV (and the guarantee related thereto)
Income Capital Obligation Notes initially due December 15, 2066 ot Bank of America Corporation
Senior Medium-Term Notes, Series A, Step Up Callable Notes, due November 28, 2031 of BofA Finance LLC (and the guarantee New York Stock Exchange of the Registrant with respect thereto)
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 o No 13 Indicate by check mark if the registrant is not required (o file reports pursuant to Seclion 13 or Section 15(d) ol the Act. Yes o No 13
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 13 No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to he 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 13 No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or Information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 0
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 acceleroled filer," 'accelerated filer." "smaller reporting company" and "emerging growth company' in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer El Accelerated filer o Non-accelerated filer o Smaller reporting company o
Emerging growth company o
If an emerging growth company, Indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No 13
The aggregate market value of the registrant's common stock ("Common Stock") held on June 30, 2018 by non-afliliates was approximately $282,258,554,953 (based on the June 30, 2018 closing price of Common Stock of $28.19 per share as reported on the New York Stock Exchange). At February 25, 2019, there were 9,658,759,764 shares of Common Stock outstanding.
Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant's 2019 annual meebng of stockholders are incorporated by reference in this Form 10-K in response to Items 10,11,12.13 and 14 of Part III.
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Table of Contents
Bank of America Corporation and Subsidiaries
Part I Page
Item 1. Business|910|Item IA. Risk Factors|910|Item IB. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures 18
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 85
Item 8. Financial Statements and Supplementary Data 85
Item 9. Changes in and Disagreements with. Accountants on Accounting and Financial Disclosure 170
Item 9A. Controls and Procedures 170
Item 9B. Other Information 170
Part III
Item 10. Directors, Executive Officers and Corporate Governance 171
Item 11. Executive Compensation 171
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 172
Item 13. Certain Relationships and Related Transactions, and Director Independence 172
Item 14. Principal Accounting Fees and Services 172
Part IV
Item 15. Exhibits. Financial Statement Schedules 173
Item 16. Form 10-K Summary 177
Part I
Bank of America Corporation and Subsidiaries
Item 1. Business
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Bank of America Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, "the Corporation" may refer to Bank of America Corporation individually. Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates. As part of our efforts to streamline the Corporation's organizational structure and reduce complexity and costs, the Corporation has reduced and intends to continue to reduce the number of its corporate subsidiaries, including through intercompany mergers.
Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses, institutional investors, large corporations and governments with a full range of banking, investing, asset management and other financial and risk management products and services. Our principal executive offices are located in the
Bank of America Corporate Center, 100 North Tryon Street, Charlotte. North Carolina 28255
Bank of America's website is www bankofamcrica.com and the Investor Relations portion of our website is . We use our website to distribute company information, including as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. We routinely post and make accessible financial and other information regarding the Corporation on our website. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, U.S. Securities and Exchange Commission (SEC) filings, public conference calls and webcasts. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
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Securities Exchange Act of 1934 (Exchange Act) are available on the Investor Relations portion of our website under the heading Financial Information (accessible by clicking on the SEC Filings link) as soon as reasonably practicable after we electronically file such reports with, or furnish them to. the SEC and at the SEC's website, www.sec.gov . Notwithstanding the foregoing, the information contained on our website as referenced in this paragraph is not incorporated by reference into this Annual Report on Form 10-K. Also, we make available on the Investor Relations portion of our website under the heading Corporate Governance: (i) our Code of Conduct (including our insider trading policy): (ii) our Corporate Governance Guidelines (accessible by clicking on the Governance Highlights link); and (ni) the charter of each active committee of our Board of Directors (the Board) (accessible by clicking on the committee names under the Committee Composition link). We also intend to disclose any amendments to our Code of Conduct and waivers of our Code of Conduct required to be disclosed by the rules of the SEC and the New York Stock Exchange (NYSE) on the Investor Relations portion of our website. All of these corporate governance materials are also available free of charge in print to shareholders who request them in writing to: Bank of America Corporation, Attention: Office of the Corporate Secretary, Hearst Tower, 214 North Tryon Street, NC1-027-18-05, Charlotte, North Carolina 28255.
Segments
Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. Additional information related to our business segments and the products and services they provide is included in the information set forth on pages 30 through 39 of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 23 - Business Segment Information to the Consolidated Financial Statements.
Competition
We operate in a highly competitive environment. Our competitors include banks, thrifts, credit unions, investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies, hedge funds, private equity firms, and e-commerce and other internet-based companies. We compete with some of these competitors globally and with others on a regional or product specific basis.
Competition is based on a number of factors including, among others, customer service, quality and range of products and services offered, price, reputation, 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 motivate our existing employees, while managing compensation and other costs.
Employees
At December 31, 2018, we had approximately 204,000 employees. None of our domestic employees are subject to a collective bargaining agreement. Management considers our employee relations-to be good.
Government Supervision and Regulation
The following discussion describes, among other things, elements of an extensive regulatory framework applicable to BHCs, financial holding companies, banks and broker-dealers, including specific information about Bank of America.
We are subject to an extensive regulatory framework applicable to BHCs, financial holding companies and banks and other financial services entities. U.S. federal regulation of banks, BHCs and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund (DIF) rather than for the protection of shareholders and creditors.
As a registered financial holding company and BHC. the Corporation is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (Federal Reserve). Our U.S. bank subsidiaries (the Banks) organized as national banking associations are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. U.S. financial holding companies, and the companies under their control, are permitted to engage in activities considered "financial in nature" as defined by the Gramm-Leach-Bliley Act and related Federal Reserve interpretations. Unless otherwise limited by the Federal Reserve, a financial holding company may engage directly or indirectly in activities considered financial in nature provided the financial holding company gives the Federal Reserve after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks to engage in activities considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC.
The scope of the laws and regulations and tho intensity of the supervision to which we are subject have increased in recent years in response to the financial crisis, as well as other factors such as technological and market changes. In addition, the banking and financial services sector is subject to substantial regulatory enforcement and fines. Many of these changes have occurred as a result of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Financial Reform Act). We cannot assess whether there will be any additional major changes in the regulatory environment and expect that our business will remain subject to extensive regulation and supervision.
We are also subject to various other laws and regulations, as well as supervision and examination by other regulatory agencies, all of which directly or indirectly affect our operations and management and our ability to make distributions to shareholders. For instance, our broker-dealer subsidiaries are subject to both U.S. and international regulation, including supervision by tho SEC, New York Stock Exchange and Financial Industry Regulatory Authority, among others; our commodities businesses in the U.S. are subject to regulation by and supervision of the U.S. Commodity Futures Trading Commission (CFTC); our U.S. derivatives activity is subject to regulation and supervision of the CFTC, National Futures Association and SEC. and in the case of the Banks, certain banking regulators; our insurance activities are subject to licensing and regulation by state insurance regulatory agencies: and our consumer financial products and services are regulated by the Consumer Financial Protection Bureau (CFPB).
Our non-U.S. businesses are also subject to extensive regulation by various non-U.S. regulators, including governments] securities exchanges, prudential regulators, central banks and other regulatory bodies, in the jurisdictions in which those businesses operate. For example, our financial services operations in the United Kingdom (U.K.) are subject to regulation by the Prudential Regulatory Authority and Financial Conduct
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Authority (FCA) and. in Ireland, the European Central Bank and Central Bank of Ireland.
Source of Strength
Under the Financial Reform Act and Federal Reserve policy, BHCs are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), in the event of a loss suffered or anticipated by the FDIC, either as a result of default of a bank subsidiary or related to FDIC assistance provided to such a subsidiary in danger of default, the affiliate banks of such a subsidiary may be assessed for the FDIC's loss, subject to certain exceptions.
Transactions with Affiliates
Pursuant to Section 23A and 23B of the Federal Reserve Act, as implemented by the Federal Reserve's Regulation W, the Banks are subject to restrictions that limit certain types of transactions between the Banks and their nonbank affiliates. In general, U.S. banks are subject to quantitative and qualitative limits on extensions of credit, purchases of assets and certain other transactions involving its nonbank affiliates. Additionally, transactions between U.S. banks and their nonbank affiliates are required to be on arm's length terms and must be consistent with standards of safety and soundness.
Deposit Insurance
Deposits placed at U.S. domiciled banks are insured by the FDIC, subject to limits and conditions of applicable law and the FDIC's regulations. Pursuant to the Financial Reform Act, FDIC insurance coverage limits are $250,000 per customer. All insured depository institutions are required to pay assessments to the FDIC in order to fund the DIF.
The FDIC is required to maintain at least a designated minimum ratio of the DIF to insured deposits in the U.S. The Financial Reform Act requires the FDIC to assess insured depository institutions to achieve a DIF ratio of at least 1.35 percent by September 30, 2020. In November 2018, the FDIC announced that the DIF ratio exceeded 1.35 in advance of the deadline and that the related surcharges ceased. Additionally, the FDIC adopted regulations that establish a long-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 that may result in increased deposit insurance assessments. Deposit insurance assessment rates are subject to change by the FDIC and will be impacted by the overall economy and the stability of the banking industry as a whole. For more information regarding deposit insurance, see Item IA. Risk Factors -Regulatory, Compliance and Legal on page 13.
Capital, Liquidity and Operational Requirements
As a financial holding company, we and our bank subsidiaries are subject to the regulatory capital and liquidity guidelines issued by the Federal Reserve and other U.S. banking regulators, including the FDIC and the OCC. These rules are complex and are evolving as U.S. and international regulatory authorities propose and enact enhanced capital and liquidity rules. The Corporation seeks to manage its capital position lo maintain sufficient capital to meet these regulatory guidelines and to support our business activities. These evolving rules are likely to influence our planning processes and may require additional regulatory capital and liquidity, as well as impose additional operational and compliance costs on the Corporation. In addition, the Federal Reserve and the OCC have adopted guidelines that establish minimum standards for the design, implementation and board oversight of BHCs' and national
banks' risk governance frameworks. The Federal Reserve also issued a final rule, which became effective January 1. 2019, that includes minimum external total loss-absorbing capacity (TLAC) and long-term debt requirements.
For more information on regulatory capital rules, capital composition and pending or proposed regulatory capital changes, see Capital Management - Regulatory Capital in the MD&A on page 44, and Note 16 - Regulatory Requirements and Restrictions to the Consolidated Financial Statements, which are incorporated by reference in this Item 1.
Distributions
We are subject to various regulatory policies and requirements relating to capital actions, including payment of dividends and common stock repurchases. For instance, Federal Reserve regulations require major U.S. BHCs to submit a capital plan as part of an annual Comprehensive Capital Analysis and Review (CCAR). The purpose of the CCAR for the Federal Reserve is to assess the capital planning process of the BMC, including any planned capital actions, such as payment of dividends and common stock repurchases.
Our ability to pay dividends is also affected by the various minimum capital requirements and the capital and non-capital standards established under Uie FDICIA. The right of the Corporation, our shareholders and our creditors to participate in any distribution of the assets or earnings of our subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries.
If the Federal Reserve finds that any of our Banks are not "well-capitalized" or "well-managed," we would be required to enter into an agreement with the Federal Reserve to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities. Additionally, the applicable federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or BHC, that the payment of dividends would bo an unsafe or unsound practice and to prohibit payment thereof.
For more information regarding the requirements relating to the payment of dividends, including the minimum capital requirements, see Note 13 - Shareholders' Equity and Note 16 - Regulatory Requirements and Restrictions to the Consolidated Financial Statements.
Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries.
Resolution Planning
As a BHC with greater than $50 billion of assets, the Corporation is required by the Federal Reserve and the FDIC to periodically submit a plan for a rapid and orderly resolution in the event of material financial distress or failure.
Such resolution plan is intended to be a detailed roadmap for the orderly resolution of the BHC and its material entities pursuant to the U.S. Bankruptcy Code and other applicable resolution regimes under one or more hypothetical scenarios assuming no extraordinary government assistance.
If both the Federal Reserve and the FDIC determine that the BHCs plan is not credible, the Federal Reserve and the FDIC may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations. A description of our plan is available on the Federal Reserve and FDIC websites
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The F-DIC also requires the submission of a resolution plan for Bank of America, N.A (BANA). which must describe how the insured depository institution would be resolved under the bank resolution provisions of the Federal Deposit Insurance Act. A description of this plan is available on the FDIC's website
We continue to make substantial progress lo enhance our resolvability, including simplifying our legal entity structure and business operations, and increasing our preparedness to implement our resolution plan, both from a financial and operational standpoint.
Across international jurisdictions, resolution planning is the responsibility of national resolution authorities (RA). Of most impact to the Corporation are the requirements associated with subsidiaries in the U.K., Ireland and France, where rules have been issued requiring the submission of significant information about locally-incorporated subsidiaries, as well as the Corporation's affiliated branches located in those jurisdictions (including information on intra-group dependencies, legal entity separation and barriers to resolution) to allow the RA to plan their resolution strategies. As a result of the RA's review of the submitted information, we could be required to take certain actions over the next several years which could increase operating costs and potentially result in the restructuring of certain businesses and subsidiaries.
For more information regarding our resolution plan, see Item IA. Risk Factors - Liquidity on page 6.
Insolvency and the Orderly Liquidation Authority
Under the Federal Deposit Insurance Act, the FDIC may be appointed receiver of an insured depository institution if it is insolvent or in certain other circumstances. In addition, under the Financial Reform Act, when a systemically important financial institution (SIFI) such as the Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such institution. In the event of such appointment, the FDIC could, among other things, invoke the orderly liquidation authority, instead of the U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. The orderly liquidation authority is modeled in part on the Federal Deposit Insurance Act, but also adopts certain concepts from the U.S. Bankruptcy Code.
Tho orderly liquidation authority contains certain differences from the U.S. Bankruptcy Code. For example, in certain circumstances, the FDIC could permit payment of obligations it determines to be systemically significant (e.g., short-term creditors or operating creditors) in lieu of paying other obligations (e.g., long-term creditors) without the need to obtain creditors' consent or prior court review. The insolvency and resolution process could also lead to a large reduction or total elimination of the value of a BHCs outstanding equity, as well as impairment or elimination of certain debt.
Under the FDIC's "single point of entry" strategy for resolving SIFIs, the FDIC could replace a distressed BHC with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity is held solely for the benefit of creditors ofthe original BHC.
Furthermore, the Federal Reserve requires that BHCs maintain minimum levels of long-term debt required to provide adequate loss absorbing capacity in the event of a resolution.
For more information regarding our resolution, see Item IA. Risk Factors - Liquidity on page 6.
Limitations on Acquisitions
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits a BHC to acquire banks located in states other
than its home state without regard to state law. subject to certain conditions, including the condition that the BHC, after and as a result of the acquisition, controls no moie than 10 percent of the total amount of deposits of insured depository institutions in the U.S. and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state. At June 30. 2018. we field greater than 10 percent of the total amount of deposits of insured depository institutions in tho U.S.
In addition, the Financial Reform Act restricts acquisitions by a financial institution if, as a result of the acquisition, the total liabilities of the financial institution would exceed 10 percent of the total liabilities of all financial institutions in the U.S. At June 30. 2018, our liabilities did not exceed 10 percent of the total liabilities of all financial institutions in the U.S.
The Volcker Rule
The Volcker Rule prohibits insured depository institutions and companies affiliated with insured depository institutions (collectively, banking entities) from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options for their own account. The Volcker Rule also imposes limits on banking entities' investments in, and other relationships with, hedge funds and private equity funds. The Volcker Rule provides exemptions for certain activities, including market-making, underwriting, hedging, trading in government obligations, insurance company activities and organizing and offering hedge funds and private equity funds. The Volcker Rule also clarifies that certain activities are not prohibited, including acting as agent, broker or custodian. A banking entity with significant trading operations, such as the Corporation, is required to maintain a detailed compliance program to comply with the restrictions of the Volcker Rule.
Derivatives
Our derivatives operations are subject to extensive regulation globally. These operations are subject to regulation under the Financial Reform Act, the European Union (EU) Markets in Financial Instruments Directive and Regulation, the European Market Infrastructure Regulation and similar regulatory regimes in other jurisdictions, that regulate or will regulate the derivatives markets in which we operate by. among other things: requiring clearing and exchange trading of certain derivatives; imposing new capital, margin, reporting, registration and business conduct requirements for certain market participants; imposing position limits on certain over-the-counter (OTC) derivatives; and imposing derivatives trading transparency requirements. Regulations of derivatives are already in effect in many markets in which we operate.
In addition, many G-20 jurisdictions, including the U.S., U.K., Germany and Japan, have adopted resolution stay regulations to address concerns that the close-out of derivatives and other financial contracts in resolution could impede orderly resolution of global systemically important banks (G-SIBs), and additional jurisdictions are expected to follow suit. We and 24 other G-SIBs have adhered to a protocol amending certain financial contracts to provide for contractual recognition of stays of termination rights under various statutory resolution regimes and a stay on the exercise of cross-default rights based on an affiliate's entry into U.S. bankruptcy proceedings. As resolution stay regulations of a particular jurisdiction go into effect, we amend financial contracts in compliance with such regulations.
Consumer Regulations
Our consumer businesses are subject to extensive regulation and oversight by federal and state regulators. Certain federal consumer finance laws to which we are subject, including the Equal Credit Opportunity Act. Home Mortgage Disclosure Act. Electronic Fund
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Transfer Act. Fair Credit Reporting Act, Real Estate Settlement Procedures Act. Truth in Lending Act and Truth in Savings Act, are enforced by the CFPB. Other federal consumer finance laws, such as the Servicemembers Civil Relief Act, are enforcea by the OCC.
Privacy and Information Security
We are subject to many U.S. federal, state and international laws and regulations governing requirements for maintaining policies and procedures to protect the non-public confidential information of our customers and employees. The Gramm-Leach-Bliley Act requires us to periodically disclose Bank of America's privacy policies and practices relating to sharing such iiifunrialion and enables retail customers to opt out of our ability to share information with unaffiliated third parties, under certain circumstances. Other laws and regulations, at the international, federal and state level, impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers, including California's consumer privacy law that established basic rights of consumers in connection with their personal information. The Gramm-Leach-Bliley Act also requires us to implement a comprehensive information security program that includes administrative, technical and physical safeguards to provide the security and confidentiality of customer records and information. These security and privacy policies and procedures for the protection of personal and confidential information are in effect across all businesses and geographic locations, ln the EU. the General Data Protection Regulation (GDPR) replaced the Data Protection Directive and related implementing national laws in its member states. The GDPR's impact on the Corporation was assessed and addressed through a comprehensive compliance implementation program. Additionally, other legislative and regulatory activity in the U.S. and abroad, as well as court proceedings and bilateral U.S. and EU political developments on the validity of cross-border data transfer mechanisms from the EU, continue to lend uncertainty to privacy compliance globally.
Item IA. Risk Factors
In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own businesses. The discussion below addresses the most significant factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition. Additional factors that could affect our businesses, results of operations and financial condition are discussed in Forward-looking Statements in the MD&A on page 20. However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face. For more information on how we manage risks, see Managing Risk in the MD&A on page 40.
Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in materia! losses.
Market
Our business and results of operations may be adversely affected by the U.S. and international financial markets, U.S. and non-U.S. fiscal and monetary policies and economic conditions generally.
Financial markets and general economic, political and social conditions in the US. and in one or more countries abroad, including the level and volatility of interest rates, unexpected changes in market financing conditions, gross domestic product (GDP) growth, inflation, consumer spending, employment levels, wage stagnation, prolonged federal government shutdowns, energy prices, home prices, bankruptcies, fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of the global financial markets, the growth of global trade and commerce, trade policies, the availability and cost of capital and credit, terrorism, disruption of communication, transportation or energy infrastructure, investor sentiment and confidence, the sustainability of economic growth and any potential slov/down in economic activity may affect markets in the U.S. and abroad and our businesses. Any market downturn in the U S. or abroad would likely result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.
In the U.S. and abroad, uncertainties surrounding fiscal and monetary policies present economic challenges. Actions taken by the Federal Reserve, including potential further increases in its target funds rate and the ongoing reduction in its balance sheet, and other central banks are beyond our control and difficult to predict and can affect interest rates and the value of financial instruments and other assets, such as debt securities and mortgage servicing rights (MSRs) and impact our borrowers, potentially increasing delinquency and default rates as interest rates rise.
Changes to existing U.S. laws and regulatory policies including those related to financial regulation, taxation,, international trade, fiscal policy and healthcare may adversely impact us. For example, significant fiscal policy initiatives may increase uncertainty surrounding the formulation and direction of U.S. monetary policy, and volatility of interest rates. Higher U.S. interest rates relative to other major economies could increase the likelihood of a more volatile and appreciating U.S. dollar. Changes, or proposed changes to certain U.S. trade policies, particularly with important trading partners, including China, could upset financial markets, disrupt world trade and commerce and lead to trade retaliation through the use of tariffs, foreign exchange measures or the large-scale sale of U.S. Treasury Bonds.
Any of these developments could adversely affect our consumer and commercial businesses, our securities and derivatives portfolios, our level of charge-offs and provision for credit losses, the carrying value of our deferred tax assets, our capital levels and liquidity and the costs of running our business, and our results of operations. Additionally, events and ongoing uncertainty related to the planned exit of the U.K. from the EU could magnify any negative impact of these developments on our business and results of operations.
Increased market volatility and adverse changes In other financial or capital market conditions may Increase our market risk.
Our liquidity, competitive position, business, results of operations and financial condition are affected by market risks such as changes in interest and currency exchange rates, fluctuations in equity and futures prices, lower trading volumes and prices of securitized products, the implied volatility of interest rates and credit spreads and other economic and business factors. These market risks may adversely affect, among other things, (i) the value of our on- and off-balance sheet securities, trading assets, other financial instruments and MSRs, (ii) the cost of debt capital and our access to credit markets, (iii) the value of assets under management (AUM), (iv) fee income relating to AUM, (v) customer allocation of capital among investment alternatives, (vi)
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the volume of client activity in our trading operations, (vii) investment banking fees, (viii) the general profitability and risk level of the transactions in which we engage and (ix) our competitiveness with respect to deposit pricing. For example, the value of certain of our assets is sensitive lo changes in market interest rates. If the Federal Reserve or a non-U S. central bank changes or signals a change in monetary policy, market interest rates could be affected, which could adversely impact the value of such assels. In addition, the low but rising interest rate environment and recent flattening of the yield curve could negatively impact our liquidity, financial condition or results of operations, including future revenue and earnings growth.
We use various models and strategies to assess and control our market risk exposures but those are subject to inherent limitations. For more information regarding models and-strategies, see Item IA. Risk Factors - Other on page 16. In times of market stress or other unforeseen circumstances, previously uncorrected indicators may become correlated and vice versa. These types of market movements may limit the effectiveness of our hedging strategies and cause us to incur significant losses. These changes in correlation can be exacerbated where other market participants are using risk or trading models with assumptions or algorithms similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists for certain assets. To the extent that we own securities that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, we may not be able to reduce our positions and therefore reduce our risk associated with such positions. In addition, challenging market conditions may also adversely affect our investment banking fees.
For more information about market risk and our market risk management policies and procedures, see Market Risk Management in the MD&A on page 70.
We may incur losses if the value of certain assets declines, including due to changes In Interest rates and prepayment speeds.
We have a large portfolio of financial instruments, including certain loans and loan commitments, loans held-for-sale, securities financing agreements, asset-backed secured financings, long-term deposits, long-term debt, trading account assets and liabilities, derivative assets and liabilities, available-for-sale (AFS) debt and marketable equity securities, other debt securities, equity method investments, certain MSRs and certain other assets and liabilities that we measure at fair value and other accounting values, subject to impairment assessments. We determine these values based on applicable accounting guidance, which for financial instruments measured at fair value, requires an entity to base fair value on exit price and to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. The fair values of these financial instruments include adjustments for market liquidity, credit quality, funding impact on certain derivatives and other transaction-specific factors, where appropriate.
Gains or losses on these instruments can have a direct impact on our results of operations, including higher or lower mortgage banking income and earnings, unless we have effectively hedged our exposures. For example, decreases in interest rates and increases in mortgage prepayment speeds, which are influenced by interest rates and other factors such as reductions in mortgage insurance premiums and origination costs, could adversely impact the value of our MSR asset, and cause a significant acceleration of purchase premium amortization on our mortgage portfolio, because a decline in long-term interest rates shortens the expected lives of the securities, and adversely affects our net
interest margin. Conversely, increases in interest rates may result in a decrease in residential mortgage loan originations. In addition, increases in interest rates may adversely impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated other comprehensive income and, thus, capital levels.
Fair values may be impacted by declining values of the underlying assets or the prices ot which observable market transactions occur and the continued availability of these transactions. The financial strength of counterparties, with whom we have economically hedged some of our exposure to these assets, also will affect the fair value of these assets. Sudden declines and volatility in the prices of assets may curtail or eliminate trading activities in these assets, which may make it difficult to sell, hedge or value these assets The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions and the difficulty in valuing assets may increase our risk-weighted assets, which requires us to maintain additional capital and increases our funding costs. Asset values also directly impact revenues in our wealth management and related advisory businesses. We receive asset-based management fees based on the value of our clients' portfolios or investments in funds managed by us and, in some cases, we also receive performance fees based on increases in the value of such investments. Declines in asset values can reduce the value of our clients' portfolios or fund assets, which in turn can result in lower fees earned for managing such assets.
For more information on fair value measurements, see Note 20 -Fair Value Measurements to the Consolidated Financial Statements. For more information on our asset management businesses, see GWIM in the MD&A on page 33. For more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book in the MD&A on page 74.
Liquidity
If we are unable to access tho capital markets, continue to maintain deposits, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.
Liquidity is essential to our businesses. We fund our assets primarily with globally sourced deposits in our bank entities, as well as secured and unsecured liabilities transacted in the capital markets. We rely on certain secured funding sources, such as repo markets, which are typically short-term and credit-sensitive in nature. We also engage in asset securitization transactions, including with the government-sponsored enterprises (GSEs), to fund consumer lending activities. Our liquidity could be adversely affected by any inability to access the capital markets; illiquidity or volatility in the capital markets; the decrease in value of eligible collateral or increased collateral requirements due to credit concerns for short-term borrowing; changes to our relationships with our funding providers based on real or perceived changes in our risk profile; prolonged federal government shutdowns; changes in regulations, guidance or GSE status that impact our funding avenues or ability to access certain funding sources; the refusal or inability of the Federal Reserve to act as lender of last resort; simultaneous draws on lines of credit; the withdrawal of customer deposits, which could result from customer attrition for higher yields or the desire for more conservative alternatives; increased regulatory liquidity, capital and margin requirements for our U.S. or international banks and their nonbank subsidiaries; failure by a significant market participant or third party, such as a clearing agent or custodian; reputational issues; or negative perceptions about our short- or long-term business prospects, including downgrades of our credit ratings. Several of these factors may arise due to circumstances beyond our control, such as general
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market volatility, disruption, shock or stress, fluctuations in interest rates, negative views about the Corporation or financial services industry generally or a specific news event, changes in the regulatory environment, actions by credit rating agencies or an operational problem that affects third parties or us. The impact of these events, whether within our control or not, could include an inability to sell assets cr redeem investments, unforeseen outflows of cash, the need to draw on liquidity facilities, debt repurchases to support the secondary market or meet client requests, the need for additional funding for commitments and contingencies, as well as unexpected collateral calls, among other things, the result of which could be a liquidity shortfall and/or impact on our liquidity coverage ratio.
Our cost of obtaining funding is directly related to prevailing market interest rates and to 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 maturity that we need to pay to our funding providers. Increases in interest rates and our credit spreads can increase the cost of our funding and result in mark-to-market or credit valuation adjustment exposures. Changes in our credit spreads are market-driven and may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile. Additionally, concentrations within our funding profile, such as maturities, currencies or counterparties, can reduce our funding efficiency.
For more information about our liquidity position and other liquidity matters, including credit ratings and outlooks and the policies and procedures we use to manage our liquidity risks, see Liquidity Risk in the MD&A on page 47.
Adverse changes to our credit ratings from the major credit rating agencies could significantly limit our access to funding or the capital markets, increase our borrowing costs or trigger additional collateral or funding requirements.
Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and seek to engage in certain transactions, including OTC derivatives. Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and asset securitizations. Our credit ratings are subject to ongoing review by rating agencies, which consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control such as the likelihood of the U.S. government providing meaningful support to us or our subsidiaries in a crisis.
Rating agencies could make adjustments to our credit ratings at any time, and there can be no assurance as to when and whether downgrades will occur. A reduction in certain of our credit ratings could result in a wider credit spread and negatively affect our liquidity, access to credit markets, the related cost of funds, our businesses and certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, we may suffer the potential loss of access to short-term funding sources such as repo financing, and/or increased cost of funds. Under the terms of certain OTC derivative contracts and other trading agreements, if our or our subsidiaries' credit ratings are downgraded, the counterparties may require additional collateral or terminate these contracts or agreements.
While certain potential impacts are contractual and quantifiable, the full consequences of a credit rating downgrade
to a financial institution are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a firm's long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties.
For more information on the amount of additional collateral required and derivative liabilities that would be subject to unilateral termination at December 31, 2018, if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by each of two incremental notches, sen Credit-related Contingent Features and Collateral in Note 3 - Derivatives to the Consolidated Financial Statements.
For more information about our credit ratings and their potential effects to our liquidity, see Liquidity Risk - Credit Ratings in the MD&A on page 50 and Nole 3 - Derivatives to the Consolidated Financial Statements.
Bank of America Corporation is a holding company and we depend upon our subsidiaries for liquidity, including the ability to pay dividends to shareholders and to fund payments on other obligations. Applicable laws and regulations, including capital and liquidity requirements, and actions taken pursuant to our resolution plan could restrict our ability to transfer funds from subsidiaries to Bank of America Corporation or to other subsidiaries, which could adversely affect our cash flow and financial condition.
Bank of America Corporation, as the parent company, is a separate and distinct legal entity from our banking and nonbank subsidiaries. We evaluate and manage liquidity on a legal entity basis. Legal entity liquidity is an important consideration as there are legal, regulatory, contractual and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the parent company, which could result in adverse liquidity events. The parent company depends on dividends, distributions, loans, advances and other payments from our banking and nonbank subsidiaries to fund dividend payments on our common stock and preferred stock and to fund all payments on our other obligations, including debt obligations. Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to laws that restrict dividend payments, or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the parent company or other subsidiaries. Our bank and broker-dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital and liquidity requirements, as well as restrictions on their ability to use funds deposited with them in bank or brokerage accounts to fund their businesses. Intercompany arrangements we entered into in connection with our resolution planning submissions could restrict the amount of funding available to the parent company from our subsidiaries under certain adverse conditions.
Additional restrictions on related party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of the parent company and even require the parent company to provide additional funding to such subsidiaries. Also, regulatory action that requires additional liquidity at each of our subsidiaries could impede access to funds we need to pay our obligations or pay dividends. In addition, our right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to prior claims of the subsidiary's creditors. For more information regarding our ability to pay dividends, see Capital Management in the MD&A on page 43 and Note 13 - Shareholders' Equity to the Consolidated Financial Statements.
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In the event of a resolution, whether in a bankruptcy proceeding or under the orderly liquidation authority of the FDIC, such resolution could materially adversely affect our liquidity and financial condition and the ability to pay dividends to shareholders and to pay obligations.
Bank of America Corporation, cur parent holding company, is required to periodically submit a plan to the FDIC and Federal Reserve describing its resolution strategy under the U.S. Bankruptcy Code in the event of material financial distress or failure. In the current plan, Bank of America Corporation's preferred resolution strategy is a "single point of entry" strategy. This strategy provides that only the parent holding company files for resolution under the U.S. Bankruptcy Code and contemplates providing certain key operating subsidiaries with sufficient capital and liquidity to operate through severe stress and to enable such subsidiaries to continue operating or be wound down in a solvent manner following a bankruptcy of the parent holding company. Bank of America Corporation has entered into intercompany arrangements resulting in the contribution of most of its capital and liquidity to key subsidiaries. Pursuant to these arrangements, if Bank of America Corporation's liquidity resources deteriorate so severely that resolution becomes imminent, Hank of America Corporation will no longer be able to draw liquidity from its key subsidiaries, and will be required to contribute its remaining financial assets to a wholly-owned holding company subsidiary, which could materially and adversely affect our liquidity and financial condition and the ability to pay dividends to shareholders and meet our payment obligations.
In addition, if the FDIC and Federal Reserve jointly determine that Bank of America Corporation's resolution plan is not credible, they could impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. Further, we could be required to take certain actions that could impose operating costs and could potentially result in the divestiture or restructuring of certain businesses and subsidiaries.
Under the Financial Reform Act, when a G-SIB such as Bank of America Corporation is in default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation of such institution. In the event of such appointment, the FDIC could, among other things, invoke the orderly liquidation authority, instead ofthe U.S. Bankruptcy Code, if the Secretary of the Treasury makes certain financial distress and systemic risk determinations. In 2013, the FDIC issued a notice describing its preferred "single point of entry" strategy for resolving a G-SIB. Under this approach, the FDIC could replace Bank of America Corporation with a bridge holding company, which could continue operations and result in an orderly resolution of the underlying bank, but whose equity would be held solely for the benefit of our creditors. The FDIC's "single point of entry" strategy may result in our security holders suffering greater losses than would have been the case under a bankruptcy proceeding or a different resolution strategy.
For more information about resolution planning, see Item 1. Business - Resolution Planning on page 3. For more information about the FDIC's orderly liquidation, see Item 1. Business - Insolvency and the Orderly Liquidation Authority on page 4.
Credit
Economic or market disruptions, Insufficient credit loss reserves or concentration of credit risk may result In an increase In the provision for credit losses, which could have an adverse effect on our financial condition and results of operations.
A number of our products expose us to credit risk, including loans, letters of credit, derivatives, debt securities, trading account assets and assets held-for-sale. The financial condition of our
consumer and commercial borrowers, counterparties and underlying collateral could adversely affect our financial condition and results of operations.
Global and U.S. economic conditions and macroeconomic events, including a decline in global GDP. consumer spending or real estate prices, as well as increasing leverage, rising unemployment and/or fluctuations in foreign exchange or interest rates, particularly if inflation is rising, may impact our credit portfolios. Economic or market stress or disruptions, including as a result of natural disasters, would likely increase the risk that borrowers or counterparties would default or become delinquent in their obligations to us, resulting in credit loss. Increases in delinquencies and default rates could adversely affect our consumer credit card, home equity, residential mortgage and purchased credit-impaired portfolios through increased charge-offs and provision for credit losses. A deteriorating economic environment could also adversely affect our consumer and commercial loan portfolios with weakened client and collateral positions. Addibonally, simultaneous drawdowns on lines of credit or an increase in a borrower's leverage in a weakening economic environment could result in deterioration in our credit portfolio, should borrowers be unable to fulfill competing financial obligations. Specifically, our consumer portfolio could be negatively impacted by drastic reductions in employment, or increases in underemployment, resulting in lower disposable income.
We estimate and establish an allowance for credit losses for losses inherent in our lending activities (including unfunded lending commitments), excluding those measured at fair value, through a charge to earnings. The process for determining the amount of the allowance requires us to make difficult and complex judgments, including loss forecasts on how borrowers will react to changing economic conditions. The ability of our borrowers or counterparties to repay their obligations will likely be impacted by changes in future economic conditions, which in turn could impact the accuracy of our loss forecasts and allowance estimates. There is also the possibility that we will fail to accurately identify the appropriate economic indicators or that we will fail to accurately estimate their impacts.
We may suffer unexpected losses if the models and assumptions we use to establish reserves and make judgments in extending credit to our borrowers or counterparties prove inaccurate in predicting future events. In addition, external factors, such as natural disasters, can influence recognition of credit losses in our portfolios and impact our allowance for credit losses. Although we believe that our allowance for credit losses was in compliance with applicable accounting standards at December 31, 2018, there is no guarantee that it will be sufficient to address credit losses, particularly if economic conditions deteriorate. In such an event, we may increase the size of our allowance which would reduce our earnings.
In the ordinary course of our business, we also may be subject to a concentration of credit risk in a particular industry, geographic location, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively affect our businesses, and the processes by which we set limits and monitor the level of our credit exposure to individual entities, industries and countries may not function as we have anticipated. While our activities expose us to many different industries and counterparties, we routinely execute a high volume of transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, insurers, mutual funds and hedge funds, and other institutional clients. This has resulted in significant credit
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concentration with ' respect to this industry. Financial services institutions and other counterparties are mter-related because of trading, funding, clearing cr other relationships. As a result, defaults by, or even market uncertainty about the financial stability of one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity disruptions, losses and defaults. Many of these transactions expose us to credit risk and, in some cases, disputes and litigation in the event of default of a counterparty. In addition, our crecit risk may be heightened by market risk when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the loan or derivatives exposure due to us. Further, disputes with obligors as to the valuation of collateral could increase in times of significant market stress, volatility or illiquidity, and we could suffer losses during such periods if we are unable to realize the fair value of the collateral or manage declines in the value of collateral.
In the ordinary course of business, we also enter into transactions with sovereign nations, U.S. states and U.S municipalities. Unfavorable economic or political conditions, disruptions to capital markets, currency fluctuations, changes in oil prices, social instability and changes in government policies could impact the operating budgets or credit ratings of these government entities and expose us to credit risk.
We also have a concentration of credit risk with respect to our consumer real estate, auto, consumer credit card and commercial real estate portfolios, which represent a significant percentage of our overall credit portfolio. Additionally, decreases in home price valuations or commercial real estate valuations in certain markets where we have large concentrations, including as a result of natural disasters, as well as more broadly within the U.S. or globally, could result in increased defaults, delinquencies or credit loss. For more information, see Consumer Portfolio Credit Risk Management in the MD&A on page 51. Furthermore, our commeraal pnrtfnlins include exposures to certain industries, including the energy sector. For more information, see Commercial Portfolio Credit Risk Management in the MD&A on page 59. Economic weaknesses, adverse business conditions, market disruptions, rising interest or capitalization rates, the collapse of speculative bubbles, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in either our consumer or commercial portfolios or cause us to write down the value of certain assets.
Liquidity disruptions in the financial markets may result in our inability to sell, syndicate or realize the value of our positions, leading to increased concentrations, which could increase the credit and market risk associated with our positions, as well as increase our risk-weighted assets.
For more information about our credit risk and credit risk management policies and procedures, see Credit Risk Management in the MD&A on page 51, Note 1 - Summary of Significant Accounting Principles, Note 5 - Outstanding Loans and Leases and Note 6 -Allowance for Credit Losses to the Consolidated Financial Statements.
If the U.S. housing market weakens or home prices decline, our consumer loan portfolios, credit quality, credit losses, representations and warranties exposures and earnings may be adversely affected.
While U.S. home prices continued to generally improve during 2018, declines in future periods may negatively impact the demand for many of our products. Additionally, our mortgage loan production volume is generally influenced by the rate of growth in residential mortgage debt outstanding and the size of the residential mortgage market, both of which may be adversely
affected by rising interest rates. Conditions in the US. housing market in prior years resulted in both significant write-downs of asset values in several asset classes, notably mortgage-backed securities, and exposure to monolines. If the U.S housing market were to weaken, the value of real estate could decline, which could result in increased credit losses and delinquent servicing expenses and negatively affect our representations and warranties exposures, which could have an adverse effect on our financial condition and results of operations.
Our derivatives businesses may expose us to unexpected risks and potential losses.
We are party to a large number of derivatives transactions, including credit derivatives. Our derivatives businesses may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses. Severe declines in asset values, unanticipated credit events or unforeseen circumstances that may cause previously uncorrelated factors to become correlated and vice versa, may create losses resulting from risks not appropriately taken into account or anticipated in the development, structuring or pricing of a derivative instrument. Certain of our OTC derivative contracts and other bading agreements provide that upon the occurrence of certain specified events, such as a change in the credit rating of a particular Bank of America entity or entities, we may be required to provide additional collateral or take other remedial actions, or our counterparties may have the right to terminate or otherwise diminish our rights under these contracts or agreements.
In addition, in the event of a downgrade of our credit ratings, certain derivative and other counterparties may request we substitute BANA (which has generally had equal or higher credit ratings than the parent company) as counterparty for certain contracts. Our ability to substitute or make changes to these agreements may be subject, tn certain limitations including, counterparty willingness, operational considerations, regulatory limitations on having BANA as a counterparty and collateral constraints. It is possible that such limitations on our ability lo subslilulu ut make changes to these agreements, including having BANA as the new counterparty, could adversely affect our results of operations.
Many derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling some positions difficult. Many derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold, and may not be able to obtain, the underlying security, loan or other obligation.
We are also a member of various central counterparty clearinghouses (CCPs) due to regulatory requirements for mandatory clearing of derivative transactions, which potentially increases our credit risk exposures to CCPs. In the event that one or more members of the CCP defaults on its obligations, we may be required to pay a portion of any losses incurred by the CCP as a result of that default. Also, as a clearing member, we are exposed to the risk of nonperformance by our clients for which we clear transactions, which may not be covered by available collateral.
For more information on our derivatives exposure, see Note 3 -Derivatives to the Consolidated Financial Statements.
Geopolitical
We are subject to numerous political, economic, market, reputational, operational, legal, regulatory and other risks in the Jurisdictions In which we operate.
We do business throughout the world, including in emerging markets. Our businesses and revenues derived from non-U.S. jurisdictions are subject to risk ol loss from currency fluctuations.
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financial, social or judicial instability, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, capital controls, redenomination risk, exchange controls, protectionist trade policies, increasing trade tensions between the U.S. and important trading partners, particularly China, increasing the risk of escalating tariffs and other restrictive actions, unfavorable political and diplomatic developments, oil price fluctuation and changes in legislation. These risks are especially elevated in emerging markets. A number of non-U.S. jurisdictions in which we do business have been or may be negatively impacted by slowing growth or recessionary conditions, market volatility and/or political unrest. The political and economic environment in Europe, including the debt concerns of certain EU countries, remains challenging and the current degree of political and economic uncertainty, including potential recessionary conditions, could increase. For example, the ongoing negotiations of the terms of the U.K.'s planned exit from the EU may create uncertainty and increase risk, which could adversely affect us.
Potential risks of default on or devaluation of sovereign debt in some non-U.S. jurisdictions could expose us to substantial losses. Risks in one nation can limit our opportunities for portfolio growth and negatively affect our operations in other nations, including our U.S. operations. Market and economic disruptions of all types may affect consumer confidence levels and spending, corporate investment and job creation, bankruptcy rates, levels of incurrence and default on consumer and corporate debt, economic growth rates and asset values, among other factors Any such unfavorable conditions or developments could have an adverse impact on our company.
We also invest or trade in the securities of corporations and governments located in non-U.S. jurisdictions, including emerging markets. Revenues from the trading of non-U.S. securities may be subject to negative fluctuations as a result of the above factors. Furthermore, the impact of' these fluctuations could be magnified because non-U.S. trading markets, particularly in emerging markets, are generally smaller, less liquid and more volatile than U.S. trading markets.
Our non-U.S. businesses are also subject to extensive regulation by governments, securities exchanges and regulators, central banks and other regulatory bodies. In many countries, the laws and regulations applicable to the financial services and securities industries are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market or manage our relationships with multiple regulators in various jurisdictions. Our potential inability to remain in compliance v/ith local laws in a particular market and manage our relationships with regulators could have an adverse effect not only on our businesses in that market but also on our reputation in general.
In addition to non-U.S. legislation, our international operations are also subject to U.S. legal requirements. For example, our operations are subject to U.S. and non-U.S. laws and regulations relating to bribery and corruption, anti-money laundering, and economic sanctions, which can vary by jurisdiction The increasing speed and novel ways in which funds circulate could make it more challenging to track the movement of funds. Our ability to comply with these legal requirements depends on our ability to continually improve detection and reporting and analytic capabilities.
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 ratings, and prolonged government shutdowns could negatively impact the global economy and banking system and adversely affect our financial condition, including our liquidity. Additionally, changes in fiscal,
monetary or regulatory policy could increase our compliance costs and adversely affect our business operations, organizational structure and results of operations. We are also subject to geopolitical risks, including acts or threats of terrorism, and actions taken by the U.S. or other governments in response thereto, and/or military conflicts, which could adversely affect business and economic conditions abroad, as well as in the U.S.
For more information on our non-U.S. credit and trading portfolios, see Non-U.S. Portfolio in the MD&A on page 65.
The U.K. Referendum, and the planned exit of the U.K. from the EU, could adversely affect us.
We conduct business in Europe, the Middle East and Africa primarily through our subsidiaries in the U.K. and Ireland. For the year ended December 31,, 2018, our operations in Europe, the Middle East and Africa, including the U.K., represented approximately six percent of our total revenue, net of interest expense.
A referendum was held in the U.K. in 2016, which resulted in a majority vote in favor of exiting the EU on March 29, 2019. Negotiations between the EU and U.K. regarding this exit consist of threor phases: a withdrawal agreement, a new trade deal and an arrangement for a transition period. Significant political ond economic uncertainty persists regarding the timing, details and viability of each phase. There may be heightened uncertainty if the terms of the U.K.'s exit from the EU are not agreed upon at the time of its exit. The ultimate impact and terms of the U.K.'s planned exit remain unclear, and short- and long-term global economic and market volatility may occur, including as a result of currency fluctuations and trade relations. If uncertainty resulting from the U.K.'s exit negatively impacts economic conditions, financial markets and consumer confidence, our business, results of operations, financial position and/or operational model could be adversely affected.
We are also subject to different laws, regulations and regulatory authorities and may incur additional costs and/or experience negative tax consequences as a result of establishing our principal EU banking and broker-dealer operations outside of the U.K., which could adversely impact our EU business, results of operations and operational model. Additionally, changes to the legal and regulatory framework under which our subsidiaries will continue to provide products and services in the U.K. following an exit by the U.K. from the EU may result in additional compliance costs and have an adverse impact on our results of operations. For more information on our EU operations outside of the U.K., see Executive Summary - Recent Developments - U.K. Exit from the EU in the MD&A on page 21.
Business Operations
A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely Impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.
The potential for operational risk exposure exists throughout our organization and, as a result of our interactions with, and reliance on, third parties, is not limited to our own internal operational functions. Our operational and security systems infrastructure, including our computer systems, emerging technologies, data management and internal processes, as well as those of third parlies, are integral to our performance. We rely on our employees and third parties in our day-today and ongoing operations, who may, as a result of human error, misconduct, malfeasance or failure or breach of systems or infrastructure, expose us to risk. We have taken measures to implement training, procedures, backup systems and othor safeguards to support our operations, but our ability to conduct business may be adversely
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affected by any significant disruptions to us or to third parties with whom we interact or upon whom we rely For example, technology project implementation challenges may cause business interruptions. In addition, our ability to implement Dackup systems and other safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting, data processing, backup or other operating or security systems and infrastructure or those of third parties with whom wc interact or upon whom we rely may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our or such third party's control, which could adversely affect our ability to process transactions or provide services. There could be sudden increases in customer transaction volume due to electronic trading platforms and algorithmic trading applications; electrical, telecommunications or other major physical infrastructure outages; newly identified vulnerabilities in key hardware or software; natural disasters such as earthquakes, tornadoes, hurricanes and fioods; pandemics; and events arising from local or larger scale political or social matters, including terrorist acts, which could result in prolonged operational outages. In the event that backup systems are utilized, they may not process data as quickly as our primary systems and some data might not have been backed up. We continuously update the systems on which we rely to support our operations and growth and to remain compliant with all applicable laws, rules and regulations globally. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interrupbons. Operational risk exposures could adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
A cyber-attack, Information or security breach, or a technology failure of ours or of a third party could adversely affect our ability to conduct our business, manage our exposure to risk or expand our businesses, rssult In the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems and Infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.
Our businesses are highly dependent on the security, controls and efficacy of our infrastructure, computer and data management systems, as well as those of our customers, suppliers, counterparties and other third parties with whom we interact or on whom we rely. Our businesses rely on effective access management and the secure collection, processing, transmission, storage and retrieval of confidential, proprietary, personal and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our employees, customers, suppliers, counterparties and other third parties increasingly use personal mobile devices or computing devices that are outside of our network and control environments and are subject to their own cybersecurity risks.
We. our employees and customers, regulators and other third parties have been subject to. and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code (such as ransomware), phishmg attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties, damages to systems, or otherwise material disruption to our or our customers' or other third parties' network
access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Cyber threats are rapidly evolving, and despite substantial efforts to protect the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all cyber-attacks or information or security breaches, nor may we be able to implement effective preventive or defensive measures to address such attacks or breaches.
Cybersecurity risks for financial services organizations have significantly increased in recent years in part because of the proliferation of new and emerging technologies, and the use of the Internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings, expand our internal usage of web- or cloud-based products and applications and continue to develop our use of process automation and artificial intelligence. In addition, cybersecurity risks have significantly increased in recent years in part due to the increasingly sophisticated activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Internal access management failures could result in the compromise or unauthorized exposure of confidential data. Targeted social engineering attacks are becoming more sophisticated and are extremely difficult to prevent. Tho techniques used by bad actors change frequently and may not be recognized until well after a breach has occurred, at which time the materiality of the breach may be difficult to assess. Additionally, the existence of cyber-attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed lo us in a limely manner.
Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber-attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such material losses or consequences in the future. Our risk and exposure to these matters remain heightened because of. among other things, the evolving nature of these threats, our prominent size and scale, and our role in the financial services industry and the broader economy, our plans to continue to implement our internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served, our continuous transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, our geographic footprint and international presence, the outsourcing of some of our business operations, threats of cyber terrorism, external extremist parties, including foreign state actors, in some circumstances as a means to promote political ends, and system and customer account updates and conversions. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack,'damage or unauthorized access remain a critical priority.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third partes with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties;
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financial intermediaries such as clearing agents, exchanges and clearing houses, vendors; regulators; providers of critical infrastructure such as internet access 2nd electric;)! power; and retailers for whom we process transactions As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities or third-party or downstream service providers could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any technology failure, cyber-attack or other information or security breach, termination or constraint of any third party, including downstream service providers, could, among other things, adversely affect our ability to conduct day-to-day business activities, effect transactions, service our clients, manage our exposure to risk, expand our businesses or result in the misappropriation or destruction of the personal, proprietary or confidential information of our employees, customers, suppliers, counterparties and other third parties.
Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in significant lost revenue, give rise to losses or have other negative consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Although we maintain cyber insurance, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate. Also, successful penetration or circumvention of system security could result in negative consequences, including loss of customers and business opportunities, the withdrawal of customer deposits, prolonged computer and network outages resulting in disruptions to our critical business operations and customer services, misappropriation or destruction of our confidential information and/or the confidential, proprietary or personal information of certain parties, such as our employees, customers, suppliers, counterparties and other third parties, or damage to their computers or systems. This could result in a violation of applicable privacy and other laws in the U.S. and abroad, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs and our internal controls or disclosure controls being rendered ineffective. The occurrence of any of these events could adversely impact our results of operations, liquidity and financial condition.
Our mortgage loan repurchase obligations or claims from third parties could result in additional losses.
We and our legacy companies have sold significant amounts of residential mortgage loans. In connection with these sales, we or certain of our subsidiaries or legacy companies made various representations and warranties, breaches of which may result in a requirement that we repurchase the mortgage loans, or otherwise make whoie or provide olher remedies to counterparties. At December 31. 2018, we had $14.4 billion of unresolved repurchase claims, net of duplicate claims and excluding claims where the statute of limitations has expired without litigation being commenced.
At December 31, 2018, our liability for obligations under representations and warranties exposures was $2.0 billion. We also h3ve an estimated range of possible loss (RPL) for
representations and warranties exposures that is combined with the litigation RPL, which we disclose in Note 12 - Commitments and Contingencies to the Consolidated Financial Statements. The recorded liability and estimated RPL are based on currently available information, significant judgment and a number of assumptions that are subject to change. There can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements. Future representations and warranties losses may occur in excess of our recorded liability and estimated RPL, and such losses could have a material adverse effect on our liquidity, financial condition and results of operations.
Additionally, our recorded liability for representations and warranties exposures and the corresponding estimated RPL do not consider certain losses related to servicing, including foreclosure and related costs, fraud, indemnity or claims (including for residential mortgage-backed securities) related to securities law. Losses with respect to one or more of these matters could be material to our results of operations or liquidity.
For more information about our representations and warranties exposure, see Off-Balance Sheet Arrangements and Contractual Obligations - Representations and Warranties in the MD&A on page 40, Complex Accounting Estimates - Representations and Warranties Liability in the MD&A on page 79 and Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
Failure to satisfy our obligations as servicer for residential mortgage securitizations, along with other losses we could incur in our capacity as servicer, and foreclosure delays and/or investigations into our residential mortgage foreclosure practices could cause losses.
We and our legacy companies have securitized a significant portion of the residential mortgage loans that we originated or acquired. We service a portion of the loans we have securitized and also service loans on behalf of third-party securitization vehicles and other investors. If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, which could cause us to lose servicing income. In addition, for loans principally held in private-label securitization trusts, we may have liability for any failure by us, as a servicer or master servicer, for any act or omission on our part that involves willful misfeasance, bad faith, gross negligence or reckless disregard of our duties. If any such breach was found to have occurred, it may harm our reputation, increase our servicing costs or adversely impact our results of operations. Additionally, with respect to foreclosures, we may incur costs or losses due to irregularities in the underlying documentation, ¦ or if the validity of a foreclosure action is challenged by a borrower or overturned' by a court because of errors or deficiencies in the foreclosure process. We may also incur costs or losses relating to delays or alleged deficiencies in processing documents necessary to comply with state law governing foreclosure.
Changes In the structure of the GSEs and the relationship among the GSEs, the government and the private markets, or the conversion of the current conservatorship of Fannie Mae or Freddie Mac Into receivership, could result in significant changes to our business operations and may adversely Impact our business.
During 2018, we sold approximately $3.0 billion of loans to Fannie Mae and Freddie Mac. Each is currently in a conservatorship with its primary regulator, the Federal Housing Finance Agency (FHFA). acting as conservator. We cannot predict whether the conservatorships will end, any associated changes to their business structure that could result or whether the conservatorships will end in receivership, privatization or other
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change in business structure. There are several proposed approaches to reform that, if enacted, could change the structure and the relationship among the GSEs, the government and the private markets, including the trading markets for agency conforming mortgage loans and markets for mortgage-related securities in which we participate Although the FHFA has taken steps to unify underwriting parameters and business practices between GSEs, we cannot predict the prospects for the enactment, timing or content of legislative or rulemaking proposals regarding the future status of any GSEs and/or their impact on tho guarantees, demand or price of mortgage-related securities. Accordingly, uncertainty regarding their future continues tc exist, including whether the GSEs will continue to exist in their current forms or continue to guarantee mortgages and provide funding for mortgage loans.
Any of these developments could adversely affect the value of our securities portfolios, capital levels and liquidity and results of operations.
Our risk management framework may not be effective in mitigating risk and reducing the potential for losses.
Our risk management framework is designed to minimize risk and loss to us. We seek to effectively identify, measure, monitor, report and control the types of risk to which we are subject, including strategic, credit, market, liquidity, compliance, operational and reputational risks. While we employ a broad and diversified set of controls and risk mitigation techniques, including hedging strategies and techniques that seek to balance our ability to profit from trading positions with our exposure to potential losses, our ability to control and mitigate risks that result in losses is inherently limited by our ability to identify all risks, including emerging and unknown risks, anticipate the timing of risks, apply effective hedging strategies, manage and aggregate data correctly and efficiently, and develop risk management models to assess and control risk.
Our ability to manage risk is limited by our ability to develop and maintain a culture of managing risk well throughout the Corporation and manage risks associated with third parties and vendors, to enable effective risk management and ensure that risks are appropriately considered, evaluated and responded to in a timely manner. Uncertain economic conditions, heightened legislative and regulatory scrutiny of the financial services industry and the overall complexity of our operations, among other developments, may result in a heightened level of risk for us. Accordingly, we could suffer losses as a result of our failure to properly anticipate, manage, control or mitigate risks.
For more information about our risk management policies and procedures, see Managing Risk in the MD&A on page 40.
We may not be successful in reorganizing the current business of Merrill Lynch, Pierce, Fenner fie'Smith Incorporated (MLPF&S) into two affiliated broker-dealers.
As a result of resolution planning, the current business of MLPF&S is expected to be reorganized, subject to regulatory approval, into two affiliated broker-dealers during 2019, MLPF&S and BofA Securities, Inc. In the event that the broker-dealer reorganization is not fully realized or takes longer to realize than expected, we could experience unexpected expenses, reputational damage, compliance and regulatory issues, and lost revenue. For more information about the broker-dealer reorganization, see Capitol Management - Broker-dealer Regula:ory Capital and Securities Regulation in the MD&A on page 47.
Regulatory, Compliance and Legal We are subject to comprehensive government legislation and regulations, both domestically and Internationally, which Impact our operating costs, and could require us to make changes to our operations and result in an adverse Impact on our results of operations. Additionally, these regulations and uncertainty surrounding the scope and requirements of the final rules implementing recently enacted and proposed legislation, as well as certain settlements and consent orders we have entered Into, have increased and could continue to increase our compliance and operational risks and costs.
We are subject to comprehensive regulation under federal and state laws in the U.S. and the laws of the various jurisdictions in which we operate. These laws and regulations significantly affect and have the potential to restrict the scope of our existing businesses, limit our ability to pursue certain business opportunities, including the products and services we offer, reduce certain fees and rates or make our products and services more expensive for clients and customers.
In response to the financial crisis as well as other factors such as technological and market changes, the U.S. adopted the Financial Reform Act, which has resulted in significant rulemaking and proposed rulemaking by the U.S. Department of the Treasury, Federal Reserve. OCC, CFPB, Financial Stability Oversight Council, FDIC, Department of Labor, SEC and CFTC. For example, under the provisions of the Financial Reform Act known as the "Volcker Rule," we are prohibited from proprietary trading and limited in our sponsorship of, and investment in, hedge funds, private equity funds and certain other covered private funds. Non-U.S. regulators, such as the U.K. financial regulators and the European Parliament and Commission, have adopted or proposed laws and regulations regarding financial institutions located in their jurisdictions, which have required and could require us to make significant modifications to our non-U.S. businesses, operations and legal entity structure in order to comply with these requirements.
We continue to make adjustments to our business and operations, legal entity structure and capital and liquidity management policies, procedures and controls to comply with these laws and regulations, as well as final rulemaking, guidance and interpretation by regulatory authorities. Further, we could become subject to future regulatory requirements beyond those currently proposed, adopted or contemplated. The cumulative effect of all of the legislation and regulations on our business, operations and profitability remains uncertain. This uncertainty necessitates that in our business planning we make certain assumptions with respect to the scope and requirements of the proposed rules. If these assumptions prove incorrect, we could be subject to increased regulatory and compliance risks and costs as well as potential reputational harm. In addition, U.S. and international regulatory initiatives may overlap, and non-U.S. regulations and initiatives may be inconsistent or may conflict with current or proposed U.S. regulations, which could lead to compliance risks and increased costs.
Our regulators' prudential and supervisory authority gives them broad power and discretion to direct our actions, and they have assumed an active oversight, inspection and investigatory role across the financial services industry. However, regulatory focus is not limited to laws and regulations applicable to the financial services industry specifically, but also extends to other significant laws and regulations that apply across industries and jurisdictions,
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including relaled to anti-money laundering, anti-corruption and economic sanctions. Additionally, we are subject to laws in the U.S. and abroad, including GDPR, regarding personal and confidential information of certain parties, such as our employees, customers, suppliers, counterparties and other third parties
As part of their enforcement authority, our regulators have the authority to, among other things, assess significant civil or criminal monetary penalties, fines or restitution, issue cease and desist or removal orders and initiate injunctive actions. The amounts paid by us and other financial institutions to settle proceedings or investigations have been substantial and may increase In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such settlements, which could have significant consequences for a financial institution, including reputational harm, loss of customers, restrictions on the ability to access capital markets, and the inability to operate certain businesses or offer certain products for a period of time.
The Corporation and its employees and representatives are subject to regulatory scrutiny across jurisdictions. Additionally, the complexity of the federal and state regulatory and enforcement regimes in the U.S., coupled with the global scope of our operations and the aggressiveness of the regulatory environment worldwide also means that a single event or practice or a series of related events or practices may give rise to a large number of overlapping investigations and regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and olher governmental entities in different jurisdictions. Responding to inquiries, investigations, lawsuits and proceedings, regardless of the ultimate outcome of the matter, is time-consuming and expensive and can divert the attention of our senior management from our business. The outcome of such proceedings may be difficult to predict or estimate until late in the proceedings, which may last a number of years.
We are currently subject to the terms of settlements and consent orders that we have entered into with government agencies and regulatory authorities and may become subject to additional settlements or orders in the future. Such settlements and consent orders impose significant operational and compliance costs on us as they typically require us to enhance our procedures and controls, expand our risk and control functions within our lines of business, invest in technology and hire significant numbers of additional risk, control and compliance personnel. Moreover, if we fail to meet the requirements of the regulatory settlements and orders to which we are subject, or more generally, to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government agencies, we could be required to enter into further settlements and orders, pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses
While we believe that we have adopted appropriate risk management and compliance programs to identify, assess, monitor and report on applicable laws, policies and procedures, compliance risks will continue to exist, particularly as we adapt to new rules and regulations. Additionally, there is no guarantee that our risk management and compliance programs will be consistently executed to successfully manage compliance risk. We also rely upon third parties who may expose us to compliance and legal risk. Future legislative or regulatory actions, and any required changes to our business or operations, or those of third parties upon whom we rely, resulting from such developments and actions, could result in a significant loss of revenue, impose additional compliance and other costs or otherwise reduce our profitability, limit the products and services that we offer or our ability to pursue certain business opportunities, require us to dispose cf or curtail certain businesses, affect the value of assets
that we hold, require us to increase our prices and therefore reduce demand for our products, or otherwise adversely affect our businesses. In addition, legal and regulatory proceedings and other contingencies will arise from time to time that may result in fines, regulatory sanctions, penalties, equitable relief and changes to our business practices. As a result, we are and will continue to be subject to heightened compliance and operating costs that could adversely affect our results of operations.
We are subject to significant financial and reputational risks from potential liability arising from lawsuits and regulatory and government action.
We face significant legal risks in our business, and the volume of claims and amount of damages, penalties and fines claimed in litigation and other disputes, and regulatory and government proceedings against us and other financial institutions continue to be high. Greater than expected litigation and investigation costs, substantial legal liability or significant regulatory or government action against us could have adverse effects on our financial condition, including liquidity, and results of operations or cause significant reputational harm to us. We continue to experience a significant volume of litigation and other disputes, including claims for contractual indemnification with counterparties regarding relative rights and responsibilities. Consumers, clients and other counterparties continue to be litigious. Among other things, financial institutions, including us, continue to be tho subject of claims alleging anti-competitive conduct with respect to various products and markets, including U.S. antitrust class actions claiming joint and several liability for treble damages. In addition, regulatory authorities have had a supervisory focus on enforcement, including in connection with alleged violations of law and customer harm. For example, U.S. regulators and government agencies have pursued claims against financial institutions under the Financial Institutions Reform. Recovery, and Enforcement Act, False Claims Act and antitrust laws. Such claims may carry significant and, in certain cases, treble damages. The ongoing environment of extensive regulation, regulatory compliance burdens, litigation and regulatory and government enforcement, combined with uncertainty related to the continually evolving regulatory environment, may affect operational and compliance costs and risks, which may limit our ability to continue providing certain products and services.
Additionally, misconduct by employees, including improper or illegal conduct can cause significant reputational harm as well as litigation and regulatory action.
For more information on litigation risks, see Note 12 -Commitments and Contingencies to the Consolidated Financial Statements.
U.S. federal banking agencies may require us to increase our regulatory capital, TLAC, long-term debt or liquidity requirements, which could result In the need to Issue additional qualifying securities or to take other actions, such as to sell company assets.
We are subject to U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum requirements to qualify as a "well-capitalized" institution. If any of our subsidiary insured depository institutions fails to maintain its status as "well capitalized" under the applicable regulatory capital rules, the Federal Reserve will require us to agree to bring the insured depository institution back to "well-capitalized" status. For the duration of such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into or comply with such an agreement, or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions on our activities, including requiring us to ' cease and desist activities permitted under the Bank Holding Company Act of 1956.
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In the current regulatory environment, capital and liquidity requirements aie frequently introduced and amended. It is possible that regulators may increase regulatory capital requirements including TLAC and long-term debt requirements, change how regulatory capital is calculated or increase liquidity requirements. Our risk-based capital surcharge (G-SIB surcharge) may increase from current estimates, and we are also subject to a countercyclical capital buffer which, while currently set at zero, may be increased by regulators. In 2018, the Federal Reserve issued a proposal to implement a stress capital buffer into its capital requirements, which may increase our regulatory capital requirements, if adopted. A significant component of regulatory capital ratios is calculating our risk-weighted assets and our leverage exposure which may increase. The Basel Committee on Banking Supervision has also revised several key methodologies for measuring risk-weighted assets, including a standardized approach for credit risk, standardized approach for operational risk and constraints on the use of internal models, as well as a capital floor based on the revised standardized approaches. U.S. banking regulators may update the U.S. Basel 3 rules to incorporate the Basel Committee revisions. In 2018, U.S. banking regulators published a proposal outlining a standardized approach for counterparty credit risk, which updates the calculation of the exposure amount for derivative contracts under the regulatory capital rule. Additionally, Net Stable Funding Ratio requirements have been proposed, which would apply to us and our subsidiary depository institutions, and target longer term liquidity risk. While the impact of these proposals remains uncertain, they could have a negative impact on our capital and liquidity positions.
As part of its annual CCAR review, the Federal Reserve conducts stress testing on parts of our business using hypothetical economic scenarios prepared by the Federal Reserve. Those scenarios may affect our CCAR stress test results, which may have an effect on our projected regulatory capital amounts in the annual CCAR submission, including the CCAR capital p'an affecting nur dividends and stock repurchases.
Changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring us to liquidate assets, increase borrowings, issue additional equity or other securities, cease or alter certain operations, sell company assets, or hold highly liquid assets, which may adversely affect our results of operations. We may be prohibited from taking capital actions such as paying or increasing dividends, or repurchasing securities if the Federal Reserve objects to our CCAR capital plan.
For more information, see Capital Management - Regulatory Capital in ttie MD&A on page 44 and Note 16 - Regulatory Requirements . and Restrictions to the Consolidated Financial Statements.
Changes in accounting standards or assumptions In applying accounting policies could adversely affect us.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate pnor-period financial statements. Accounting standard-setters and those who interpret the accounting standards, the SEC, banking regulators and our independent registered public accounting firm may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to predict and could impact how we prepare and report
our financial statements. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in us revising prior-period financial statements.
In June 2016, the Financial Accounting Standards Board issued a new accounting standard with respect to accounting for credit losses that will become effective for the Corporation on January 1, 2020. The standard replaces the existing measurement of the allowance for credit losses, which is based on management's best estimate of probable credit losses inherent in the Corporation's lending activities, with management's best estimate of lifetime expected credit losses inherent in tho Corporation's financial assets that are recognized at amortized cost. The standard will also expand credit quality disclosures. The impact of this new accounting standard may be an increase in the Corporation's allowance for credit losses at the date of adoption which would result in a negative adjustment to retained earnings. The ultimate impact will depend on the characteristics of the Corporation's portfolio at adoption date as well as the macroeconomic conditions and forecasts as of that date. For more information on some of our critical accounting policies and recent accounting changes, see Complex Accounting Estimates in the MD&A on page 77 and Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements.
We may be adversely affected by changes In U.S. and non-U.S. tax laws and regulations.
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the Tax Act) which made significant changes to federal income tax law including, among other things, reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-U.S. business activities.
In addition, we have U.K. net deferred tax assets which consist primarily of net operating losses that are expected to be realized by certain subsidiaries over an extended number of years. Adverse developments with respect to tax laws or to other material factors, such as prolonged worsening of Europe's capital markets or changes in the ability of our U.K. subsidiaries to conduct business in the EU, could lead our management to reassess and/or change its current conclusion that no valuation allowance is necessary with respect to our U.K. net deferred tax assets.
It is possible that governmental authorities in the U.S. and/or other countries could further amend tax laws that would adversely affect us, including the possibility that certain favorable aspects of the Tax Act could be amended in the future.
Reputation
Damage to our reputation could harm our businesses, including our competitive position and business prospects.
Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. Harm to our reputation can arise from' various sources, including officer, director or employee misconduct, security breaches, unethical behavior, litigation or regulatory outcomes, compensation practices, the suitability or reasonableness of recommending particular trading or investment strategies, including the reliability of our research and models, prohibiting clients from engaging in certain transactions and sales practices. Additionally, our reputation may be harmed by failing to deliver products, subpar standards of service and quality expected by cur customers, clients and the community, compliance failures, inadequacy of responsiveness to internal controls, unintended disclosure of personal, proprietary or confidential information, perception of our environmental, social and governance practices and disclosures, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial services industry
15 Bank ol America 2018
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generally or by certain members or individuals in the industry also can adversely affect our reputation. In addition, adverse publicity or negative information posted on social media, whether or not factually correct, may adversely impact our business prospects or financial results.
We are subject to complex and evolving laws and regulations regarding privacy, kriow-your-customer requirements, data protection, including the GDPR, cross-border data movement and other matters. Principles concerning the appropriate scope of consumer and commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition and scope of consumer and commercial privacy may remain fluid. It is possible that these laws may be interpreted and applied by various jurisdictions in a manner inconsistent with our current or future practices, or that is inconsistent wilh one another. If personal, confidential or proprietary information of customers or clients in our possession is mishandled or misused, or if we do not timely or adequately address mishandled or misused information, we may face regulatory, reputational and operational risks which could have an adverse effect on our financial condition and results of operations.
We could suffer reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interests has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to use our products and services, or give rise to litigation or enforcement actions, which could adversely affect our businesses.
Our actual or perceived failure to address these and other issues, such as operational risks, gives rise to reputational risk that could harm us and our business prospects. Failure to appropriately address, any of these issues could also give rise to additional regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses. For more information on reputational risk, see Reputational Risk Management in the MD&A on page 77.
Other
We face significant and Increasing competition In the financial services industry.
We operate in a highly competitive environment and will continue to experience intense competition from local and global financial institutions as well as new entrants, in both domestic and foreign markets, in which we compete on the basis of a number of factors, including customer service, quality and range of products and services offered, technology, price, reputation, interest rates on loans and deposits, lending limits and customer convenience. Additionally, the changing regulatory environment may create competitive disadvantages for us given geography-driven capital and liquidity requirements For example, U.S. regulators have in certain instances adopted stricter capital and liquidity requirements than those applicable to non-U.S. institutions. To the extent we expand into new business areas and new geographic regions, we may face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to compete. In addition, technological advances and the growth of e-commerce have lowered geographic barriers of other financial institutions, made
it easier for non-depository institutions to offer products and services that traditionally were banking products and allowed non-traditional financial service providers to compete with traditional financial service companies in providing electronic and internet-based financial solutions including electronic securities trading, marketplace lending and payment processing. Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas vie deem speculative cr risky, such as cryptocurrencies. Increased competition may negatively affect our earnings by creating pressure to lower prices or credit standards on our products and services requiring additional investment to improve the quality and delivery of our technology and/or reducing our market share, or affecting the willingness of our clients to do business with us.
Our Inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business.
Our business model is based on a diversified mix of businesses that provide a broad range of financial products and services, delivered through multiple distribution channels. Our success depends on our ability to adapt and develop our products, services and technology to evolving industry standards and consumer preferences. There is increasing pressure by competitors to provide products and services on more attractive terms, including higher interest rates on deposits, which may impact our ability to grow revenue and/or effectively compete. Additionally legislative and regulatory developments may affect the competitive landscape. Further, the competitive landscape may be impacted by the growth of non-depository institutions that offer traditional.banking products at higher rates or wilh no fees, or otherwise offer alternative products. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our online and mobile banking channel strategies in addition to remote connectivity solutions. We may not be as timely or successful in developing or introducing new products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers. The inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business and adversely affect our results of operations and reputation.
Our ability to attract and retain qualified employees is critical to the success of our business and failure to do so could hurt our business prospects and competitive position.
Our performance is heavily dependent on the talents and efforts of highly skilled individuals. Competition for qualified personnel within the financial services industry and from businesses outside the financial services industry is intense. Our competitors include non-U.S. based institutions and institutions subject to different compensation and hiring regulations than those imposed on U.S. institutions and financial institutions.
In order to attract and retain qualified personnel, we must provide market-level compensation. As a large financial and banking institution, we may be subject to limitations on compensation practices (which may or may not affect our competitors) by the Federal Reserve, the OCC, the FDIC and other regulators around the world. EU and U.K. rules limit and subject to clawback certain forms of variable compensation for senior
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employees Current and potential future limitations on executive compensation imposed by legislation or regulation could adversely affect our ability to attract and maintain qualified employees. Furthermore, a substantial portion of our annual incentive compensation paid to our senior employees has in recent years taken the form of long-term equity-based awards Therefore, the ultimate value ofthis compensation depends on the price ofour common stock when the awards vest. If we are unable tn continue to attract and retain qualified individuals, our business prospects and competitive position could be adversely affected.
We could suffer losses if our models and strategies fail to properly anticipate and manage risk.
We use proprietary models and strategies extensively to measure and assess capital requirements for credit, country, market, operational and strategic risks and to assess and control our operations and financial condition. These models require oversight and periodic re-validation and are subject to inherent limitations due to the use of historical trends and simplifying assumptions, and uncertainty regarding economic and financial outcomes. Our models may not be sufficiently predictive of future results due to limited historical patterns, extreme or unanticipated market movements or customer behavior and illiquidity, especially during severe market downturns or stress events, and may not be effective if we fail to detect flaws in our modeis during our review process, our models contain erroneous data, valuations, formulas or algorithms or our applications running the models do not perform as expected. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. We could suffer losses if models ond strategies fail to properly anticipate and manage risks.
Failure to properly manage and aggregate data may result In our Inability to manage risk and business needs and inaccurate financial, regulatory and operational reporting.
We rely on cur ability to manage, aggregate, interpret and use data in an accurate, timely and complete manner for effective risk reporting and management. Our policies, programs, processes and practices govern how data is managed, aggregated, interpreted and used. While we continuously update our policies, programs, processes and practices, and implement emerging technologies, such as artificial intelligence, our data management and aggregation processes are subject to failure, including human error or system failure. Failure to manage data effectively and to aggregate data in an accurate, timely and complete manner may limit our ability to manage current and emerging risk, to produce
accurate financial, regulatory and operational reporting as well as to manage changing husiness needs.
Item IB. Unresolved Staff Comments
None
Reforms to and uncertainty regarding the London InterBank Offered Rate (LIBOR) and certain other indices may adversely affect our business, financial condition and results of operations.
The U.K. FCA announced in July 2017, that it will no longer persuade or require banks to submit rates for LIBOR after 2021. This announcement, in conjunction with financial benchmark reforms more generally and changes in the interbank lending markets, have resulted in uncertainty about the future of LIBOR and certain other rates or indices which are used as interest rate "benchmarks" in many of our products and contracts, including floating-rate notes and other adjustable-rate products. These actions and uncertainties may have the effect of triggering future changes in the rules or methodologies used to calculate benchmarks or lead to the discontinuation or unavailability of benchmarks. ICE Benchmark Administration is the administrator of LIBOR and maintains a reference panel of contributor banks, which includes BANA London branch for certain LIBOR rates. Uncertainty as to the nature and effect of such reforms and actions, and the potential or actual discontinuation of benchmark quotes, may adversely affect the value of, return on and trading market for our financial assets and liabilities that are based on or are linked to benchmarks, including any LIBOR-based securities, loans and derivatives, or our financial condition or results of operations. Additionally, there can be no assurance that we and other market participants will be adequately prepared for an actual discontinuation of benchmarks, including LIBOR, that existing assets and liabilities based on or linked to benchmarks will transition successfully to alternative reference rates or benchmarks or of the timing of adoption and degree of integration of such alternative reference rates or benchmarks in the markets. The discontinuation of benchmarks, including LIBOR, may have an unpredictable impact on the contractual mechanics of outstanding securities, loans, derivatives cr other products (including, but not limited to, interest rates to be paid to or by us), require renegotiation of outstanding financial assets and liabilities, adversely affect the return on such outstanding products, cause significant disruption to financial markets that are relevant to our business segments, particularly G/obal Banking and Global Markets, increase the risk of litigation and/or increase expenses related to the transition to alternative reference rates or benchmarks, among other adverse consequences. Additionally, any transition from current benchmarks may alter the Corporation's risk profiles and models, valuation tools, product design and effectiveness of hedging strategies, as well as increase the costs and risks related to potential regulatory requirements. Reforms to and uncertainty regarding transitions from current benchmarks may adversely affect our business, financial condition or results of operations.
Item 2. Properties
As of December 31, 2018, our principal offices and other materially important properties consisted of the following:
Location
Chirlutte. NC Ne* York. NY Loncon. UK ilong Kon^
Facility Name
Bank of America Corporate Center
Dank of Amerlco Tower at One Bryant Park Bank ot America Men 111 Lynch Financial Centre
Cheung Kong Center
¦:} Ter rtar.cn iroperncs r'c(ie-!v scji.mc te'.r n;s tl>c square Icolagt.- occupier* by me Corporation ~r,e i.cr;>oi;jt:or r,as 3 * \> ri y.T'ii-l i':\-i .'r'-r.in* intc cs- iti tins r-iope'ty
Primary Business Segment
Principal Executive Offices
G'.VIM, Global Banking ond Global Markers
G/ooa/ Banking and Global MaoVcfs Global Banking and Global Markets
Property Status
Own«d Leased (21 leased
Property Square Feet (1)
1,212.177 1,836.575 562,695 1*19,700
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leaseback of certain properties and we may incur costs m connection with any such transactions.
Item 3. Legal Proceedings
See Litigation and Regulatory Matters in Note 12 - Commitments and Contingencies to the Consolidated Financial Statements, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
None
Wo own or lease approximately 77 3 million square (eet in over 20.000 facility and AfM locations globally, including approximately 72.2 million square feet in the U.S (all 50 states and the District of Columbia, the U S. Virgin Islands, Puerto Rico and Guam) and approximately 5.1 million square feet in more than 35 countries.
We believe our owned and leased properties are adequate for our business needs and are well maintained We continue to evaluate our owned and leased real estate and may determine from time to time that certain of our premises and facilities, or ownership structures, are no longer necessary for our operations. In connection therewith, we are evaluating the sale or sale/
Part II
Bank of America Corporation and Subsidiaries
dividends received "from its bank subsidiaries. Each of the bank subsidiaries is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. All of the Corporation's preferred stock outstanding has preference over the Corporation's common stock wilh respect to payment of dividends.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol "BAC." As of February 25, 2019, there were 170,394 registered shareholders of common stock.
The table below presents share repurchase activity for the three months ended December 31, 2018. The primary source of funds for cash distributions hy the Corporation to its shareholders is
(Del nrs in niH'ons, e*cep: nor share informa-inn, st-ares in thousands) October 1 - 31, 2018 November 1 ¦ 30, 2018 December 1 - 31. 20.18
Total Common Shares Purchased ID
51,357
71,404
Weighled-Ave'age Per Share Price
Total Shares Purchased as Pari of Publicly Announced Programs
54,353
68.612
Remaining Buyback Authority Amounts (2)
14.050
12,145
Three months ended December 31, 2018
t°) Inclui3cs shares ot the Cpipoiulton's convnen slock acquired by tlx* Corporation in cqtmtKUon tvttri Mljs'acti->n nf ujx withholding obligations on vested rfrilrktctj stock ry restricted stock units ond certain forfeitures and termination!; ol employment-related awards and (or potential re-issuance lo certain employees under equity incentive pions.
12) On June 28.2018, lollowing the federal Reserve's non objection to our 2015 CCAR capital plan, the Board authorized the repurchase or approximately $20.6 billion in common stock from July 1,2018 through June 30, 2019, including approximate!* 16C0 million to offset the effect of equity-based compensation issuances during the same period. During the three months ended December 31, 2018, pursuant to the Board's ELtlicriialicns. the Corporation repurchased 55.2 billion of common slock, which included common stock repurchases to offset equity-based compensation awards. On February 7. 2019, the Coipoiauon Announced that the Board authorized the repurchase of an additional 12.5 billicn of common stock during Uic first and second quarters of 2019. Amounts shown do not include this additional repurchase authority. Foi more information, see Capital Management - CCAR and Capital Planning on page 43 and Nole 13 - Shareholders* Equityto the Consolidated Financial Statements.
The Corporation did not have any unregistered sales of equity securities during the three months ended December 31, 2018.
Item 6. Selected Financial Data
See Tables 8 and 9 in the MD&A beginning on page 26. which arc incorporated herein by reference.
Bans of America 2018 18
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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
Executive Summary
Recent Developments
Financial Highlights
Balance Sheet Overview Supplemental Financial Data Business Segment Operations
Consumer Banking
Global Wealth & Investment Management Global Banking Global Markets All Other
Off-Balance Sheet Arrangements and Contractual Obligations
Managing Risk
Strategic Risk Management
Capital Management
Liquidity Risk
Credit Risk Management
Consumer Portfolio Credit Risk Management
Commercial Portfolio Credit Risk Management
Non-U.S. Portfolio
Provision for Credit Losses
Allowance for Credit Losses Market Risk Management
Trading Risk Management
Interest Rate Risk Management for the Banking Book
Mortgage Banking Risk Management Compliance and Operational Risk Management Reputational Risk Management Complex Accounting Estimates 2017 Compared to 2016 Statistical Tables
_Page_ 20 21 21 23 24 30 31 33 35 37 38 39 40 43 43 47 51 51 59 65 67 67 70 71 74 76 76 77 77 79 81
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Management's Discussion and Analysis Operations
Bank of America Corporation (the "Corporation") and its management may make certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 7hese 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 simitar expressions or future or conditional verbs such as "will," "may," "might," "should," "would" and "could." Forward-looking statements represent the Corporation's current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, strategy and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed under item IA. Risk Factors of ihis Annual Report on Form 10-K: the Corporation's potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions and the possibility that amounts may be In excess of the Corporation's recorded liability and estimated range of possible loss for litigation and regulatory exposures; the possibility lhat 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, olher parties involved in securitizations, monulines oi 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; the Corporation's ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to avoid the statute of limitations for repurchase claims; the risks related to the discontinuation of the London InterBank Offered Rate and ottter reference rates, including increased expenses and litigation and the effectiveness of hedging strategies; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation's exposures to such risks, including direct, Indirect and operational; the impact of U.S. and global interest rales, inflation, currency exchange rates, economic conditions, trade policies, including tariffs, and potential geopolitical instability; the impact on the Corporation's business, financial condition and results of operations of a potential higher interest tate environment; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavici, adverse developments with respect to U.S. or global economic conditions and other uncertainties; the Corporation's ability to achieve its expense targets and expectations regarding net interest income, net charge-offs, loan growth or other projections; adverse changes to the Corporation's credit ratings from the major credit rating agencies; an inability to access capital markets or maintain deposits; estimates of the fair value and other accounting values, subject to
of Financial Condition and Results of
impairment assessments, of certain of the Corporation's assets and liabilities; uncertainty regarding ihe content, liming and impact of regulatory capital and liquidity requirements; the impact of adverse changes to total loss-absorbing capacity requirements and/or global systemically important bank surcharges; the success of our reorganization of Merrill Lynch, Pierce, Fenner & Smith Incorporated; the potential impact of actions of the Board of Governors of the Federal Reserve System on the Corporation's capital plans; the effect of regulations, other guidance or additional information on the impact from the Tax Cuts and Jobs Act; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation 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 planned exit of the United Kingdom from the European Union; the impact of a prolonged federal government shutdown and uncertainty regarding the federal government's debt limit; and other simitar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the dale the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management's Discussion and Anajysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-year amounts have boon reclassified to conform to current-year presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
Executive Summary Business Overview
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, "the Corporation" may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking. Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At December 31, 2018, the Corporation had approximately $2 4 trillion in assets and a headcount of approximately 204,000 employees.
As of December 31, 2018, we served cl.ents through operations across the U.S., its territories and more than 35 countries. Our retail banking footprint covers approximately 85 percent of the U.S. population, and we serve approximately 66 million consumer and small business clients. with approximately 4,300 retail financial centers, approximately 16,300 ATMs, and
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leading digital banking platforms (www.bankofarnenca.com ) with more than 36 million active users, including over 26 million active mobile users Wc offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of approximately $2 6 trillion, provide tailored solutions to' meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We arc a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.
Recent Developments Capital Management
During 2018, we repurchased $20.1 billion of common stock pursuant to the Board of Directors' (the Board) repurchase authorizations under our 2018 and 2017 Comprehensive Capital Analysis and Review (CCAR) plans, including repurchases to offset equity-based compensation awards. Also, in addition to the previously announced repurchases associated with the 2018 CCAR capital plan, on February 7, 2019, we announced a plan to repurchase an additional S2.5 billion of common slock through June 30, 2019, which was approved by the Board of Governors of the Federal Reserve System (Federal Reserve). For additional information, sec Capital Management on page 43.
U.K. Exit from the EU
We conduct business in Europe, the Middle East and Africa primarily through our subsidiaries in the U.K. and Ireland. A referendum held in the U.K. in 2016 resulted in a majority vote in favor of exiting the European Union (EU). In March 2017, the U.K. notified the EU of its intent to withdraw from the EU, which is scheduled to occur on March 29, 2019. Negotiations between the U.K. and the EU regarding the terms, conditions and timing of the withdrawal are ongoing and the outcome remains uncertain. In preparation for the withdrawal, we have implemented changes to our operating model in the region, including establishing cur principal EU banking and broker-dealer operations outside the U.K The changes are expected to enable us to continue to service our clients with minimal disruption, retain operational flexibility, minimize transition risks and maximize legal entity efficiencies, independent of the outcome and timing of the withdrawal.
LIBOR and Other Benchmark Rates
The U.K. Financial Conduct Authority (FCA), which regulates the London InterBank Offered Rate (LIBOR), announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2023. This announcement along with financial benchmark reforms more generally and changes in the interbank lending markets have resulted in uncertainty about the future of LIBOR and certain other rates or indices used as interest rate "benchmarks." These actions and uncertainties may trigger future changes in the rules or methodologies used to calculate benchmarks or lead to the discontinuation or unavailability of benchmarks.
The Corporation has established an enterprise-wide initiative to identify, assess and monitor risks associated with the potential discontinuation or unavailability of benchmarks, including LIBOR, and the transition to alternative reference rates. As part of this initiative, the Corporat on is actively engaged with global regulators, industry working groups and trade associations to develop strategies for transitions from current benchmarks to alternative reference rates. We are updating our operational processes and models to support new alternative reference rate
activity. In addition, we continue to analyze and evaluate legacy contracts across all products to determine the impact of a discontinuation of LIBOR or other benchmarks and to address consequential changes to those legacy contracts. Certain actions required to mitigate risks associated with the unavailability of benchmarks and implementation of new methodologies and contractual mechanics are dependent on a consensus being reached by the industry or the markets in various jurisdictions around the world. As a result, there is uncertainty as to the solutions that wiil be developed to address the unavailability of LIBOR or other benchmarks, as well as the overall impact to our businesses, operations and results Additionally, any transition from current benchmarks may alter the Corporation's risk profiles and models, valuation tools, product design and effectiveness of hedging strategies, as well as increase the costs and risks related to potential regulatory requirements.
Financial Highlights
Table 1 Summary Income Statement and Selected Financial Data
47,432 t 43,815
44,667 42,(385
(Ocfrars rh millions, except per shore information) Income statement
91,247 3,282 53.3B1_ 34.584 6,437
87.352 3,396 , 54,743 29,213 10.981
Net interest income Nori-nrerost income
Total revenue, net of Interest expense
Provision for credit losses Noninterest expense
28,147 1,451
18,232 1.614
Income before Income taxes Income tax expense
Net Income
Preferred stock dividends
2.64 2.61 0.54
1.63 1.56 0.39
Net Income applicable to common shareholders
Per common share Information
Earnings Diluted earnings
Dividends paid
0.80% 6.72
9.41 62.67
1.21% 11.04
15.55 58.50
Performance ratios
Return on average assels
Return on average common shareholders' equity
Return on average tangible common
shareholders' equity (ll Efficiency ratio
946,895 2,354.507 1,381,476 242.999 2G5.325
936,749 2,281,234 1.309.545
244.823
267.146
iasure For mo'e accepted in the
balance sheet at year ond
Total loans and leases Total assets Total deposits
total comTicn shareholders' equity Total shareholders equity
¦11 Return on average tangible common shareholders' equity is a non-GAAP firanco' mi information and a corresponding reconciliation la accounting principles generally United Steles of America (GAAP) l.nanciel measures, see on page 25
Net income was $28.1 billion, or $2.61 per diluted share in 2018 compared to $18.2 billion, or $1.56 per diluted share in 2017. The improvement in net income was driven by a decrease in income tax expense due to the impacts of the Tax Cuts and Jobs Act (the Tax Act), an increase in net interest income, higher noninterest income, lower provision for credit losses and a decline in noninterest expense. Impacts from the Tax Act include a reduction in the federal corporate income tax rate to 21 percent from 35 percent. In addition, results tor 2017 included a reduction in net income of $2.9 billion due to the Tax
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Net Interest Income
Net interest income increased S2.8 billion to $47.4 billion in 2018 compared to 2017. Net interest yield on a fully taxable-equivalent (FTE) basis increased five basis points (bps) to 2.42 percent for 2018. These increases were primarily driven by higher interest rates as well as loan and deposit growth, partially offset by tightening spreads, higher Global Markets funding costs arid the impact of the sale of the non-U.S. consumer credit card business in 2017. For more information on net interest yield and the FTE basis, see Supplemental Financial Data on page 24, and for more information on interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 74
Noninterest Income
Provision for Credit Losses
The provision for credit losses decreased $114 million to $3.3 billion in 2018 compared to 2017, primarily reflecting a 2017 single-name non-U.S. commercial charge-off and improvement in the commercial portfolio. In the consumer portfolio, the impact of the sale of the non-U.S. consumer credit card business in 2017 was more than offset by a slower pace of improvement in the consumer real estate portfolio, and portfolio seasoning and loan growth in the U.S. credit card portfolio. For more information on the provision for credit losses, see Provision for Credit Losses on page 67.
Noninterest Expense
Table 3 Noninterest Expense
6,051 $
7,767 14,160
5,327
8,540
1,970 43,815 $
5.902 7,818
13.836 6,011 7,277 1.841^
42,685
Table 2 Noninterest Income
(Dollars in millions)
Card income Service charges
Investment and brokerage services Investment banking income Trading account profits Other income TotDl nonlntorett Income
Noninterest income increased $1.1 billion to $43.8 billion in 2018 compared to 2017. The following highlights the significant changes.
Card income increased $149 million primarily driven by an increase in credit and debit card spending, as well as increased late fees and annual fees, partially offset by higher rewards costs, lower cash advance fees, and the impact of the sale of the non-U.S. consumer credit card business in 2017.
Investment and brokerage services income increased $324 million primarily due to assets under management (AUM) flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.
Investment banking income decreased $684 million .
Trading account profits increased $1.3 billion primarily due to increased client activity in equity financing and derivatives, higher market interest rates and strong trading performance in equity derivatives, partially offset by weakness in credit products.
Other income increased $129 million primarily due to gains on sales of consumer real estate loans, primarily non-core, of $731 million, offset by a $729 million charge related lo the redemption of certain trust preferred securities in 2018. Other income for 2017 included a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection wth the Tax Act and a $793 million pretax gain recognized in connection with the sale of the non-U.S. consumer credit card business.
201/
31,860 4,066 1,705 1,674 1,699 3.222 E99 B.436
31.931 4.009 1,692 1.746 1.888 3,139 699 9,639
63.3B1 $ 54,743
(Dollars In millions) Personnel Occupancy Equipment Marketing Professional fees Data processing Telecommunications Other general operating
Total noninterest expense
Noninterest expense decreased $1.4 billion to $53.4 billion in 2018 compared to 2017. The decrease was primarily due to lower other general operating expense, primarily driven by a decline in litigation and Federal Deposit Insurance Corporation (FDIC) expense as well as a $316 million impairment charge in 2017 related to certain data centers.
Income Tax Expense
2018
2017
34.584 * 29,213
6,437 10.981
18.6% 37 6°t
Table 4 Income Tax Expense
(Dollars In millions)
Income before income taxes Income tax expense Effective tax rats
Tax expense for 2018 reflected the new 21 percent federal income tax rate and the other provisions of the Tax Act, as well as our recurring tax preference benefits.
Tax expense for 2017 included a charge of $1.9 billion reflecting the initial impact of the Tax Act, including a tax charge of $2.3 billion related primarily to a lower valuation of certain deferred tax assets and liabilities and a $347 million tax benefit on the pretax loss from the lower valuation of our tax-advantaged energy investments. Other than the impact of the Tax Act, the effective tax rate for 2017 was driven by our recurring tax preference benefits as well as an expense from the sale of the non-U.S. consumer credit card business, largely offset by benefits related to stock-based compensation and the restructuring of certain subsidiaries.
We expect the effective tax rate for 2019 to be approximately 19 percent, absent unusual items.
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Balance Sheet Overview
Table
5 Selected Balance Sheet Data
(Dcllars In rrrilonr.) Assets
Cash and cash equivalents
Federa' funds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities Loans and leases
Allowance for loan and lease losses All other Bssets
Total assets Liabilities
Deposits
Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities Short-term borrowings Long-term debt All other liabilities Total liabilities Shareholders' equity
Total liabilities and shareholders' equity
December 31 2018 2017
177,404 261,131 214,348 441,763 946,895 (9,601) 322,677
$ 2,354,507
1,381.476 186,988 68.220 20,189 229,340 202,969 2,089,182 266,326
$ 2.354.E07
% Change
13% 23 2
|1010|(8) (4) 3
|1010|6 (16) (38)|1010 1010|(1) 3
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Assets
At December 31. 2018. total assets were approximately $2 4 trillion, up $73.3 billion from December 31, 2017. The increase in assets was primarily due to higher securities borrowed or purchased under agreements to resell due to investment of excess cash levels in higher yielding assets and increased client activity, and higher cash and cash equivalents driven by deposit growth.
Cash and Cash Equivalents
Cash and cash equivalents increased $20.0 billion primarily driven by deposit growth, partially offset by investment of short-term excess cash into securities purchased under agreements to resell, and loan growth.
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Federal funds transactions involve lending reserve balances on a short-term basis. Securities borrowed or purchased under agreements to resell are collateralized lending transactions utilized to accommodate customer transactions, earn interest rate spreads, and obtain securities for settlement and for collateral. Federal funds sold and securities borrowed or purchased under agreements to resell increased $48.4 billion due to investment of excess cash levels in higher yielding assets and a higher level of customer financing activity.
Trading Account Assets
Trading account assets consist primarily of long positions in equity and fixed-income securities including U.S. government and agency securities, corporate securities and non-U.S. sovereign debt. Trading account assets increased S5.0 billion primarily driven by additional inventory in fixed-income, currencies and commodities (FICC) to meet expected client demand.
Debt Securities
Debt securities primarily include U.S. Treasury and agency securities, mortgage-backed securities (MBS), principally agency MBS, non-U.S. bonds, corporate bonds and municipal debt. We use the debt securities portfolio primarily to manage interest rate
and liquidity risk and to take advantage of market conditions tnat create economically attractive returns on these investments. Debt securities increased $1 6 billion primarily driven by the deployment of deposit inflows. In 2018. tho Corporation transferred available-for-sale (AFS) debt, securities with an amortized cost of $64.5 billion to held to maturity. For more information on debt securities, see Note 4 -Securities to the Consolidated Financial Statements.
Loans and Leases
Loans and leases increased $10.1 billion primarily due to nel loan growth driven by client demand for commercial loans and increases in residential mortgage. For more information on the loan portfolio, see Credit Risk Management on page 51.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses decreased $792 million primarily due to the impact of improvements in credit quality from a stronger economy and continued runoff and sales in the non-core consumer real estate portfolio. For additional information, see Allowance for Credit Losses on page 67.
Liabilities
At December 31, 2018, total liabilities were approximately $2.1 trillion, up $75.1 billion from December 31, 2017, primarily due to deposit growth.
Deposits
Deposits increased $71.9 billion primarily due to an increase in retail deposits.
Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase
Federal funds transactions involve borrowing reserve balances on a short-term basis. Securities loaned or sold under agreements to repurchase are collateralized borrowing transactions utilized to accommodate customer transactions, earn interest rate spreads and finance assets on the balance sheet. Federal funds purchased and securities loaned or sold under agreements to repurchase increased $10.1 billion primarily due to an increase in matched book funding within Global (War/rets.
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Trading Account Liabilities
Trading account liabilities consist primarily of short positions in equity and fixed-income securities including U.S. Treasury and agency securities, corporate securities and non-U.S sovereign debt Trading account liabilities decreased $13.0 billion primarily due to lower levels of short positions in government and corporate bonds driven by expected client demand within Global Markets.
Short-term Borrowings
Short-term borrowings provide an additional funding source and primarily consist of Federal Home Loan Bank (FHI.B) short-term borrowings, notes payable and various other borrowings that generally have maturities of one year cr less. Short-term borrowings decreased $12 5 billion primarily due to a decrease in short-term FHLB advances. For more information on short-term borrowings, see Note 10 - Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash to the Consolidated Financial Statements.
Long-term Debt
Long-term debt increased $1.9 billion primarily driven by issuances outpacing maturities and redemptions. For more information on long-term debt, see Note 11 - Long-term Debt to the Consolidated Financial Statements.
Shareholders' Equity
Shareholders' equity decreased $1.8 billion driven by returns of capital to shareholders of $27.0 billion through common and preferred stock dividends and share repurchases and a $4.0 billion after-tax decrease in the fair value of AFS debt securities recorded in accumulated other comprehensive income (OCI), largely offset by earnings.
Cash Flows Overview
The Corporation's operating assets and liabilities support our global markets and lending activities. We believe that cash flows from operations, available cash balances and our ability to generate cash through short- and long-term debt are sufficient to fund our operating liquidity needs. Our investing activities primarily include the debt securities portfolio and loans and leases. Our financing activities reflect cash flows primarily related to customer deposits, securities financing agreements and long-term debt. For more information on liquidity, see Liquidity Risk on page 47.
Supplemental Financial Data
In this Form 10-K, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating purformance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses on an FTE basis,- which when presented on a consolidated basis, are non-GAAP financial measures. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we used the federal statutory tax rate of 21 percent for 2018 (35 percent for all prior periods) and a representative state tax rate. Net interest yield, which measures the basis points we earn over the cost of funds, utilizes net interest income (and thus total revenue) on an FTE basis. We believe that presentation of these items on dii FTE basis allows fur comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items is useful because such measures provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period to-period operating performance.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders' equity or common shareholders' equity amount which has been reduced by goodwill and certain acquired intangible assets (excluding mortgage servicing rights (MSRs)), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders' equity and return on average tangible shareholders' equity as key measures to support our overall growth goals. These ratios are as follows:
Return on average tangible common shareholders' equity measures our earnings contribution as a percentage of adjusted common shareholders' equity. The tangible common equity ratio represents adjusted ending common shareholders' equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Return on average tangible shareholders' equity measures our earnings contribution as a percentage of adjusted average total shareholders' equity. The tangible equity ratio represents adjusted ending shareholders' equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Tangible book value per common share represents adjusted ending common shareholders' equity divided by ending common shares outstanding.
We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Tables 8 and 9.
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Non-GAAP Reconciliations
Tables 6 and 7 provide reconciliations of certain non-GAAP financial measures to GAAP financial measures. Table 6 Five-year Reconciliations to GAAP Financial Measures W
IDollars In millions, scares in thousands)
Reconciliation of average shareholders' equity to average tangible shareholders' equity and average tangible common shareholders' equity
Shareholders' equity
Goodwill
Intangible assets (excluding MSRs) Related deferred tax liabilities
Tangible shareholders' equity
Preferred stock
Tangible common shareholders' equity
Reconciliation of year-end shareholders' equity lo year-end tangible shareholders' equity and year-end tangible common shareholders' equity
Shareholders' equity
Goodwill
Intangible assets (excluding MSRs) Relaled deferred tax liabilities
Tangible shareholders' equity
Preferred stock
201.4
$ 264.748 i 271,289 $ 265.843 $ 251,384 $ 238,317
(68,951) (69.286) (69,750) (69,772) (69.809)
(2.058) (2.652) (3.382) (4,201) (S.1C9)
906 1.463 1.644 1,852 2.0S0
$ 194,645 $ 200,814 $ 194,355 $ 179,263 $ 165.489
(22.949) _ (24,188) (24,656) (21,808) 115.410)
S 171,696 $ 176.626 $ 169.699 $ 157,455 $ 150.079
$ 265,325 $ 267,146 $ 266,195 $ 255,615 J 243,476
(68.951) (68.951) (69,744) (69,761) 169.777)
(1,774) (2,312) (2,989) |3,768) (4.612)
B5B_ 943 1,545 1.716 _1,960
$ 196,458 $ 196.826 * 195,007 $ 183,802 $ 171,047
(22.326) (22,323) (25,220) . (22,272) (19,309)
$ 173.132 $ 174,503 $ 169,787 S 161.530 $ 151,738
Reconciliation of year-end assets to year-end tangible assets
Assets Goodwill
Intangible assets (exciudirg MSRs) Related deferred tax liabi'-ties
$2,354,507 $ 2,281,234 $2,188,067 $2,144,606 $2,104,539
(68.951) 168,951) (69,744) (69.761) (69,777)
(1,774) (2,312) (2,989) (3,768) (4,612)
858 943 1,545 1.716 1,960
$2,284,640 $2,210,914 $ 2,116,879 $ 2,072,793 $2,032,110
111 Presents reconciliations of nnn-GAAF financial measuies to GAAP Imancial measures. For more intorination on non GAAP linonclal measures and ratios wo use In assessing the results of tho Corporation, see Supplemental Financial Data cn page 24
Table 7 Quarterly Reconciliations to GAAP Financial Measures W
(Dollars in millions)
ReconclliaUun of avenge shareholders' equity to average tangible shareholders' equity and average tangible common shareholders' equity
Sriaieholders' cqutt>
Goodwill
IntangiUe assets ;e>clud r-£ r.13^si Related deferred tax latnlities
Tangible shareholders'equity Frcfsrtfid stoc»
Tangible common shareholders' equity
Reconciliation of period end shareholders' equity 10 pcrlcd-end tangible shareholders' equity and period-end tangible common oharaholdeis' equity
5harcho(cers' equ ly Goodwi i
inreng hie assels .riciuju'it MSP.'.) rtcl.v- (J fl-lonert !;>¦ I.fitnl-' <".
Tangible shareholders' equity l-'re/ered stoc*
Tangible common shareholders' equity
2G3.698 (68,951) (1,857) 974 193.764 (22.326) 171,439
Z65.375 (68,951) (1.774) 856 1S5 453 (22 326) 173 132
2018 Quarters Th.rd Secc
5 260.653 t 265.181 » 265.480
(BS.951) (6S.S51! (68.951)
(1,992) (2,126} (2,261)
696 916 939
S 194.606 i 195,020 » 195,207
(22.841) (23.868) (22.767)
5 171,765
12.177) 920 i 136.016 (24 672) 5 171.344
t 262 156 » 264.216 1 266 274
IG8.951; (66.951) (6B,951)
ii 508; 12 C43j
876 900
$ 152.177 1 194.122
159.851 » r0.94".
2017 Quarters
S 273.162 $ 273,238 t 270,977 S 267.700
168.954) (68.969) 169,439) (69,744)
(2.399; |2 549) (2,743) 12,923)
1,344 1465 1.5C6 1.539
i 26 .-.14 6
(69,951i
-2.312) (2.459;
943 I 435
> '.96.ri2U $ 201.977
J 203.153 J 2C3.1B5 4 200,261 » 196,572
(27.314: 124.024) (25.221) (25,220)
i 271,369 i 270,660 S 267,990
(68.968) (68.9 69) (69.744)
(2.82.'!
5 196,932 (2;.22Ci
i 175 332 » 171.71?
'.2.6101 1,4 71 » 200.552 !23) (25.229-
5 3'4 50 3 S 179.654
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Reconciliation of period-end niseis to perlod-cnri tangible, assets
Assets 12,354,507 S2.338.833 12.251,670 12.328/.78 12.281,234 1 2.284.174 J 2,254.714 J 2.247.794
Goodwill (68.951) ;68.951i (68.951) (68,951) (68.951) (68,968) (68.969) (69.744)
Intangible assets [excluding MSRs) (1.774) 11.903) (2,043) (2,177) (2.312) (2,459) (2.610) (2.827)
Related defened tax liabilities 850. 876 900' 920 943 1.435 1,471 1,513
Tangible assets 1 2.284,640 1 2,268.852 1 2.221.576 1 2.258.270 1 2.210,914 »2.214.162 12.184.606 12.176,736
HI Piesunrs reconciliations of non GAAP financial meas-jies to GAAP financial measures. Fcr more information on non-GAAP financial measures ond ratios we use In assosslng Uie results of the Corporation, see Supplemental Financial Data on page 24
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Table 8 Five-year Summary of Selected Financial Data
tin millions. e*cepl per share inlcmaiionj fncomo statement
Net interest income
Noninterest income
Total revenue, net of interest expense
Provision foi credit losses
Noninlerest expense
Income before income taxes
Income tax expense
Net income
Net income applicable to common shareholder Average common shares issued and outstanding Average diluted common shares issued and outstanding
Performonce ratios
Return on average assets
Relu-'n on average common shareholders' equity
Return on average tangible common shareholders' equity in
Return cn average shareholders' equity
Return on average tangible shareholders' equity (l)
Total ending equity to total ending assets
Total average equity to total average assels
Dividend payout
Per common shore data
Earnings Diluted earnings Dividends paid Sock value
Tangible book value ID
Market capitalization Average balance sheet
Total loans and leases To'.a1 assels Tota; deposits Long-term debt Common shareholders' equity Total shareholders' equity Asset quality (21 Allowance fur ciedit 'esses 13)
Nonperfcrmng loans, leases and (eiecicsed properties c**:
Allowance for loan and lease losses as a perce'itsge of total loans and leases outstanding fii
Ahowance for loan and lease losses as a percentage of total no"pef:orn;rng loans and leases i«!
Net cha-ge-of's (3)
f\ci cnarge-c-'K cs a percentage of average loans and leases outslond in 51
Capital ratios at year end (e)
Common ecuity t'er 1 capital Tier 1 capf.a: Total aplc Tier 1 leverage-
47,432 43,815 91,247 3,282 53,381 34,584 6,437 28,147 26.696 10,096.5 10,236.9
1.21% 11.04 15.55 10.63 14.46 11.27 11.39 20.31
2.64 2.61 0.54 25.13 17.91
$ 238,251
$ 933,049 2,325,246 1.314,941 230,693 241.799 264.748
$ 10.39B 5,244
1.02%
194
$ 3,763 0.41%
11.6% 13.2 15.1 8.4
44.667 42.685 87,352 3,396 54.743 29,213 10,981 18.232 16.618 10,195.6 10,778.4
0.80% 6.72 9.41 6.72 9.08 11.71 11.96 24.24
1.63 1.56 0 39 23 80 16.96
* 918.731 2,268,633 1,269,796 225,133 ' 247,101 271,289
11.170 6.758
112%
161 3,979 0 44%
11.5% 13 0 14.8 8 6
2016
41,096 42,605 83.701 3.597 55,083 25,021 7.199 17,822 16,140 10,284.1 11,046.8
0.81% 6.69 9.51 6.70 9.17 12 17 12.14 15.94
1.57 1.49 0.25 23.97 16.89
$ 222,163_
$ 900,433 2,190.218 1,222,561 228,617 241.187 265.843
11,999 8.0B4
1 26%
149 3,821 0/.3%
10.8% 12 4 14.2 fi 8
38.958 44.007 82.965 3.161 57.617 22.187 6,277 15.910 14,427 10.462.3 11,236.2
0.74% 6.28 9.16 6.33 8.88 11.92 11.64 14.49
1.38 1.31 0.20 22.48 15.56
174.700
* 876,787 2,160,536 1,155,860 240,059 229,576 251,384
12,880 9.836
1. 37%
130 4.338 0.50%
9 8% 112 128
84
40.779 45.115 85.894 2.275 75.656 7.963 2.443 5.520 4,476 10.527.8 10,584.5
0.26% 2.01 2.98 2.32 3.34 11.57 11.11 28.20
0.43 0.42 0.12 21.32 14.43
$ 188,141
$ 898,703 2,145,393 1.124.207 253,607 222,907 238,317
$ 14,947 12.629
166%
121
$ 4,363 0.49%
9.6% 11.0 12.7
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Supplementary leverage ratio 6.8 n/a n/n n/a n/a
Tangible equity UJ 8.6 8.9 9 2 8.9 8.4
Tangioie coninian equity U> 7.6 7.9 8.0 7 8 7.5
langib'e equity ratios ona ungiuic bcok vel-„e per share o' cc-n=-;on stoc« «sii- non-GAAP fincinciJil measures. For mcie information on th*ii< mtlOK and corrcsponcing reconciliations to GAAP financial measures, see Supplemental financial Data oi pegs 2*.
{'* Asiet quality metrics ncitido $75 million oi non-U S. consumer credit wtl ml charge oils 'n 201/ and i?43 tuition al non-U 5. censumer credtt card allowance lor loan and leuse losses, $9 2 billion ol non-U.S
consumer cteriii cDiti leans and $175 ntillirin of non U S- cortsuirer c;eCit card nel thargi; oils in 2016 The Corpciaiioa sold its non J.S consumer credit card business in 2C17. i-i Includes the o'lowoioc lor lean and leases losses aid the reserve !or unlu.irjed leading commitments.
f*1 Balances end ratios do no* Include loan.-, accounted lo; unrjc (he ia-r value opt ten Tor additional exclusions liom nonpcilorinmf loans, leases and Icieclcsed properties, see Consumer Portfolio Credit Riik Management - Nonpcrforming Consumer Loans, Leases and Fccclosed Properties Activity cn page 58 end corresponding Table 31 and Commercial Portfolio Credit Risk Management - Nonpertcfmirig Commeicist Loans, Leosss Bnd t-'oreclosed Properties Activity on page 63 Bid corresponding iatile 38
!i>; Net ctiDrge-of's exclude $273 million, $207 million. $340 rnil'ic"!. 1609 million and $910 million oi* writeoffs in the purchased credit impaired (PCI) loan portfolio (or 2018, 2017. 2016, 2015 and 2014, respectively
id 3ase! 3 uanssfcon provisions for refiuletory capital ointments anG deductions were fully phased ^ as cl January a. 2018 Prior periods are presented on o fully phased in basis. Tor additions! Information,
including winch aparo9ch is used to assess capita I adequacy, see Caoitoi Management on page 43. n/a ¦ not applicable
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Table 9 Selected Quarterly Financial Data
(in rr llions, except Per share information)
Income statement i
Net inteiest income
Nunmleiest income (11
Total revenue, net ol interest expense
Pmv.sion *or credit lesser.
Noninleiest expense
Income belore income taxes
Income lax eipense ill
Net income Ul
Net income applicable to conimcn shareholders
Average common shares Issued end outstanding
Average diluted common shares issued end outstanding Performance ratios
Return on average assets
Four-quarter trailing return on average assets (21
Iteturn on average common shareholders' equity
Return on average tangible common shareholders" equity O'
Return on average shareholders' equity
Heturn on average tangible shareholders' equity (3J
Total ending equity to total ending assets
Total average cquiry to total average assets
Civ!dend payout Per common share data
Earnings
Diluted earnings
Dividends paid
Book value
Tangible book value P! Market capitalization Avcrago balance sheet
Total loans and leases
Total assets
Total deposit
Long-term debt
Common shareholders' equity
Total shareholders' equity Asset quality (4J
4llov.ancc for cecrt .esses :s:
f>.o:ipc-forming loans, lenses end foreclosed croperltts 1st
Allowance for loan and lease fosses as a percentage c! tola! loans and leases ouis'.andmg 16)
Allowance for loan and icase losses as a pe'eentage cl total nonp»iforrr!ing loons and lenses IC!
An-i.;aii:cd net cnorgii ells as a pe'coiitaee ol average loans -jnc leases ou'-Star.dng '6
Capital ratios at penod end (a)
Common eqj'ty tier 1 capita!
T;ei 1 car- tai
i 1.1.161 10.078 21,839 834 13,394 7,611 2,187 5,424 4.959 10,197 9 10,746.7
11.870 10.507 22.777
nb
13,067 8,994 1,827 7,167 6,701 10,031.6 10.170 8
i 11.608 11,517 23.125 834 13,897 8.394 1.476 C.918 0.490 10.32? 4 10.472 7
5 11.402 8.974 20.436 1,001 13,274 6.161 3,796 2.365 2.079 10,470.7 10.621.8
1 11,058 11.19C 22.248 835 14.093 7.320 1.983 5,337 4,035 10,099 6 10,919-7
i 10,986 11,843 22,629 726 13,982 8.121 3.015 5.100 4,745 10,013.5 10.834.8
10.959 22.609 827 13.284 8.498 1,714 0.784 6,466 If), 18.1.7 10.309 4
2018 Quarters
Fourth Ihird Second Fust
12.304 10.432 22.736 905 13,133 8.696
I. 420
7.278
7.039
11714
0.93 10.75 1515 10.20 13 95
11:53
1142 1803
1 21%
0.80 10.85 15.20 10 57 14.37 11/13 11.41 19.06
0.41* 0.80 3.29 4.56 3 43 4.62 11-71 1L87 60J5
0.95* 0.91 7.89 10.98 7.88 10.59 11.91 12.03 25.59
0.90* 0.89 7.75 10.87 7.56 10.23 12.00 11.94 15.78
2.00 10.99 15.48 10.74 14.61 11.21 11.42 22 35
9,855.8 9.996.0
1.24* 1.21 1157 16.29 10 95 14.90
II. 27
11.30
20.00
$ 0 71 1 0.67 I 0 04 J 0.63 t 0.20 ( 0 49 » 0.47 0.48
0.70 0.66 0 63 0.62 0 20 0.46 0.44 0 45
0.15 0 15 0.12 0.12 0,12 0.12 0-075 0 075
25.13 54 33 24.07 23 74 23.S0 23.67 24 85 24 34
17.91 17 23 1707 10.84 16.96 17.18 17.75 17.22
$ 934.721 2.334,586 1.344.951 230.616 241,37? 263,699
I 930 736 2 317,829 1,316.345 233.475 241.8.12 264,653
< 934,618 2.322,078 1.300.059 229.037 241.313 265.181
1 914,144 2.231.649 1.256,632 221.466 242,4 80 207,700
% 11.869 7.037
* 927.790 2,301.087 1.293.572 227.044 250,833 273,162
« 11.170 0,758 1 12% 161
S 1,237 0 53%
» 916,129 2.271.104 1271 711 227,309 249,214 273,238
» 11,455 6.869 116** 163
1 SOO 0 39V
S 914,717 2.269.293 1.256.838 224.019 245,756 270,977
* 11.632 7,127
120*
150
» 908 0 40*
J 238.251 J 290.424 S 782.259 i 305.170 S 303,081 S 264.992 » 239.643 t 235,291
1C.52G 5.4 49 1 Q'A 189
10.837 0 181 1 08X 17C 996
J 931.915 2,325,878 1,297,206 229,603 242,713 205.480
t 11,042 0,694
111*
161
116* :1c*
13 2 12 9
11 9* 13 ¦'.
115* 130
II 4'K
Jl 0
J 911 0 40*.
11.3% IJ 0
12/10/2019,3.39 PM
.
I eta' capital 15 1 14.7 1& 8 MS 14 fi 15.1 15 ft 11.3
T r : leverage 8 4 8 3 8.4 6.4 8 6 8.9 8 8 8 8
Supp'enieniery leverage ifltio 6.8 5 7 6.7 6,8 n/a it/a n/a n/a
Tangible equity(3! 8 6 3 5 8 7 8 7 B.9 9.1 9 2 9.1
tangible common equity 0( 7 6 7 5 7 7 7 6 7.9 8.1 8 0 7 9
li; Net income for tne fou'lh quarter of 2017 ncliiCeC a ctiargc of $2:-3 bi'i cn re mefl ;c the T=m Act effects kvhlch consisted of 1946 million i.> noninterest income and $1.9 Milan in income tax expense !-! Calculated as total net Income for 'cur consecutive Quarters divlccd by er.ni/ali/cd overage assets for four consecutive quarters.
'¦il Tangible equity ratios and tangible beck value per share of common stcch aie non Gaah financial measures Tor mcie information on these ratios ami corresponding reconclliat:cn$ to GAAP fiianciai measures, see Supp'emcntal Financial Data or page 24
!«; Asset quality metrics include $33 nvliicn cl non U S. consumer credit card net cha-gc-offs fo- the second quarter of 2C17 und $242 million cf non-U S. consumer credit card allowance for loan end lease losses, $9.5 bill'cn of non U.S. consumer credit card loans and 144 nvlhon of non U.S consumer credit coio net charge-offs *oi (tie first quarter of 2017. The Corporation scld its non-U.S consumer credit card business in Ihe second quarter ci '201f.
'M Includes the oMortar.ce for loan and lease losses and the reserve for unfunded lending ccmnvtpients.
,«J Balances and ratios do not include loans accounted tor under the fair value oplion =or additional exclusions Vom nonper.orm,ng loans, lease: and foreclosed properties, see Consumer Portfolio Credit Risk
Management - Nonperforming Consumer Loans, Lenses and Foreclosed Piope?Ues Activity cn page 58 anr! corresponding Tahlo .11 arrt Commercial Portfolio Credit Risk Management - Nonperforming Commercial
Loans. Leases and Foiecljoed Properties Activity on page 53 and sorrespcndn.g Tatre 38 i>"i Net charge orfs exclude $107 million, 595 ftt.llicn. $36 rmll'on and $35 million of writeoffs In the PCI loan portfolio In the 'ouith. third, second and first quarters of 2018, and $40 million, $73 million, $55 nriilon
ond $33 mitl:on in the fourth, third, second end first queries of 2017, rcsnccl'vety. {*> Basel 3 transition provisions fcr regulatory capital adjustments and dedueions were tully phased in as of January 1, 2018 Prior periods arc presented on o fully phoscd in basis For additional Information.
including which apP'Oach is used tc assess capital adequacy, see Capital Management or- page 4 3. n/u = not nppl cabte
27 Oank of America 2018
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https''/www.scc.gov/Archives/edgar/data.'70858/00000708581 .
Tabic 10 Average Balances and Interest Rates - FTE Basis
Average Balance
Interest Income/ Expense
Yield/ Rate
Interest
Average Ircorne/ Balance Ljpense
Yield/ Hote
Interest
Average Income/ Balance Expense
Yield/ Rate
(Collars in millions)
Interest bearing deposits with the federal Reserve, ncn Li S central banks and otlier banks
Time ceposrts placed and othei shol-te'rr Investments federal funds sold and secunties borrowed or purchased under agreements to resetlin
Tiadsng account assets
Debt securities
Loans and leases <2|.
Residential mortgage
I'ome equity
U S credit card
Non U.S. credit card (31
Direct/Indirect and other consumer
Total consumer U.S. commercial Non U.S. commercial Commercial roal estate (SI Commercial lease financing
Total commercial
Total loans and leases (3) Other earning assets (1)
Total earning assots (1.6)
Cash and due from banks
Olher assets, less .-rlowarce fo* loan ard lease losses
Total atsets Interest-bearing: liabilities U.S. interest-bearing deposits-Savings
NOW nr'rl money mantel deposit accounts Consumer CPs and IRAs Negotiable CDs, public funds and other deposits Total U.0 irterc.it bearing depooilo Non-U S inteiest bearii-,g deposits, tjenks located i'i non L, S ccu'i.nts Governments ar'O o'ticial msliiolio'is Tune. S3 zings and othe-Tota ncr-U 5 interest beamg desos Is
Tcta. inierest nearing neposiis
Fe Jr-rei "'jr-d- purchased, sec jn'.es icaicd oi so c ui'Oer -rgrcc'icri-j -.c- ren-rcnose, sh3r:-term bo-rowings eno other interest cea-ing :- at} Mies in
Trading accojnt l-ab lities
l.en-'tsr'n fsb!
Total interect-bcailng liabilities il-CI
Nonntetest-'oca'irg so.uces
rionirite-esi r.eaii'^ decos,!-.
Olher 'urn 1 uesil'
$ 139.846 9.446 251.328 132.724 437.312
207.523 53.886 94.G12
93.036 449,057 304.307 97.664 60,384 21.557
483,992
933.049 76,624
25.B30 319.185
$ 54,226 G76.382 39.823 50.593 621,024
2.312 810 65,097
68.219 889.243
269,748 50,928 230.693 1.440 612
425,698 194,188
$ 1.92G 216 3.176 4,901 11.837
7,294 2,573 9.579
3.104 22,550 11.937 3,220 2.618 698 18,473
41.023 4.300 67.379
2.63G 157 991
3.790
666 705 4.495
5.839 1.358 7.645 19.337
241 1.806 4,618 10.626
6.831 2,638 8.791 358 2.734
127,431 12.112 222,818 129.007 435.005
197.766 62.2C0
21.322 9.765 2,566 2.116 706
Di.oea 3.929 96.003
451,025
^1
15,153
292,452 1 95.005 58,502 21.747
467,706|1010|873 121 354 1,363
27,995 318.577
0.01X 1 53.783
0.39 626.647
0 39 44.794
1.96 3G.7B2
10 547|109|69 0 01 1.02 1.03|10 9|51
17 2.67
31|109|34
0.4G 761.006
2.442 j.006 02.366 65,634
829 840
274,97 5 3,146
45,5.1.8 1,204
220,133 G.219
1.375.466 12.520
439.156 161 97?
0 81 3 58 2.44
3 4b 4.19 9.65 912 2.85 4.73 3.34 2.70 362 3.25 3.24 3.97 4.19 3.02
0.681. » 133.374 1.99 9,026 216.161 129.76S 418.289
2,371
20,668 8.101 2.337 1.773 C27
188.250 71,760 87,905 9,527 94.148
12,838
451,590 276,887 93,263 57,547 21.146
448.843
27.893 295.501
0 01% t 49.495 t 5
0.14 569.737 294
0.27 48.594 133
0.96 _ 32.889 _ 160_
3.B91 1.437 59.183
0.18 720.715 592
423 1.015
1,933 1.018 5.570 9.544
0.80 0 95
0 88
2 64 2.77 0 91
0.66 64.511 0.23 785.226
252.56S 37.837 "r28.617 '. 304 325
4 37.335 182.715
0 45%
1.55
0.45
3.52
2.73
3.45 3.78 9 29 9.72 2.52 4.58 2.93 2 51 3.08 2.97 2.86 3.72 4.18 2 76
0,01*
0.05
0.27
0.49
0.08
0.82 0.64 0 65 0.66 0.13
0 7 7 2 69 244 0.73
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https://\v\v\v.scc.gov/Archives/cdgar/data/70858/000007085Sl
Snaiel-'o'ders' equity 2G4.7-4B 271.239 265.843
Tola! liabilities and 9han.-holderV equity $ 2.325 2-46 4 2.26R.633 4 2,:90,218
Net iniefss*. spread
0 26 0.22
Net Interest Incomc/ycld on earning assets0\ S 48.042 2 42% 4 45.592 2.37S 4 41,936 2 25%
<•) Certain prior period amounts have been recfassil ed to ccnlcrm tu current period presentation
w Honper forming loans are included in the respective average loan balances inccme on t^ess norperlorniwg loans is generally recognized cn a cost recovery basis '3l Includes assels of the Corpo'eiicn's non-U.S. consumer credit cere buttress wnich was sold during the second quanei ol 2017 f-l Includes non-U S. consumer loans of 42 6 bt I'on, $2 9 billion and S3 4 ci'lon tn 2018, 2017 and 2016, resDectively
(¦ii Includes tJ-S commercial reel estate loans ot SSG.4 billion. 455,0 billion and 5S4.2 billion, and non-U.S, commercial real estate loans of 44 0 billion, 43 5 billion and 43.4 billion In 2018, 2017 end 20J6. respectively
ioi -iiterest Income Includes !te Impact cf Interest 'ate. usk rpa-*.at>en.eiH contrects. .vr-ich decreased interest nccme or. tie underlying assets by 4171 million, $44 million and $176 million in 2018, 2017 and 2016, respectively Interest expense Includes ,r»e impact of interest rate risk inanag-*nen*L contracts, which decreased interest expense on the underlying debilities by $130 million, 41,4 billion and 42 1 billion in 2016, 2017 and 2016, respectively For more inlormalion, see Interest Rate Hisk Management for ttie Ua'ikmg Book cn page 74.
(M Net interest Income includes fit adjustments of 4610 million. 4925 million ar.o 4900 mi lion in 201B. 2017 ard 2016. respectively.
Bank of America 2018 28
12/10/2019, 3.39 PM
.
Tabic 11 Analysis of Changes in Net Interest Income - FTE Basis
(Doiiors in millions)
Increase (decrease) In Interest Income
Interest-bearing deposits wilh the Federal Reserve. ron-U.S centra: bonks and other hanks Tinte deposits placed and ether short-term investments
Federal lunds sold and securities borrowed or purchased under agreements to resell Trading account assets Debt securities .oans and leases:
Resicentrol mortgage
Home equity
U.S. credit card
Non-U S. credit cartl 12)
Direct/Indirect and other consumer
Due lo Change In (i) Volume Rote
Net Change
69S 28 1,140
149 1.167
134 315 449
804 (25)
1,370 283
1,211
463 (35) 788 (358) 370
From 2017 to 2018
109 (53) 230 134 44
329 (350)
339 (358)
(B2)
Due to Charlie in (it Volume Rale
Nct Change
517 101 839 55 1,363
343 (105) 621 (568) 363
549 53
803 77
925|1010|255 331 124) 315
From 201G to 2017
(32) 48 36 (22) 438
335 (360)
290 (544) 48
Total consumer
U.S. commercial Non-U.S. commercial Commercial real estate Commercial lease financing
402 71 70
(5)
1,770 583 432 O)
2,172 654 502 (8)
468 48 29 19
1.196 181 314 60
1,664 229 343 79
Total commercial
Total loans and leases
Other earning assets
Total interest income
|1010|1,763 36 637
$ 1
1,689 49 505
Increase (decrease) In Interest expense
74
(13) 132
20 (12) 20
U.S. interest-bearing deposits: Savings
NOW and money market deposit accounts
Consumer CDs and IRAs
2,437
18 (10) 119 127
Negotiable CDs, public funds and other deposits
(12) (3) 24
19 (8) 93
(1) (2) 26
1 4
141
Total U.S. intcrest-bearrng deposits Non-U S. interest-bearing deposits: Banks located In non-U S. countries Governments and official institutions Time, savings and other
2,564
916
1,213 186 661^
2,976
3.596 Tt (cr that
Total non-U.S. .nterest-bearlng deposits
(71) 140 151
2,764 14
1,255
184 206 185)
1.029 (20) 740
2,693 154 1,406 6.817_ 2.450
Total interest-bearing deposits
Federal f jnds purchased, securities loaned or sold oncer agistments to rr.-p,iicii."ise, short-te'm borrowings and ottier interest-bearing liabilities
Trading account liaoilitres
Long-term debt
Tota interest r^perse
Net Increase In net Interest Income (3)
in the cnanf.es 'cr each category oi merest income end expense lira divided ucl-reei. the ronton cl chanci.- allnf-jln!)!*; In l.ne vanancc In volume and the portion of change attrib-Llac-lc to the vanance in ra
cn:c|;ory Tlie una'localed change in late a* .o!L,me .8r,ance is allocated between 'I'e rule ore volume vunc-ncec (3> lnc* Corporal on cclo if. "on U S credit card busiress n tnc second carte-o'2017 131 injuries charges m KTF h.isis adjustments Cl 2 S31S ml ion decease from ?0'.7 to 701S end A 1
nenrose f'orn 7011 to 2017
29 Bank of A-nenca 2Ci8
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Document hups://www.sec gov/Arcbives/e(.!g.-ii/
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littps//www.sec.!;ov/Arcliives/edgat-/dnta/70858/00000708581 .
Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking, GlvVM, 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. For more information on our presentation of financial information on an FIE basis, see Supplemental Financial Data on page 24. The primary activities, products and businesses of the business segments and All Other are shown below.
Bank of America Corporation
Consumer Banking
Global Wealth & Investment Management
Deposits
Consumer Deposits
Men-ill Edge
Small Business Client
Management
Consumer Lending
Consumer and Small Business Credit Card
Debit Card
¦ core consumer Real Estate Loans
consumer vehicle Lending
Merrill Lynch Global
wealth
Management
U.S. Trust, Bonk of America private Wealth Management
Investment Banking
Global eoi porate Banking
Global
Commercial
Banking
Business Banking ¦
Fixed Income, Currencies end Commodities Markets
Equity Markets
alm Activities
Nort-ccre Mortgage Loans
MSR Valuations
Liquidating Businesses
Equity, investments
corporate Activities and Residual Expense Allocations
Accounting Reclassifications and Eliminations
initial impact of Tm Act
We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the cftect of regulatory capital requirements in addition to internal risk-based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment's credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 40. The capital allocated to the business segments is referred to as allocated capital. Allocated equity in the reporting
units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For more information, including the definition of reporting unit, see Note 8 - Goodwill and Intangible Assets to the Consolidated Financial Statements.
For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and year-end total assets, see Note 23 - Business Segment Information to the Consolidated Financial Statements.
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Consumer Banking
(Dollars in mill'ons)
Net nterest income Noninterest income: card Income Service charges All other income
Total noninterest income
Total revenue, net of interest expense
Deposits
4,298 430
2018_ 2C17 16,024 $ 13,353
4,265 391 4.GG4
18.017
Consumer Lending 2018 201J_ 11,099 $ 10,S
5,281 2
381 5.664
Total Consumer Banking 2018 2017
27,123 $
5,289 4,300 811
10,400
37,523
% Change 12%
4 1
(8) 2 9
Provision for credit losses Noninterest expense
Income before income taxes Income tax expense
Net Income
195 10,622
10,043 2,561
201 10,388
7.428 2.813
3.469 7.191
6,103 1,556
4,547
3,324 7.407
5.773 2.186
3.587
3,664 17,713
16,146 4,117
12,029 t
3.525 17.795
13,201 4.999
8.202
22 (18) 47
Effective tax rate HI
Net interest yield
Return on average allocated capital Efficiency ratio
2.35% 62 E0.68
2.05% 38 57.66
3.97% 18 42.90
4.18% 14 44.88
3.78 33 47.20
3.54 22 51.55
Balance Sheet
Average
Total loans and leases Total earning assets (2) Total assets 121 Total deposits Allocated capital
5.233 $ 682.600 710.925 678,640 12,000
5,084 651,963 679,306 646.930 12.000
278,574 i 279.217 290,068 5,533 25,000
260.974 261.802 273,253 6,390 25,000
283,807 $ 717,197 756,373 684,173 37,000
266,058 686,612 725,406 653,320 37,000
7%|10101010|288,865 S 289,249 299,970 4,480
5,143 675.485 703.33C 670.802
275,330 275,742 287,390 5,728
294,335 S 728,817 768,877 696,146
5,470 i 694,676 724,016 691,666
280,473 709,832 749.325 676.530
5% 3 3 3
Year end
Total loans and leases Total earning assets (?l Total assets i2l Total deposits
in Estimated at the segment level only.
(7i In segments and businesses where the total el 'larjilrtlcs £.~d equUy exceeds assets, we o locate assets Irom M Orne' tn merch the segments* and businesses' liabilities and allocated shareholders' CQu,ty As a result total earning assets and total ossets ol Uie businesses may not equal tolai Const,"-ier Ranking
12/10/2019, 3:39 PM
hltps://www.sec.gov/Archiv(;s/ed(;ar/data/70858/00000708581 .
Consumer Banking, v/hich is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Deposits and Consumer Lending include the net impact of migrating customers and their related deposit, brokerage asset and loan balances between Deposits, Consumer Lending and GWIM. as well as other. client-managed businesses. Our customers and clients have access to a coast to coast network including financial centers in 34 states and the District of Columbia. Our network includes approximately 4,300 financial centers, approximately 16,300 ATMs, nationwide call centers, and leading digital banking platforms with more than 36 million active users, including over 26 million active mobile users.
Consumer Banking Results
Net income for Consumer Banking increased $3.8 billion to $12 0 billion in 2018 compared to 2017 primarily driven by higher pretax income and lower income tax expense from the reduction in the federal income tax rate. The increase in pretax income was driven by higher revenue and lower noninterest expense, partially offset by higher provision for credit losses. Net interest income increased $2.8 billion to $27.1 billion primarily due to the beneficial impact of an increase in investable assets as a result of an increase in deposits, as well as higher interest rates, pricing discipline and loan growth. Noninterest income increased $186 million to $10.4 billion driven by higher card income, partially offset by lower mortgage banking income, which is included in all other income.
The provision for credit losses increased $139 million to $3.7 billion driven by portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense decreased $82 million to $17.7 billion driven by operating efficiencies and lower litigation and FDIC expense. These decreases were partially offset by investments in digital capabilities and business growth, including primary sales professionals, combined with investments in new financial centers and renovations.
The return on average allocated capital was 33 percent, up from 22 percent, driven by higher net income. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.
Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, and noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill
31 Bank of America 2018
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https7/w\vw.scc.gov/Archivcs/cdgar/data/70858/00000708581
Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to Ihe Corporation's network of financial centers and ATMs.
Net income for Deposits increased $2.9 billion to $7.5 billion in 2018 driven by higher revenue and lower income tax expense, partially offset by higher noninterest expense. Net interest income increased $2.7 billion to $16.0 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits, and pricing discipline. Noninterest income increased $72 million to $4.7 billion primarily driven by higher service charges
The provision for credit losses decreased $6 million to $195 million in 2018. Noninterest expense increased $134 million to $10.5 billion primarily driven by investments in digital capabilities and business growth, including primary sales professionals, combined with investments in new financial centers and renovations. These increases were partially offset by lower litigation and FDIC expense.
Average deposits increased $31.7 billion to $678.6 billion in 2018 driven by strong organic growth. Growth in checking, money market savings and traditional savings of $36.3 billion was partially offset by a decline in time deposits of $4.6 billion.
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.
Net income for Consumer Lending increased $960 million to $4.5 billion in 2018 driven by lower income tax expense, higher revenue and lower noninterest expense, partially offset by higher provision for credit losses. Nel interest income increased $145 million to $11.1 billion primarily driven by higher interest rates and the impact of an increase in loan balances. Noninterest income increased $114 million to $5.7 billion driven by higher card income, partially offset by lower mortgage banking income.
The provision for credit losses increased $145 million to $3.5 billion driven by portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense decreased $216 million to $7.2 billion primarily driven by operating efficiencies.
Average loans increased $17.6 billion to $278.6 billion in 2018 driven by increases in residential mortgages and U.S. credit card loans, partially offset by lower home equity balances.
Key Statistics - Consumer Lending
2018 _ 2.14*
Key Statistics - Deposits
2017
1.84%
$ 185,881 36,264 26,433 4.341 16,255
177,045 34.855 24,238 4,477 16,039
Total deposit spreads (excludcs.nonintcrest costs) Ul Year end
Client brokerage assets (in millions)
Active digital banking users {units in thousands) 121
Active mobile banking users (units in thousands)
Financial centers
ATMs
Ul Includes deposits held in Consumer Lending
(2) Digital users represents mobile and/or online users across consumer businesses
Client brokerage assets increased $8.8 billion in 2018 driven by strong client flows, partially offset by market performance. Active mobile banking users increased 2.2 million reflecting continuing changes in our customers' banking preferences. The number of financial centers declined by a net 136 reflecting changes in customer preferences to self-service options as we continue to optimize our consumer banking network and improve our cost to serve.
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our -customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending results also include the impact of
2018
10.12* 8.34
4,544 264,706 $ 318.662 (
9.65% 8,67 4,939 244,753 298,641
(Dollars in mil-inns)
Total U.S. credit card dl
Gross interest yield
Risk-adjusted margin
New accounts fin thousands)
Purchase volumes Debit card purchase volumcst
It) In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM.
During 2018, the total U.S. credit card risk-adjusted margin decreased 33 bps compared to 2017, primarily driven by increased net charge-offs and higher credit card rewards costs. Total U.S. credit card purchase volumes increased $20,0 billion to $264.7 billion, and debit card purchase volumes increased $19.9 billion to $318.6 billion, reflecting higher levels of consumer spending.
Key Statistics - Loan Production W
41,195 14,869
50,581 16,924
(Dollars in millions) Totdl i21
First mortgage
27,280 13,251
34.065 15.199
Homo ecuity Consumer Bonking.
First mortgage
Ho me eauity
I n The loan production amounts represent the unpaid principal balance or loans and. in the case of home
equity, the principal amount ol the total line ol credit I?) in addition to loan production in Consume/ Uankmg. there is a so first mortgage end home equity loan
production ,n GVVrfVf
First mortgage Joan originations in Consumer Banking and for the total Corporation decreased $6.8 billion and $9.4 billion in 2018 primarily driven by a higher interest rate environment driving lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total Corporatior, decreased $1.9 billion and $2.1 billion in 2018 primarily driven by lower demand.
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Global Wealth & Investment Management
[Dollars in rnlJions) Net interest income Noninterest income:
investment and brokerage services
All other income Total noninterest income
2018
6,294
11,959 1,085
13,044
6,173
11.394 1,023
Total revenue, net of interest expense
Provision for credit losses Noninterest expense
income before income taxes income tax expense
Net Income
86 13,777 5,475 1,396
4.079
56 13.556 4,978 1.885
3,093
54 2 10 (26) 32
Effective tax rate Net interest yiold
Return on average allocated capital Efficiency ratio
Balance Sheet
2.42 28 71.24
2.32 22 72 92
Average
Total loans and leases Total earning assets Total assots Total deposits Allocated capital
161.342 259,807 277,219 241,266 14,500
152.682 265.670 281,517 245,559 14,000
6%
(2) (2) (2) 4
Year end
Total loans and leases Total earning assets Total assets Total deposits
164,854 287,197 305,906 268,700
159,378 267,026 284,321 246,994
3%
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GWIM consists of two primary businesses Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank ol America Private Wealth Management (U.S. Trust).
MLGWM's advisory business provides a high touch client experience through a netv/ork of financial advisors focused on clients with over $250,000 in total investable assets. MLGWM provides tailored solutions to meet clients' needs through a full set of investment management, brokerage, banking and retirement products.
U.S. Trust, together with MLGWM's Private Banking & Investments Group, provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients' wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Net income for GWIM increased $986 million to $4.1 billion in 2018 compared to 2017 due to higher revenue and lower income tax expense from the reduction in the federal income tax rate, partially offset by an increase in noninterest expense and provision for credit losses. The operating margin was 28 percent compared to 27 percent a year ago.
Net interest income increased $121 million to $6.3 billion due to higher deposit spreads and average loan balances, partially offset by lower loan spreads and average deposit balances.
Noninterest income, which primarily includes investment and brokerage services income, increased $627 million to $13.0 billion. The increase was driven by the impact of AUM flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.
Noninterest expense increased $221 million to $13.8 billion primarily due to higher revenue-related incentive expense and investments for business growth, partially offset by continued expense discipline.
The return on average allocated capital was 28 percent, up from 22 percent, as higher net income was partially offset by an increased capital allocation. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.
Revenue from MLGWM of $15.9 billion and revenue from U.S. Trust of $3.4 billion both increased four percent due to higher asset management fees driven by higher net flows and market valuations, and an increase in net interest income. The increase in MLGWM revenue was partially offset by lower AUM pricing and transactional revenue.
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Key Indicators and Metrics
(Dollars in millions, ecccpt as noted)
Revenue by Business
Morrill Lynch Global wealth Management
U.S. Trust
Other
Total revenue, net of Interest expense
2018
15,895 3,432 11
19,338
15,288 3,295 7
18,590
Client Balances by Business, at year end
Merrill Lynch Global Wealth Management U.S. Trust
2,193,562 i 427,294
2.305.664 446.199.
Total client balances
Client Balances by Type, at year end
Assets under management Brokerage and other assets Deposits
Loans and leases lit Total client balances
$ 1,021,221 J 1,080,747
1,162,997 1,261,990
268,700 246,994
2.751.B63
167,938 1G2.132
2,620,856
Aissls Under Manatloment Rolttorwafd
Assets under management, beginning of year Net client flows Market valuation/other
$ 1,080,747 $ 886,148 36,406 95.707 (95,932) 98,892
Total assets under management, end of year
Associates, at year end (2)
Number of financial advisors
Total wealth advisors, including financial advisors
Total primary sales professionals, including financial advisors and wealth advisors
17,518 19.459 20,556
17,355 19,238 20,318
Merrill Lynch Global Wealth Management Metric
Financial advisor productivity 131 (in thousands}
U.S. Trust Metric, at year end
Primary sales professionals 1,747 1,714
1!) Includes tnargTn receivables Much are classified in customer and other receivubles on the Consolidated Balance Sheet I'll Includes financial advisors in the Consumer Banking segment ol 2,722 and 2,402 at December 31 2018 and 2017
13) f rriancral advisor pror.luclri'rry rs defined as MLCVVM total revenue excluding the Bllocetior. of curtail- asset and Irnhrlity management IALM} actrvrtres. divided by the total average number of frnanctal advrsors (excluding financial advisors in the Consumer Banking segment;
Client Balances
Client balances managed under advisory and/or discretion of GWIM are AUM and are typically held in diversified portfolios. Fees earned on AUM are calculated as a percentage of clients' AUM balances. The asset management fees charged to clients per year depend on various factors, but are commonly driven by the breadth of the client's relationship. The net client AUM flows represent the net change in clients' AUM balances over a specified period
of time, excluding market appreciation/depreciation and other adjustments.
Client balances decreased $131.0 billion, or five percent, in 2018 to $2.6 trillion, primarily due to lower market valuations on AUM and brokerage balances, as measured al December 31, 2018, partially offset by positive flows
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Global Banking
(Donors in rvl ions! Net interest income Noninterest income: Service charges Investment banking lees A?l other income Total noninterest income Total revenue, net of interest expense
2018_ 10,881
3.027 2,891 2,845
8,763
2017 10,504
3.125 3,471 2.899
9.495
% Change 4%
(3) (17) (2) (8) (2)
Provision for credit losses Noninterest expense
Income before income taxes Income tax expense
Net Income|1010|6,591
11,045 2,872
8,173
212 8,596
11,191 4,238
(96)
(1) (32) 18
Effective tax rate Net interest yield
Return on average allocated capital Efficiency ratio
Balance Sheet
2.98 20 43.73
2.93 17 42.98
Average
Total loans and leases Total earning assets Total assets Total deposits Allocated capital
354,236 364,748 424,353 336,337 41,000
346,089 358,302 416,038 312,859 40.000
2%|1010101010|
Year end
Total loans and leases Total earning assets Total assets Total deposits
365,717 377,812 441,477 360,248
350,668 365,560 424,533 329,273
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Global Banking, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a wide range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through our network of offices and client relationship teams. Our lending products and services include commercial loans, leases, commitment facilities, trade finance, commercial real estate lending and asset-based lending. Our treasury solutions business includes treasury management, foreign exchange and short-term investing options. We also provide investment banking products to our clients such as debt and equity underwriting and distribution, and merger-related and other advisory services. Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through our global broker-dealer affiliates, which arc our primary dealers in several countries. Within Global Banking, Global Commercial Banking clients generally include middle-market companies, commercial real estate firms and not-for-profit companies. Global Corporate Banking clients generally include large global corporations, financial institutions and leasing clients. Business Banking clients include mid sized U.S.-based businesses requiring customized and integrated financial advice and solutions.
Nel income for Global Banking increased $1.2 billion to $8 2 billion in 2018 compared to 2017 primarily driven by lower income tax expense from the reduction in the federal income tax rate and lower provision for credit losses, partially offset by lower revenue. Noninterest expense was relatively unchanged.
35 Bank of America 2018
Revenue decreased $355 million to $19.6 billion driven by lower noninterest income, partially offset by higher net interest income. Net interest income increased $377 million to $10.9 billion primarily due to the impact of higher interest rates, as well as loan and deposit growth Noninterest income decreased $732 million to $8.8 billion primarily due to lower investment banking fees. The provision for credit losses improved $204 million to $8 million primarily driven by Global Banking's portion of a 2017 single-name non-U.S. commercial charge-off and continued improvement in the commercial portfolio.
The return on average allocated capital was 20 percent, up from 17 percent, as higher net income was partially offset by an increased capital allocation. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.
Global Corporate, Global Commercial and Business Banking
Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange and short-term investment products.
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The tabic below and following discussion present a summary of the results, which exclude certain investment banking activities in Global Banking.
Global Corporate, Global Commercial and Business Banking
Global Corporate Banking Global Commercial Banking
(Dollars in millions) Revenue
Business Lending
Global Transaction Services Total revenue, net of Interost expense
$ 4,122 $
3,666 $ 7,778 $
4.387 3,322 7.709
S 4.039 3.288 t 7.327
4,280 3,017 7.297
404 $ 8,554 J 9,071
849 7.917 7,188
$ 1,366 $ 1.253 $ 16,471 $ 16,259
Balance Sheet
Average
Total loans and leases Total deposits
$ 163,616 $ 158.292 t 174.279 $ 170,101 $ 16,432 J 17.682 $ 354,227 $ 346,075
163,559 148.704 135.337 127.720 37,462 36.435 336,368 312,859
Year end
Total loans and leases Total deposits
$ 174,378 t 163,184 $ 176,937 S 169.997 $ 15,402 $ 17.500 $ 365,717 S 350.681
173,183 155.G14 149.118 137,538 37,973 36,120 360,274 329,272
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.
Business Lending revenue decreased $517 million in 2018 compared to 2017. The decrease was primarily driven by the impact of tax reform on certain tax-advantaged investments and lower leasing-related revenues.
Global Transaction Services revenue increased $729 million to $7.9 billion in 2018 compared to 2017 driven by higher short-term rates and increased deposits.
Average loans and leases increased two percent in 2018 compared to 2017 driven by growth in the commercial and industrial, and commercial real estate portfolios. Average deposits increased eight percent due to growth in domestic and international interest-bearing balances.
Global Investment Banking
Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of certain investment banking and underwriting activities are shared primarily between Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking Global Banking Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking fees and the portion attributable to Global Banking.and Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking fees and the portion attributable to Global Banking.Global Markets Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking fees and the portion attributable to Global Banking, under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. To provide a complete discussion of our consolidated investment banking fees, the following table presents total Corporation investment banking fees and the portion attributable to Global Banking.
fees and the portion attributable to Global Banking.
Global Banking 201B 2017
Investment Banking Fees
Total Corporation 2018 2017
1.152 1,327 412
1,557 1,506 408
1,258 3,084 1,183
1,691 3,635 940
(Dollars in millions) Products
6,526 (198)
2,891 (68)
3,471 (113)
6,266 (255)
Advisory Debt issuance Equity issuance
3,358
6,011
Gross Investment bonking fees
Total Investment banking fees
Total Corporation investment banking fees, excluding self-led deals, of $5.3 billion, which are primarily included within Global Banking and Global Markets, decreased 11 percent in 2018 compared to 2017 primarily due to declines in advisory fees and debt underwriting, the latter of which was driven by lower fee pools.
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Global Markets
{Dollars In millions) 2018 2017 Change
Net interest income * 3,171 $ 3,741 (15)%
Noninterest income:
Investment and brokerage services 1.780 2,049 {13)
Investment banking fees 2,296 2.476 (7)
Trading account profits 7,932 6,710 18
All other income B84 ~ 972 (9)
Total noninterest income 12,892 12,207 6
Total revenue, net of interest expense 16,063 15,951 1
Provision for credit losses Noninterest expense
Income before income taxes Income tax expense Net Income
10,686
5.377 1,398
3,979
164 10,731
5,056 1,763
3,293
(100) 6
(21) 21
Effective tax rale
Return cn average allocated capital Efficiency ratio
11 66.53|10 10|67.27
Balance Sheet
Average
Trading-related assets: Tracing account securities Reverse repurchases Securities borrowed Derivative assets Total trading-related assets
Total loans and leases
Total earning assets
Total assets
Total deposits
Allocated capital
215,112 125,084 78,889 46,047 465,132
72,651 473,383 666,003 31,209 35,000
216,996 101,795 82.2JJ0 _ 40,811 441,812
71,413 449,441 638,673 32,864 35.000
(D% 23 (4) 13|1010101010|(5)
rear end
Total trading-reiated assets Total loans ard leases Total earning assets Total assets Tola! depos ts
447,998 73.928 457,224 641.922 37,841
419.375 76,778 449,314 629.013 34.029
7%
m
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Global Markets otters sales and trading services and reseaich services to institutional clients across fixed-income, credit, currency, commodity and equity businesses. Global Markets Global Markets provides market making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support of their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS. commodities and asset-backed securities. The economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Banking undei an internal revenue-sharing arrangement. Global Banking originates certain deal product coverage includes securities and derivative products in both the primary and secondary markets. Global Markets provides market-making, financing, securities clearing, settlement and custody services globally to our institutional investor clients in support cf their investing and trading activities. We also work with our commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result of our market-making activities in these products, we may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities, syndicated loans, MBS, commodities and asset-backed securities. The economics of certain investment banking and underwriting activities are shared primarily between Global Markets and Global Ban
related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. For information on investment banking fees on a consolidated basis, see page 36.king under an internal revenue-sharing arrangement. Global Banking originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by Global Markets. For information on investment banking fees on a consolidated basis, see page 36.
Net income for Global Markets increased $686 million to $4.0 billion in 2018 compared to 2017. Net DVA losses were $162 million compared to losses of $428 million in 2017. Excluding net DVA, net income increased $544 million to $4.1 billion. These increases were primarily driven by lower income tax expense from the reduction in the federal income tax rate, a decrease in the provision for credit losses and modestly higher revenue.
Sales and trading revenue, excluding net DVA, increased $19 million due to higher Equities revenue, largely offset by lower FICC revenue. The provision for credit losses decreased $164 million driven by Global Markets' portion of a single-name non-U.S. commercial charge-off in 2017. Noninterest expense decreased $45 million to $10.7 billion primarily due to lower operating costs.
¦l
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Average total assets increased $27.3 billion to $666.0 billion in 2018 primarily driven by increased levels of inventory in FICC to facilitate client demand and growth in Hquities derivative client financing activities. Total year-end assets increased $12.9 billion to $641.9 billion at December 31, 2018 due to increased levels of inventory in FICC.
The return on average allocated capital was 11 percent, up from 9 percent, reflecting higher net income. For more information on capital allocated to the business segments, see Business Segment Operations on page 30.
Sales and Trading Revenue
Sales and trading revenue includes unrealized and realized gams and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial MBS, residential mortgage-backed securities, collateralized loan obligations, interest rate and credit derivative contracts), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The following table and related discussion present sales and trading revenue, substantially all of which is in Global Markets, with the remainder in Global Banking. In addition, the following table and related discussion present sales and trading revenue, excluding net DVA, which is a non-GAAP financial measure. For more information on net DVA, see Supplemental Financial Data on page 24.
Sales and Trading Revenue (i, 2)
'Dollars in millions) , 2018 2017
Sales and trading revenue
Fixed-income, currencies and commodities $ 8,186 $ 8,657
Equities 4,876 4,120
Total sales and trading revenue $ 13,062 $ 12.777
Sales and trading revenue, excluding net DVA (3)
Fixed-income, currencies and commodities $ 8,328 $ 9.051
Equities 4.896 4.154
Total sales and trading revenue, excluding net DVA $ 13,224 $ 13,205 Ul Includes FTE adjustments ol $249 million and $236 million lot 2018 Bnd 2017. For more information
nn sales and Hading revenue, see Note 3 - Derrvxilrms to the Consolidated Financial Statements. I?) Includes Global Banking sales and trading revenue of $430 million ond $236 million for 2018 and
2017.
FICC and equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA losses were $142 nvljion and $394 million lor 2018 ond 2017, Equities net OVA losses were S20 million and 334 million for 2018 and 2017.
The following explanations for year-over-year changes in sales and trading. FICC and Equities revenue exclude net DVA, but would be the same whether net DVA was included or excluded. FICC revenue decreased $723 million in 2018 primarily due to lower activity and a less favorable market in credit-related products. The decline, in FICC revenue was also impacted by higher funding costs, which were driven by increases in market interest rates. Equities revenue increased $742 million in 2018 driven by strength in client financing and derivatives.
All Other
(Dollars tn millions) Net interest income Noninterest income (loss)
Total revenue, net of interest expense
201B
$ S73 (1,284)
(711)
864 (1.648)
(784)
H Change
(34)% (22) (9)
Provision for credit losses Noninterest expense
Loss hefore income taxes income tax benefit
Net loss
(476) 2,614
(2.849)
(2,736)
$ (113) $
1561) 4.065
(4,288) (979) (3,309)
115) (36) (34) n/m (97)
Balance Sheet
Average
Total loans and leases Total assets I1) Total deposits
61.013 201,298 21.9G6
82,489 206.999 25,194
(26)%
(3) (13)
Total loans and looses Total assets d) Tots' deposits
In segments where the tr.lal of tiishi! I es and ir.,. ry exceeds assets, .-.'I'lch ,-;re f.enerali, deposit taki i= segments, w shareholders eq.nry Average nl'oca'.ed assets were Jnl-'0 billic-n end isis fj tn I t.r foi 201 fi an,-; 2017 and ,-car i r/m - no! nied'i iglul
(31)% 1
118)
Hecate :isr,"ts l-on /,-. Oinc.r ¦;> those sefcnents to match .labilities :i.e . deposits) and al orated 0 al rested assets v.r -e $540 8 r, Mien and $520 4 Lillioii af December 31. 2018 fcnd 2017.
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All Other consists of ALM activities, equity investments, non-core mortgage loans and servicing activities, the net impact of periodic revisions to the MSR valuation model for core and non-core MSRs and the related economic hedge results, liquidating businesses and residual expense allocations. ALM activities encompass certain residential mortgages, debt securities, interest rate and foreign currency risk management activities, the impact of certain
allocation methodologies and hedge ineffectiveness. The results of certain ALM activities are allocated to our business segments. For more information on our ALM activities, see Note 23 - Business Segment Information to the Consolidated Financial Statements. Equity investments include our merchant services joint venture as well as a portfolio of equity, real estate and other alternative investments. For more information on our merchant services joint
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venture, see Wore 1.2 - Commitments and Contingencies to the Consolidated Financial Statements.
The Corporation classifies consumer real estate loans as core or non-core based on loan and customer characteristics. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 51 Residential mortgage loans that are held for ALM purposes, including interest rate or liquidity risk management, are classified as core and are presented on the balance sheet of All Other. During 2018. residential mortgage loans held for ALM activities decreased $3.6 biliion to $24.9 billion at December 31. 2018 primarily as a result of payoffs and paydovvns. Non-core residential mortgage and home equity loans, which are principally runoff portfolios, are also held in All Other. During 2018, total non-core loans decreased $17.8 billion to $23.5 billion at December 31, 2018 due primarily to loan sales of $10.8 billion, as well as payoffs and paydowns.
The net loss for All Other improved $3.2 billion to a loss of $113 million, driven by a charge of $2.9 billion in 2017 due to enactment of the Tax Act. The pretax loss for 2018 compared to 2017 decreased $1.4 billion primarily due to lower noninterest expense.
Revenue increased $73 million to a loss of $711 million primarily due to gains of $731 million from the sale of consumer real estate loans, primarily non-core, offset by a $729 million charge related to the redemption of certain trust preferred securities in 2018. Results for 2017 included a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act and a pretax gain of $793 million recognized in connection with the sale of the non-U.S. consumer credit card business in 2017.
Noninterest expense decreased $1.5 billion to- $2.6 billion primarily due to lower non-core mortgage costs and reduced operational costs from the sale of the non-U.S. consumer credit card business. Also, the prior-year period included a $316 million impairment charge related to certain data centers.
The income tax benefit was $2.7 billion in 2018 compared to a benefit of $1.0 billion in 2017. The increase in the tax benefit was prufiarily driven by a charge of $1.9 billion in 2017 related to impacts of the Tax Act for the lower valuation of certain deferred tax assets and liabilities. Both periods included income tax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking.
Off-Balance Sheet Arrangements and Contractual Obligations
We have contractual obligations to make future payments on debt and lease agreements. Aoditionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are defined as obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity at a fixed, minimum or variable price over a specified period of time. Included in purchase obligations are vendor contracts, the most significant of which include communication services, processing services and software contracts. Debt, lease and other obligations are more fully discussed in Note 11 - Long-term Debt and Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
Other long-term liabilities include our contractual funding obligations related to the Non-U.S. Pension Plans and Nonqualified and Other Pension Plans (together, the Plans). Obligations lo the Plans are based on the current and projected obligations of the Plans, performance of the Plans' assets, and any participant contributions, if applicable. During 2018 and 2017, we contributed $156 million and $514 million to the Plans, and we expect to make $127 million of contributions during 2019. The Plans are more fully discussed in Note 17 - Employee Benefit Plans to the Consolidated Financial Statements.
We enter into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For a summary of the total unfunded, or off-balance sheet, credit extension commitment amounts by expiration date, see Credit Extension Commitments in Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
We also utilize variable interest entities (VIEs) in the ordinary course of business to support our financing and investing needs as well as those of our customers. For more information on our involvement with unconsolidated VIEs, see Note 7 - Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements.
Table 12 includes certain contractual obligations at December 31, 2018 and 2017.
Table 12 Contractual Obligations
43,635 4,197 1.162 5,477 1.049 10.7 73 66.348
37.975 2.370 1,288
53.182 1.611 6,795 103,521
[Dollars ir millions)
Long-term debl Operating lease obligations Purchase obi gations Time deposits Other long-term liabilities
Estimated interest expense cn long term debt and time deposits HI Total contractual obligations
Ml Ftcpresenls forecasted nel irtcresl e«oense on long-term deut and Mine deposits based on interest rates at December 31, 2013 and 2C17 Forecasts and arc net ol derivative hedges, wticre applicable
Total
Total
227,402 14.520 4,219 67,844 4,972 49.123 368,060
229.340 15,770 4,048 61,039 3,933 56,852 370,982
Due After rive Years
106.077
6.160
1,091
607
544
30.872
145,351
are based on tlie contractual maturity dates ol each liability,
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Representations and Warranties Obligations
For more information on representations and warranties obligations in connection with the sale of mortgage loans, see Note 12 -Commitments and Contingencies to the Consolidated Financial Statements. For more information related to the sensitivity of the assumptions used to estimate our reserve for representations and warranties, see Complex Accounting Estimates - Representations and Warranties Liability on page 79.
Managing Risk Overview
Risk is inherent in all our business activities. Sound risk management enables us to serve our customers and deliver for our shareholders. If not managed well, risks can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies We take a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement which are approved annually by the Enterprise Risk Committee (ERC) and the Board.
The seven key types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational.
Strategic risk is the risk resulting from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments in the geographic locations in which we operate.
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations.
Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings.
Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions.
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with the requirements of applicable laws, rules and regulations and our internal policies and procedures.
Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems", or from external events.
Reputational risk is the risk that negative perceptions of the Corporation's conduct or business practices may adversely impact its profitability or operations.
The following sections address in more detail the specific procedures, measures and analyses of the major categories of risk. This discussion of managing risk focuses on the current Risk Framework that, as part of its annual review process, was approved by the ERC and the Board.
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 growth. It requires us to focus on risk in all activities and encourages the necessary mindset and behavior to enable effective risk management, and promotes souna risk-taking
within our risk appetite. Sustaining a culture of managing risk well throughout Uie organization is critical to our success and is a clear expectation of our executive management team and the Board.
Our Risk Framework serves as the foundation for the consistent and effective management of risks facing the Corporation. The Risk Framework sets forth clear roles, responsibilities and accountability for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities.
Executive management assesses, with Board oversight, the risk-adjusted returns of each business. Management reviews and approves the strategic and financial operating plans, as well as the capital plan and Risk Appetite Statement, and recommends them annually to the Board for approval. Our strategic plan takes into consideration return objectives and financial resources, which must align with risk capacity and risk appetite. Management sets financial objectives for each business by allocating capital and setting a target for return on capital for each business. Capital allocations and operating limits are regularly evaluated as pait of our overall governance processes as the businesses and the economic environment in which we operate continue to evolve. For more information regarding capital allocations, see Business Segment Operations on page 30.
The Corporation's risk appetite indicates tho amount of capital, earnings or liquidity we are willing to put at risk to achieve our strategic objectives and business plans, consistent with applicable regulatory requirements. Our risk appetite provides' a common and comparable set of measures for senior management and the Board to clearly indicate our aggregate level of risk and to monitor whether the Corporation's risk profile remains in alignment with our strategic and capital plans. Our risk appetite is formally articulated in the Risk Appetite Statement, which includes both qualitative components and quantitative limits.
Our overall capacity to take.risk is limited; therefore, we prioritize the risks we take in order to maintain a strong and flexible financial position so we can withstand challenging economic conditions and take advantage of organic growth opportunities. Therefore, we set objectives and targets for capital and liquidity that are intended to permit us to continue to operate in a safe and sound manner, including during periods of stress.
Our lines of business operate with risk limits (which may include credit, market and/or operational limits, as applicable) that align with the Corporation's risk appetite. Executive management is responsible for tracking and reporting performance measurements as well as any exceptions to guidelines or limits. The 8oard. and its committees when appropriate, oversees financial performance, execution ofthe strategic and financial operating plans, adherence to risk appetite limits and the adequacy of internal controls.
For a more detailed discussion of our risk management activities, see the discussion below and pages 43 through 77.
Risk Management Governance
The Risk Framework describes delegations of authority whereby the Board and its committees may delegate authority to management-level committees or executive officers. Such delegations may authorize certain decision-making and approval functions, which may be evidenced in, for example, committee charters, job descriptions, meeting minutes and resolutions
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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 (1'
Boaid
Committees
Audit Committee
Enterprise
Risk Committee
Corporate Governance Committee
Compensation and Benefits Committee
Management Committees
Disclosure Committee ">
Management
Risk Committee
RegO Committee
Corporate Benefits Committee
Management Compensation Committee
(tl this presentation (toes not include committees for other legal entities. (21 Reports to lhe CCO and CFO with ovcrsrght by the Audit Committee.
Board of Directors and Board Committees
The Board is composed of 16 directors, all but one of whom are independent. The Board authorizes management to maintain an effective Risk Framework, and oversees compliance with safe and sound banking practices. In addition, the Board or its committees conduct inquiries of, and receive reports from management on risk-related matters to assess scope or resource limitations that could impede the ability of Independent Risk Management (IRM) and/or Corporate Audit to execute its responsibilities. The Board committees discussed below have the principal responsibility for enterprise-wide oversight of our risk management activities. Through these activities, the Board and applicable committees are provided with information on our risk profile and oversee executive management addressing key risks we face. Other Board committees, as described below, provide additional oversight of specific risks.
Each of the committees shown on the above chart regularly reports to the Board on risk-related matters within the committee's responsibilities, which is intended to collectively provide the Board with integrated insight about our management of enterprise-wide risks.
Audit Committee
The Audit Comrnittee oversees the qualifications, performance and independence of the Independent Registered Public Accounting Firm, the performance of our corporate audit function, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, and makes inquiries of management or the Corporate General Auditor (CGA) to determine whether there are scope or resource limitations that impede the ability of Corporate Audit to execute its responsibilities. The Audit Committee is also responsible for overseeing compliance risk pursuant to the New Vork Stock Exchange listing standards.
Enterprise Risk Committee
The ERC has primary responsibility for oversight cf the Risk Framework and key risks we face and of the Corporation's overall risk appetite. It approves the Risk Framework and the Risk Appetite Statement and further recommends these documents to the Board for approval. The ERC oversees senior management's
responsibilities for the identification, measurement, monitoring and control of key risks we face. The ERC may consult with other Board committees on risk-related matters.
Other Board Committees
Our Corporate Governance Committee oversees our Board's governance processes, identifies and reviews the qualifications of potential Board members, recommends nominees for election to our Board, recommends committee appointments for Board approval and reviews our Environmental, Social and Governance and stockholder engagement activities.
Our Compensation and Benefits Committee oversees establishing, maintaining and administering our compensation programs and employee benefit plans, including approving and recommending our Chief Executive Officer's (CEO) compensation to our Board for further approval by all independent directors, and reviewing and approving all of our executive officers' compensation, as well as compensation for non-management directors.
Management Committees
Management committees may receive their authority from the Board, a Board committee, another management committee or from one or more executive officers. Our primary management-level risk committee is the Management Risk Committee (MRC). Subject to Board oversight, the MRC is responsible for management oversight of key risks facing the Corporation. This includes providing management oversight of our compliance and operational risk programs, balance sheet and capital management, funding activities and other liquidity activities, stress testing, trading activities, recovery and resolution planning, model risk, subsidiary governance and activities between member banks and their nonbank affiliates pursuant to Federal Reserve rules and regulations, among other things.
Lines of Defense
We have clear ownership and accountability across three lines of defense: Front Line Units (FLUs), IRM and Corporate Audit. We also have control functions outside of FLUs and IRM (e.g . Legal and Global Human Resources). The three lines of defense are
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integrated into our management-level governance structure. Each of these functional roles is described in more detail below
Executive Officers
Executive officers lead various functions representing the functional roles Authority for functional roles may be delegated to executive officers from the Board, Board committees or management-level committees. Executive officers, in turn, may further delegate responsibilities, as appropriate, to management-level committees, management routines or individuals. Executive officers review our activities for consistency with our Risk Framework, Risk Appetite Statement and applicable strategic, capital and financial operating plans, as well as applicable policies, standards, procedures and processes. Executive officers and other employees make decisions individually on a day-to-day basis, consistent with the authority they have been delegated. Executive officers and other employees may also serve on committees and participate in committee decisions.
Front Line Units
FLUs, which include the lines of business as well as the Global Technology and Operations Group, are-responsible for appropriately assessing and effectively managing all of the risks associated with their activities.
Three organizational units that include FLU activities and control function activities, but are not part of IRM are the Chief Financial Officer (CFO) Group, Global Marketing and Corporate Affairs (GM&CA) and the Chief Administrative Officer (CAO) Group.
Independent Risk Management
IRM is part of our control functions and includes Global Risk Management and Global Compliance and Operational Risk. We have other control functions that are not part of IRM (other control functions may also provide oversight to FLU activities), including Legal, Global Human Resources and certain activities within the CAO Group, CFO Group and GM&CA. IRM, led by the Chief Risk Officer (CRO), is responsible for independently assessing and overseeing risks within FLUs and other control functions. IRM establishes written enterprise policies and procedures that include concentration risk limits, where appropriate. Such policies and procedures outline how aggregate risks are identified, measured, monitored and controlled.
The CRO has the stature, authority and independence to develop and implement a meaningful risk management framework. The CRO has unrestricted access to the Board and reports directly to both the ERC and to the CEO. Global Risk Management is organized into horizontal risk teams, front line unit risk teams and control function risk -teams that work collaboratively in executing their respective duties.
Corporate Audit
Corporate Audit and the CGA maintain their independence from the FLUs, IRM and other control functions by reporting directly to the Audit Committee or the Board. The CGA administratively reports to the CEO. Corporate Audit provides independent assessment and validation through testing of key processes and controls across the Corporation. Corporate Audit includes Credit Review which periodically tests and examines credit portfolios and processes.
Risk Management Processes
The Risk Framework requires that strong risk management practices are integrated in key strategic, capital and financial planning processes and in day-to-day business processes across
the Corporation, with a goal of ensuring risks are appropriately considered, evaluated and responded to in a timely manner.
We employ our risk management process, referred to as Identify, Measure. Monitor and Control, as part of our daily activities.
Identify - To be effectively managed, risks must be clearly defined and proactively identified. Proper risk identification focuses on recognizing and understanding key risks inherent in our business activities or key risks that may arise from external factors. Each employee is expected to identify and escalate risks promptly. Risk identification is an ongoing process, incorporating input from FLUs and control functions, designed to be forward looking and capture relevant risk factors across all of our lines of business.
Measure - Once a risk is identified, it must be prioritized and accurately measured through a systematic risk quantification process including quantitative and qualitative components. Risk is measured at various levels including, but not limited to, risk type, FLU, legal entity and on an aggregate basis. This risk quantification process helps to capture changes in our risk profile due to changes in strategic direction, concentrations, portfolio quality and the overall economic environment. Senior management considers how risk exposures might evolve under a variety of stress scenarios.
Monitor - We monitor risk levels regularly to track adherence to risk appetite, policies, standards, procedures and processes. We also regularly update risk assessments and review risk exposures. Through our monitoring, we can determine our level of risk relative to limits and can take action in a timely manner. We also can determine when risk limits are breached and have processes to appropriately report and escalate exceptions. This includes requests for approval to managers and alerts to executive management, management-level committees or the Board (directly or through an appropriate committee).
Control - We establish and communicate risk limits and controls through policies, standards, procedures and processes that define the responsibilities and authority for risk-taking. The limits and controls can be adjusted by the Board or management when conditions or risk tolerances warrant. These limits may be absolute (e.g., loan amount, trading volume) or relative (e.g percentage of loan book in higher-risk categories). Our lines of business are held accountable to perform within the established limits.
The formal processes used to manage risk represent a part of our overall risk management process. We instill a strong and comprehensive culture of managing risk well through communications, training, policies, procedures and organizational roles and responsibilities. Establishing a culture reflective of our purpose to help make our customers' financial lives better and delivering our responsible growth strategy are also critical to effective risk management. We understand that improper actions, behaviors or practices that are illegal, unethical or contrary to our core values could result in harm to the Corporation, our shareholders or our customers, damage the integrity of the financial markets, or negatively impact our reputation, and hove established protocols and structures so that such conduct risk is governed and reported across the Corporation. Specifically, our Code of Conduct provides a framework for all of our employees to conduct themselves with the highest integrity. Additionally, we continue to strengthen the link between the employee performance management process and individual compensation to encourage employees to work toward enterprise-wide risk goals.
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Corporation-wide Stress Testing
Integral to our Capital Planning, Financial Planning and Strategic Planning processes, we conduct capital scenario management and stress forecasting on a periodic basis to better understand balance sheet, earnings and capital sensitivities to certain economic and business scenarios, including economic and market conditions that are more severe than anticipated. These stress forecasts provide an understanding of the potential impacts from our risk profile on the balance sheet, earnings and capital, and serve as a key component of our capital and risk management practices. The intent of stress testing is to develop a comprehensive understanding of potential impacts of on- and off-balance sheet risks at the Corporation and how they impact financial resiliency, which provides confidence to management, regulators and our investors.
Contingency Planning
We have developed and maintain contingency plans that are designed to prepare us in advance to respond in the event of potential adverse economic, financial or market'stress. These contingency plans include our Capital Contingency Plan and Financial Contingency and Recovery Plan, which provide monitoring, escalation, actions and routines designed to enable us to increase capital, access funding sources and reduce risk through consideration of potential options that include asset sales, business sales, capital or debt issuances, or other de-risking strategies. We also maintain a Resolution Plan to limit adverse systemic impacts that could be associated with a potential resolution of Bank of America.
Strategic Risk Management
Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. This risk results from incorrect assumptions about external or internal factors, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, such as competitor actions, changing customer preferences, product obsolescence and technology developments. Our strategic plan is consistent with our risk appetite, capital plan and liquidity requirements, and specifically addresses strategic risks.
On an annual basis, the Board reviews and approves the strategic plan, capital plan, financial operating plan and Risk Appetite Statement. With oversight oy the Board, executive management directs the lines of business to execute our strategic plan consistent with our core operating principles and risk appetite. The executive management team monitors business performance throughout the year and provides the Board with regular progress reports cn whether strategic objectives and timelines are being met, including reports on strategic risks and if additional or alternative actions need to be considered or implemented. The regular executive reviews focus on assessing forecasted earnings and returns on capital, the current risk profile, current capital and liquidity requirements, staffing levels and changes required to support the strategic plan, stress testing results, and other qualitative factors such as market growth rates and peer analysis.
Significant strategic actions, such as capital actions, material acquisitions c divestitures, and resolution plans are reviewed and approved by the Board. At the business level, processes are in place to discuss the strategic risk implications of new, expanded or modified businesses, products or services and other strategic initiatives, and to provide formal review and approval where
43 Bank ol iVre.'ica 2018
required. With oversight by the Board and the ERC, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital or liquidity positions as deemed appropriate to balance and optimize achieving tho targeted risk appetite, shareholder returns and maintaining the targeted financial strength. Proprietary models are used to measure the capital requirements for credit, country, market, operational and strategic risks, lhe allocated capital assigned to each business is based on its unique risk profile. With oversight by the Board, executive management assesses the risk-adjusted returns of each business in approving strategic and financial operating plans. The businesses use allocated capital to define business strategies, and price products and transactions.
Capital Management
The Corporation manages its capital position so that its capital is more than adequate to support its business activities and aligns with risk, risk appetite and strategic planning. Additionally, we seek to maintain safety and soundness at all times, even under adverse scenarios, take advantage of organic growth opportunities, meet obligations to creditors and counterparties, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements. Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of our strategic plan, risk appetite and risk limits.
We conduct an Internal Capital Adequacy Assessment Process (ICAAP) on a periodic basis. The ICAAP is a forward-looking assessment of our projected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize periodic stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the potential capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees.
We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. For additional information, see Business Segment Operations on page 30.
CCAR and Capital Planning
The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the CCAR capital plan.
On June 28. 2018, following the Federal Reserve's non-objection to our 2018 CCAR capital plan, the Board authorized the repurchase of approximately S20.6 billion in common stock from July 1, 2018 through June 30, 2019, which includes approximately $600 million in repurchases ' to offset shares awarded under equity-based compensation plans during the same period. In addition to the previously announced repurchases associated with the 2018 CCAR capital plan, on February 7, 2019, we announced a plan to repurchase an additional $2.5 billion of common stock through June 30, 2019, which was approved by the Federal Reserve.
Dunng 2018, pursuant to the Board's authorizations, including those related to our 2017 CCAR capital plan that expired June 30, 2018, we repurchased $20.1 billion of common stock, which includes common stock repurchases to offset equity-based
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compensation awards. At December 31, 2018. our remaining, stock repurchase authorization was $10.3 billion.
Our stock repurchases are subject to various factors, including the Corporation's capital position, liquidity, financial performance and alternative uses of capital, stock trading price and general market conditions, and may be suspended at any time. The repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-l of the Securities Exchange Act of 1934, as amended. As a "well-capitalized" BHC, we may notify the Federal Reserve of our intention to make additional capital distributions not to exceed 0.25 percent of Tier 1 capital, and which were not contemplated in our capital plan, subject to the Federal Reserve's non objection.
Regulatory Capital
As a financial services holding company, we are subject to regulatory capital rules, including Basel 3, issued by U.S. banking regulators. Basel 3 established minimum capital ratios and buffer requirements and outlined two methods of calculating risk-weighted assets, the Standardized approach and the Advanced approaches. The Standardized approach relies primarily on supervisory risk weights based on exposure type, and the Advanced approaches determine risk weights based on internal models.
The Corporation and its primary affiliated banking entity, BANA, are Advanced approaches institutions under Basel 3 and are required to report regulatory risk-based capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is used to assess capital adequacy including under the Prompt Corrective Action (PCA) framework. As of December 31, 2018, Common equity tier 1 (CET1) and Tier 1 capital ratios for the Corporation were lower under the Standardized approach whereas the Advanced approaches yielded a lower Total capital ratio.
Minimum Capital Requirements
Minimum capital requirements and related buffers were fully phased in as of January 1, 2019. The PCA framework established categories of capitalization, including well capitalized, based on the Basel 3 regulatory ratio requirements. U.S. banking regulators are required to lake certain mandatory actions depending on the category of capitalization, with no mandatory actions required for well-capitalized banking organizations.
In order to avoid restrictions on capital distributions and discretionary bonus payments, the Corporation must meet risk-based capital ratio requirements that include a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer and a global systemically important bank (G-SIB) surcharge. The buffers and surcharge must be comprised solely of CET1 capital and were phased in over a three-year period that ended January 1, 2019.
The Corporation is also required to maintain a minimum supplementary leverage ratio (SLR) of 3.0 percent plus a leverage buffer of 2.0 percent in order to avoid certain restrictions on capital distributions and discretionary bonus payments. Our insured depository institution subsidiaries are required to maintain a minimum 6.0 percent SLR to be considered well capitalized under the PCA framework. The numerator of the SLR is quarter-end Basel 3 Tier 1 capital. The denominator is total leverage exposure based on the daily average of the sum of on-balance sheet exposures less permitted Tier 1 deductions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter.
Capital Composition and Ratios
Table 13 presents Bank of America Corporation's capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2018 and 2017. As of the periods presented, the Corporation met the definition of well capitalized under current regulatory requirements.
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Table 13 Bank of America Corporation Regulatory Capital under Basel 3 W
Standardized Approach
Advanced Approaches
Current Regulatory Minimum 12)
2019 Regulatory Minimum (3)
(Dollars In millions, except as noted) Risk-based capltBl metrics:
Common equity tier 1 capital
Tier 1 capital
Total capital It)
Risk-weighted assets (in billions) Common equity tier 1 capital ratio Tier 1 capital ratio Total capital ratio
167.272 189.038 221,304 1.437 11.6% 13.2 1S.4
December 31, 2018
167.272 189.038 212,878 1,409
11.9%
13.4
1S.1
8.25% 9.75 11.75
9.5% 11.0 13.0
Leverage-based metrics:
Adjusted qtiatterly average assets (in billions) 15) Tier 1 leverage ratio
2.258 $ 8.4%
2.258 8.4%
SLR leverage exposure |m billions) SLR
2,791 6.8%
December 31, 2017
Risk-based capital metrics:
Common equity tier 1 capital Tier 1 capital Total capital (<)
Risk-weighted assets (In billions) Common equity tier 1 capita! ratio Tier 1 capital ratio Total capital ratio
168,461 190,189 224,209 1,443 11.7% 13.2 15.5
168.461 190,189 215,311 1,459 11.5% 13.0 14.8
7.25% 8.75 10.75
9.5% 11.0 13.0
2,223 8.6%
2,223 8.6%
Leverage-based metrics:
4.0
Adjusted quarterly average assets (in billions) (51 Tier 1 leverage ratio
4.0
(tl Basel 3 transition previsions for regulatory capital odftistments and deductions were furry phased rn as of January 1, 2018. Pilot periods are presented on a furly phased-rn oasis
(21 The December 31. 2018 end 2017 amounts Include a transition capital conservation buffer o* 1.875 percent and 1.25 percent and a transition G-SIB surcharge of 1.875 percent and 1.5 percent. The countercyclical capital buffer for both periods is rero.
13) The 2019 regulatory muumums include a capital conservation buffer ot 2 5 percent and G-SIB surcharge ol 2 5 percent. Tlie countercyclical capital butter is rero We became sua.ect to these regulatory minunums
on Jauuaiy i. 2019. The SLR minimum induces a leverage bulfer of 2.0 percent and was oppucablo beginning on January 1. 2018. 1*1 Total capital undei the fidvonccd approaches differs from the Stonda'dizcd approach due to differences In the amount permitted in Tier 2 capital related td the rtuaiilyrrig allowance lot credit losses, IS) Reflects adjusted avenige total assets for the three months ended December 31. 2013 and 2017.
CET1 capital was $167.3 billion at December 31, 2018, a decrease of $1.2 billion from December 31. 2017, driven by common stock repurchases, dividends and market value declines on AFS debt securities included in accumulated OCI, partially offset by earnings. During 2018, Total capitai under the Advanced approaches decreased $2.4 billion driven by the same factors as CET1 capital and a decrease in subordinated debt included in Tier
2 capital. Standardized risk-weighted assets, which yielded the lower CET1 capital ratio for December 31, 2018, decreased $5.5 billion during 2018 to $1,437 billion primarily due to sales of non-core mortgage loans and a decrease in market risk, partially offset by an increase in commercial loans.
Table 14 shows the capital composition at December 31, 2018 and 2017.
Table 14 Capital Composition under Basel 3 W
(uoliars in millions)
total common shareholdeis' equity Goodwill, net of relnled detericd tax I ab lilies
Defe'reG tax assets arising front not opcrot ng less and tax credit cairytorwards
Intangibles, cthef *.".ar morlgoge se'vicing rights and goodwill, net of related defend! tax liabiUies
Othor
Common equity tier 1 capital
Qualify ng p'eferrecl slcc-\ not of issuance cosl
December 31 2018 2017
242,999 (68,572) (5,981) (1,294) 120 167,272
22,326
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Other (560) _ _ (595)
Tier 1 capital 169.038 190.189
Tier 2 capital instruments 21,887 22,938
Eligible credit reserves included m Tier 2 capital 1,972 2.272
Olher _ (19) 188)
Total capital under the Advanced approaches S 212.878 $ 215,311
IU Basel 3 transition provisions for regulatory capital adjustments ond deductions were fully pnased in as of January 1, 2018 Prior periods are presented on a fully phased-ln basis.
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Table 15 shows the components of risk-weighted assets as measured under Basel 3 at December 31, 2018 and 2017.
Table 15 Risk-weighted Assets under Basel 3 (l)
Standardized Advanced Standardized Advanced
Approach Approaches Approach Approaches
December 31
(Debars in billions)
Credit risk $ 1,384 $ 827 J 1,384 S 867
Ma.Ket risk 53 52 59 58
Operational r.sk n/a 500 n/a 500
Risks related to credit valuation adjustments n/a 30 n/a 34
Total flsk-welchted assets _ $ 1,437 $ 1,409 % 1,443 $ 3.459
U) Base! 3 transition provisions for regulatory capital adjustments and deductions were tully phased in as of January 1. 2018 Prior periods are presented on a fully phased-in basis n/a = net apuliu^hle
Bank of America, N.A. Regulatory Capital
Table 16 presents regulatory capital information for BANA in accordance with Basel 3 Standardized and Advanced approaches as measured at December 31, 2018 and 2017. BANA met the definition of well capitalized under the PCA framework for both periods.
Table
16 Bank of America, N.A. Regulatory Capital under Basel 3
Standardized Approocrt
Minimum Required U)
(Dollars in millions)
Common equity tiei 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
SLR
12.5% t 149.824
12.5 149,824
13.5 161,760
8.7 149,824
December 31, 2018 15.6% $ 15.6 16.0
8.7
7.1
149.824 149.824 163.627 149,824 149,824
6.5% 8.0 10.0 6.0 6.0
Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage
12.5S 12.5 13.6 9.0
150,552 150,552 163.243 150,552
December 31,2017
11.9% t|10 10|4 90
150.552 150,552 154.675 1S0.552
6.5% 8.0 10.0 5.0
dl Percent required to meet guidelines to be considered well copitnlircd under the PCA Iremevrorh.
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Regulatory Developments Minimum Total Loss-Absorbing Capacity
The Federal Reserve's final rule, which was effective January 1. 2019, includes minimum external total loss-absorbing capacity (TLAC) and long-term debt requirements to improve the resolvabilily and resiliency of large, interconnected BHCs. As of December 31, 2018, the Corporation's TLAC and long-term debt exceeded our estimated 2019 minimum requirements.
Stress Buffer Requirements
On April 10, 2018, the Federal Reserve announced a proposal to integrate the annual quantitative assessment of the CCAR program witn the buffer requirements in the Basel 3 capital rule by introducing stress buffer requirements as a replacement of the CCAR quantitative objection. Under the Standardized approach, the proposal replaces the existing static 2.5 percent capital conservation buffer with a stress capital buffer, calculated as the decrease in the CET1 capital ratio in the supervisory severely adverse scenario of the modified CCAR stress test plus four quarters of planned common stock dividend payments, floored at 2.5 percent. The static 2.5 percent capital conservation buffer would be retained under the Advanced approaches. The proposal also introduces a stress leverage buffer requirement which would be calculated as the decrease in the Tier 1 leverage ratio in the supervisory severely adverse scenario of the modified CCAR stress test plus four quarters of planned common stock dividends, with
no floor. The SLR would not incorporate a stress buffer requirement. The proposal also updates the capital distribution assumptions used in the CCAR stress test to better align with a firm's expected actions in stress, notably removing the assumption that a BHC will carry out all of its planned capital actions under stress.
Enhanced Supplementary Leverage Ratio and TLAC Requirements
On April 11, 2018, the Federal Reserve and Office of the Comptroller of the Currency announced a proposal to modify the enhanced SLR standards applicable to U.S. G-SIBs and their insured depository institution subsidiaries. The proposal replaces the existing 2.0 percent leverage buffer with a leverage buffer tailored to each G-SIB. set at 50 percent of the applicable G-SIB surcharge. This proposal also replaces the current 6.0 percent threshold at which a G-SIB's insured depository institution subsidiaries are considered well capitalized under the PCA framework with a threshold set at 3 0 percent plus 50 percent of the G-SIB surcharge applicable to the subsidiary's G-SIB holding company. Correspondingly, the proposal updates the external TLAC leverage buffer for each G-SIB to 50 percent of the applicable G-SIB surcharge and revises the leverage component of the minimum external long-term debt requirement from 4.5 percent to 2.5 percent plus 50 percent ofthe applicable G-SIG surcharge.
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Revisions to Basel 3 to Address Current Expected Credit Loss Accounting
On December 18. 2018, the U.S. banking regulators issued a final rule to address the regulatory capital impact of using the current expected credit loss methodology to measure credit reserves under a new accounting standard that is effective on January 1, 2020. For more information on this standard, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. The final rule provides an option to phase in the impact to regulatory capital over a three-year period on a straight-line basis. It also updates the existing regulatory capital framework by creating a new defined term, adjusted allowance for credit losses, which would include credit losses on all financial instruments measured at amortized cost with the" exception of purchased credit-deteriorated assets. The final rule continues to allow a limited amount of credit losses to be recognized in Tier 2 capital and maintains the existing limits under the Standardized and Advanced approaches.
Single-Counterparty Credit Limits
On June 14, 2018, the Federal Reserve published a final rule establishing single-counterparty credit limits (SCCl) for BHCs with total consolidated assets of $250 billion or more. The SCCL rule is designed to ensure that the maximum possible loss that a BHC could incur due to the default of a single counterparty or a group of connected counterparties would not endanger the BHCs survival, thereby reducing the probability of future financial crises. Beginning January 1, 2020, G-SIBs must calculate SCCL on a daily basis by dividing the aggregate net credit exposure to a given counterparty by the G-SIB's Tier 1 capital, ensuring that exposures to other G-SIBs and nonbank financial institutions regulated by the Federal Reserve do not breach 15 percent of Tier 1 capital and exposures to most other counterparties do not breach 25 percent of Tier 1 capital. Certain exposures, including exposures to the U.S. government, U.S. government-sponsored entities and qualifying central counterparties, are exempt from the credit limits.
Broker-dealer Regulatory Capital and Securities Regulation
The Corporation's principal U.S. broker-dealer subsidiaries are Merrill Lynch. Pierce, Fenner & Smith Incorporated (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of Securities and Exchange Commission (SEC) Rule 15c3-l. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17.
MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-l. At December 31, 2018, MLPF&S' regulatory not capital as defined by Rule 15c3-l was $13.4 billion and exceeded the minimum requirement of $2.0 billion by $11.4 billion. MLPCC's net capital of $4.4 billion exceeded the minimum requirement of S617 million by $3.8 billion.
In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At December 31, 2018, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements.
As a result of resolution planning, the current business of MI.PF&S is expected to be reorganized into two affiliated broker-
dealers: MLPF&S and BofA Securities. Inc., a newly formed broker-dealer. Under the contemplated reorganization, which is expected lo occur during 2019, BofA Securities, Inc. would become the legal entity for the institutional services that are now provided by MLPF&S MLPF&S' retail services would "remain with MLPF&S. The contemplated reorganization is subject to regulatory approval. For more information on resolution planning, see Item 1. Business. -.Resolution Planning.
Merrill Lynch International (MLI). a U.K. investment firm, is regulated by the Prudential Regulation Authority and the FCA, and is subject to certain regulatory capital requirements. At December 31, 2018, MLI's capital resources were $35.0 billion, which exceeded the minimum Pillar 1 requirement of $12.7 billion.
Liquidity Risk
Funding and Liquidity Risk Management
Our primary liquidity risk management objective is to meet expected or unexpected cash flow and collateral needs while continuing to support our businesses and customers under a range of economic conditions To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks.
We define liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as those obligations arise. We manage our liquidity position through line of business and ALM activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity management enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events.
The Board approves our liquidity risk policy and the Financial Contingency and Recovery Plan. The ERC establishes our liquidity risk tolerance levels. The MRC is responsible for overseeing liquidity risks and directing management to maintain exposures within the established tolerance levels. The MRC reviews and monitors our liquidity position and stress testing results, approves certain liquidity risk limits and reviews the impact of strategic decisions on our liquidity. For more information, see Managing Risk on page 40. Under this governance framework, we have developed certain funding and liquidity risk management practices which include: maintaining liquidity at the parent company and selected subsidiaries, including our bank subsidiaries and other regulated entities; determining what amounts of liquidity are appropriate for these entities based on analysis of debt maturities and other potential cash outflows, including those that we may experience during stressed market conditions; diversifying funding sources, considering our asset piofile and legal entity structure; and performing contingency p:anning.
NB Holdings Corporation
We have intercompany arrangements with certain key subsidiaries under which we transferred certa.n assets of Bank of America Corporation, as the parent company, which is a separate and distinct legal entity from our banking and nonbank subsidiaries, and agreed to transfer certain additional parent company assets not needed to satisfy anticipated near-term expenditures, to NB Holdings Corporation, a wholly-owned holding company subsidiary
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(NB Holdings). The parent company is expected to continue to have access to the same flow of dividends, interest and other amounts of cash necessary to service its debt, pay dividends and perform other obligations as it would have had if it had not entered into these arrangements and transferred any assets.
In consideration for the transfer of assets, NB Holdings issued a subordinated note to the parent company in a principal amount equal to the value of the transferred assets. The aggregate principal amount of the note will increase by the amount of any future asset transfers. NB Holdings also provided the parent company with a committed line of credit that allows the parent company to draw funds necessary lo service near-term cash needs. These arrangements support our preferred single point of entry resolution strategy, under which only the parent company would be resolved under the U.S. Bankruptcy Code. These arrangements include provisions to terminate the line of credit, forgive the subordinated note and require the parent company to transfer its remaining financial assets to NB Holdings if our projected liquidity resources deteriorate so severely that resolution of the parent company becomes imminent.
Global Liquidity Sources and Other Unencumbered Assets
We maintain liquidity available to the Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, referred to as Global Liquidity Sources (GLS), is comprised of assets that are readily available to tho parent company and selected subsidiaries, including holding company, bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with the Federal Reserve Bank and, to a lesser extent, central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities. U.S. agency securities, U.S. agency M BS and a select group of non-U.S. government securities. We can quickly obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our GI.S in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities.
Table 17 presents average GLS for the three months ended December 31, 2018 and 2017.
Table 17 Average Global Liquidity Sources
Three Monthi Ended December
31
IDollars in billions! _ 2018 2017
Parent company and NB Holdings $ 76 $ 79
Bonk subsidiaries 420 394
Other regulated entities 48 49
Total Average Global Liquidity Sources $ 544 $ 522
Typically, parent company and NB Holdings liquidity is in the form of cash deposited with BANA.
Our bank subsidiaries' liquidity is primarily driven by deposit and lending activity, as well as securities valuation and net debt activity. Liquidity at bank subsidiaries excludes the cash deposited by the parent company and NB Holdings. Our bank subsidiaries can also generate incremental liquidity by pledging a range of unencumbered loans and securities to certain FHLBs and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was $344 billion and $308 billion at December 31,
2018 and 2017. We have established operational proceduies to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral Eligibility is defined in guidelines from the FHLBs and the Federal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be used only to fund obligations within the bank subsidiaries, and transfers to the parent company or nonbank subsidiaries may be subject to prior regulatory approval.
Liquidity held in other regulated entities, comprised primarily of broker-dealer subsidiaries, is primarily available to meet the obligations of that entity and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements. Our other regulated entities also hold unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity.
Table 18 presents the composition of average GLS for the three months ended December 31, 2018 and 2017.
Table 18 Average Global Liquidity Sources Composition
Three Months Ended December
31
(Dollars in billions) 2016 2017
Cash on deposit $ 113 $ 118
U S Treasury securities 81 62
U.S. agency securities and mortgage-backed
securities 340 330
Non-U.S. government securities 10 12
Total Average Global liquidity Sources $ 544 $ 522
Our GLS are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final U.S. Liquidity Coverage Ratio (LCR) rules. However, HQLA for purposes of calculating LCR is not reported at market value, but at a lower value that incorporates regulatory deductions and the exclusion of excess liquidity held at certain subsidiaries. The LCR is calculated as the amount of a financial institution's unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. Our average consolidated HQLA, on a net basis, was $446 billion and $439 billion for the three months ended December 31, 2018 and 2017. For the same periods, the average consolidated LCR was 118 percent and 125 percent. Our LCR will fluctuate due to normal business flows from customer activity.
Liquidity Stress Analysis
We utilize liquidity stress analysis to assist us in determining the appropriate amounts of liquidity to maintain at the parent company and our subsidiaries to meet contractual and contingent cash outflows under a range of scenarios. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the parent company and our subsidiaries, and more severe events including potential resolution scenarios. The scenarios are based on our historical experience, experience of distressed and failed financial institutions, regulatory guidance, and both expected and unexpected future events.
The types of potential contractual and contingent cash outflows we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuance: diminished access to secured financing markets; potential deposit withdrawals: increased draws on loan
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commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses * and finance customer activities. Changes in certain market factors, including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instiuments, and in some cases these impacts could be material to our financial results.
We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset and liability profile and establish limits and guidelines on certain funding sources and businesses.
A/ef Stable Funding Ratio
U.S. banking regulators issued a proposal for a Net Stable Funding Ratio (NSFR) requirement applicable to U S. financial institutions following the Basel Committee's final standard. The proposed U.S. NSFR would apply to the Corporation on a consolidated basis and to our insured depository institutions. While the final requirement remains pending and is subject to change, if finalized as proposed, we expect to be in compliance within the regulatory timeline. The standard is intended to reduce funding risk over a longer time horizon. The NSFR is designed to provide an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items.
Diversified Funding Sources
We fund our assets primarily with a mix of deposits, and secured and unsecured liabilities through a centralized, globally coordinated funding approach diversified across products, programs, markets, currencies and investor groups.
The primary benefits of our centralized funding approach include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue their own debt.
We fund a substantial portion of our lending activities through our deposits, which were $1.38 trillion and $1.31 trillion at December 31, 2018 and 2017. Deposits are primarily generated by our Consumer Banking, GWIM and Global Banking segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the FDIC. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with government-sponsored enterprises (GSE), the Federal Housing Administration (FHA) and private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements, and these amounts will vary based on customer activity and market conditions. We believe funding those activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and
often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see Note 10 - Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash to the Consolidated Financial Statements.
We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing tho amount of our borrowings that we anticipate will mature within any month or quarter.
Table 19 presents our long-term debt by major currency at December 31, 2018 and 2017.
Table 19 Long-term Debt by Major Currency
180,709 34.296 5,450 3,036 2,935 1,722 1,192
December 31
175,623 35.481 7.016 2,993 1.966 3.046 1,277
2018
2017
(Dollars In nnltions) U.S. dollar Euro
229,340
227,402
British pound Japanese yen Canadian dollar Australian dollar Other
Total long-term debt
Total long-term debt increased $1.9 billion during 2018, primarily due to issuances outpacing maturities and redemptions. We may. from time to time, purchase outstanding debt instruments in various transactions, depending on market conditions, liquidity and other factors. Our other regulated entities may also make markets in our debt instruments to provide liquidity for investors. For more information on long-term debt funding, see Note 11 - Long-term Debt to the Consolidated Financial Statements.
During 2018, we issued $64.4 billion of long-term debt consisting of $30.7 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $18.7 billion for Bank of America, N.A. and $15.0 billion of other debt. During 2017. we issued $53.3 billion of long-term I debt consisting of $37.7 billion for Bank of America Corporation, substantially all of which was TLAC compliant, $8.2 billion for Bank of America, N.A. and $7.4 billion of other debt.
During 2018, we had total long-term debt maturities and redemptions in the aggregate of $53.3 billion consisting of $29.8 billion for Bank of America Corporation. $11.2 billion for Bank of America, N.A. and $12.3 billion of other debt. During 2017, we had total long-term debt maturities and redemptions in the aggregate of $48.8 billion consisting of $29.1 billion for Bank of America Corporation. $13.3 billion for Bank of America. N.A. and $6 4 billion of other debt.
During 2018, we redeemed trust preferred securities of 11 trusts with a carrying value of $3.1 billion and recorded a charge of $729 million in other income. We also collapsed two trusts, with no financial statement impact, that held fixed-rate junior subordinated notes with a carrying value of $741 million that were
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outstanding at December 31, 2018. At December 31. 2018, we had one remaining floating-rate junior subordinated note held in trust.
We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For more information on our ALM activities, see Interest Rate Risk Management for the Banking Book on page 74.
We may also issue unsecured debt in the form of structured notes for client purposes, certain of which qualify as TLAC eligible debt. During 2018, we issued S6.9 billion of structured notes, which are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on tnese liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured note obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date.
Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price.
Contingency Planning
We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness.
Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter (OTC) derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the major rating agencies.
Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations
or securities,' including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations Our credit ratings are subject to ongoing review by the rating agencies, and they consider a number of factors, including our own financial strength, performance, prospects and operations as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time, and they provide no assurances that they will maintain our ratings at current levels.
Other factors that influence our credit ratings include changes to the rating agencies' methodologies for our industry or certain security types', the rating agencies' assessment of the general operating environment for financial services companies: our relative positions in the markets in which we compete: our various risk exposures and risk management policies and activities; pending litigation and other contingencies or potential tail risks; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; the sovereign credit ratings of the U S. government; current or future regulatory and legislative initiatives; and the agencies' views on whether the U.S. government would provide meaningful support to the Corporation or its subsidiaries in a crisis.
On December 5, 2018, Moody's Investors Service (Moody's) placed the long-term and short-term ratings of the Corporation as well as the long-term ratings of its rated subsidiaries, including BANA, on review for upgrade. The agency cited the Corporation's strengthening profitability, continued adherence to a conservative risk profile, and stable capital ratios as drivers of the review. A rating review indicates that those ratings are under consideration for a change in the near term, which typically concludes within 90 days. Moody's concurrently affirmed the short-term ratings of the Corporation's rated subsidiaries, including BANA.
The ratings from Standard & Poor's Global Ratings (S&P) for the Corporation and its subsidiaries did not change during 2018 The last change to the ratings from S&P was a one-notch upgrade of the Corporation's long-term ratings in November 2017
On June 21, 2018, Fitch Ratings (Fitch) upgraded the Corporation's long-term senior debt rating to A+ from A as part of the agency's latest review of 12 Global Trading & Investment Banks, citing our sustained and improved risk-adjusted earnings, lower risk appetite relative to peers, overall franchise strength and solid liquidity position. The Corporation's short-term debt rating of Fl was affirmed. Additionally, Fitch upgraded the long- and short term debt ratings of the Corporation's rated U.S. subsidiaries, including BANA and MLPF&S, and upgraded the long-term debt ratings of our rated international subsidiaries, including MLI. The outlook at Fitch remains stable for all long-term debt ratings.
Table 20 presents the Corporation's current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies.
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.
Table 20 Senior Debt Ratings
P-2
PJ.
NR NR
A3
Aa3
NR NR
Bank of America Corporation
Bank of America, N.A. Merrill Lynch, Pierce. Fenner & Smith Incorporated
Merrill Lynch International
ID Review foi upgrade oniy ooplies to SANA'S lone term rating. NR« net rated
A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries' credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.
While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company's long-term credit ratings precipitates downgrades to its short-term credit1 ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see Liquidity Risk -Liquidity Stress Analysis on page 48.
For more information on additional collateral and termination payments that could be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit rating downgrade, see Note 3 - Derivatives to the Consolidated Financial Statements and Item IA. Risk Factors.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on common stock during 2018 and through February 26, 2019. see Note 13 -Shareholders' Equity to the Consolidated Financial Statements.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an erroneous advance, commitment or investment of funds. We define the credit exposure to a borrower or counterparty .as the loss potential arising from all product classifications including loans and leases, deposit overdrafts, derivatives, assets held-for-sale and unfunded lending commitments which include loan commitments, letters of credit and financial guarantees. Derivative positions are recorded at fair value and assets held-for-sale are recorded at either fair value or the lower of cost or fair value. Certain loans and unfunded commitments are accounted fcr under the fair value option. Credit
Long-term
A-
A+
A+ A+
A-2
A-l
A-l A-l
Stable
Stable
Stable Stable
A+
AA-
AA-A+
Fl
F1+
Fl* Fl
Outlook
Stable
Stable
Stable Stable
risk for categories of assets carried at fair value is not accounted for as part of the allowance for credit losses but as part of the fair value adjustments recorded in earnings. For derivative positions, our credit risk is measured as the net cost in the event the counterparties with contracts in which we are in a gain position fail to perform under the terms of those contracts. We use the current fair value to represent credit exposure without giving consideration to future mark-to-market changes. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements and cash collateral. Our consumer and commercial credit extension and review procedures encompass funded and unfunded credit exposures. For more information on derivatives and credit extension commitments, see Note 3 - Derivatives and Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
We manage credit risk based on the risk profile of the borrower or counterparty, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We classify our portfolios as either consumer or commercial and monitor credit risk in each as discussed below.
We refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories.
For more information on our credit risk management activities, see Consumer Portfolio Credit Risk Management below. Commercial Portfolio Credit Risk Management on page 59. Non-U.S. Portfolio on page 65, Provision for Credit Losses on page 67, Allowance for Credit Losses on page 67, and Note 5 - Outstanding Loans and Leases and Note 6 - Allowance for Credit Losses to the Consolidated Financial Statements.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower's credit cycle. Statistical techniques in conjunction with experiential judgment aie used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as cred t bureaus and/or internal historical experience and are a component of our consumer credit risk management process. These models are used in part to assist in making both new and
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ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk.
Consumer Credit Portfolio
Improvement in home prices continued during 2018 resulting in improved credit quality and lower crecil losses in the home equity portfolio, partially offset by seasoning and loan growth in the U.S. credit card portfolio compared to 2017.
Improved credit quality, continued loan balance runoff and sales primarily in the non-core consumer real estate portfolio, partially offset by seasoning within the U.S. credit card portfolio, drove a $581 million decrease in the consumer allowance for loan and lease losses in 2018 to $4.8 billion at December 31, 2018. For additional information, see Allowance for Credit Losses on page 67.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs. troubled debt restructurings (TDRs) for the consumer portfolio and PCI loans, see Note 1 - Summary of Significant Accounting Principles and
Note 5 - Outstanding Loans and Leases to the Consolidated Financial Statements.
Table 21 presents our outstanding consumer loans and leases, consumer nonperforming loans and accruing consumer loans past due 90 days or more Nonperformjng loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer loans not secured by real estate (bankruptcy loans are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. Roal estate-secured past due consumer loans that are insured by the FHA or individually insured under long-term standby agreements with Fannie Mae and Freddie Mac (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since tho principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with the Government National Mortgage Association (GNMA). Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due.
Table 21 Consumer Credit Quality
Accruing Past Due 90 Day* or More
December 31
(Dollars in millions)
Residential mortgage Ul Home equity U.S credit card Direct/indirect consumer !2) Other consumer (3)
2017
2018
$ 208,557 i 203,611 $ 1.893 S 2.476
4B.286 57,744 1,893 2.644
98,338 96.285 n/a n/a
91,166 96.34 2 56 46
202 166 -
994 38
3,230
900 40
Consumer loons excluding loans accounted for under the fair value option $ 446,549 $ 454,348
Loans accounted lor under the fair value option (4)
Total contumcr loons and leotes
Percentage of outstanding consurnor leans and leases 15)
Percentage of outstanding consumer loans and leases, excluding PCI and fully-insured ioan portfolios Iii)
111 Residential mortgage loans accruing past duo 90 days or more are 'iriry-insurert loans. At December 31, 2018 and 2017. residential mortgage includes $1.4 billion and $2.2 bill on ol loans on which interest noe been curtailed by the FHA, and therefore were no longer accruing Interest, although principal w3S stilt insured, and $498 million and $10 billion o! loans on which interest was still accruing
'21 Outstandings include auto and specialty lending loans and leases of $50.1 billion and $52 4 billion, unsecured consumer lending loans ol $383 million and $469 million, U.S securities b3sed lending loans ol $37.0 billion end $39 8 billinn. ncn U S consumer loans ol $2.9 billion mid $3,0 billion and other consumer leans ol $746 million and $084 minion at December 31. 2018 and 2D17
131 t}tfbsta-i»a!ry all cf other consumer at December 31, 2018 and 2017 is consumer overdrafts.
14] Consumer io2ns accounted tor under the lair value option Include residential mortgage loans of $336 million and $567 million and home equity loans ol $346 million .-.nd $361 miMion at December 31. 20LS and
2017. Tor more information or, trie lair value option, sec Note 21 - fair Va/ue Option to the Consolidated Financial Statements. tf>! deludes consumer loans accounted for under the fair value opllon. A: December 31. 2018 and 2017, $12 million and $26 million ol loans accounted lor undai tho lair va!uc option were pas: o.ie DO days oi mora
and not accruing interest, n/a = net applicable
Table 22 presents net charge-offs and related ratios for consumer loans and leases.
Table 22 Consumer Net Charge-offs and Related Ratios
Net Charge-off Ratios U. 2)
(Dollars in millions} Residential mortgage I'oto equity U.S. credit card \0--d.3 credit caro ;3; Drn.ci/ir'direct cc-isiJifier Olhfc' consjmer Total
Nel charge oils enciunc *-r'i:t oi's i" ihe f c loan pcrt'o m '¦
28 (2) 2.837
195 182
% 3,240 _ t 3.C76
>ed.l r.isi, Menage-mew - Purcnosei; Crcd t impa.rcd i.na'- Portlr! c ¦"
2018 0.01%
0.21 n/m 0 72
2017 (U05)%
34 2 76
91 0 22 n/m C 68
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i2; Na: chcge-oM 'Olroi Ofe calculated as ret chargn cHs diud?rj by avwugR outs^ndinj loans and leases oc!>JCmg loans accounted for u-iilei ihe (air valt;« cntici (3) Fie pi «s en Is nttchaige cf's r-vated lo ttie non-U 5 ctcdil oird loa". poifolso. ivhlch wos sotd Cutinfi the second quarter o( 2017 n/fti «= not meonmgV
Bank ot flmericfi 2018 52
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Net charge-offs. as shown in Tables 22 and 23, exclude write-offs in the PCI loan portfolio of $154 million and $131 million in residential mortgage and $119 million and $76 million in home equity for 2018 and 2017. Net charge-off ratios including the PCI write-offs were 0.09 percent and 0.02 percent for residential mortgage and 0.22 percent and 0.47 percent for home equity in 2018 and 2017.
Table 23 presents outstandings, nonperforming balances, net chargc-offs, allowance for loan and lease losses and provision for loan and lease losses for the core and non-core portfolios within the consumer real estate portfolio. We categorize consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status consistent with our current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1.
2010, qualified under GSE underwriting guidelines, or otherwise met our underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent runoff portfolios Core loans as reported in Table 23 include loans held in the Consumer Banking and GWIM segments, as well as loans held for ALM activities in All Other.
As shown in Table 23, outstanding core consumer real estate loans increased $12.8 billion during 2018 driven by an increase of $171 billion in residential mortgage, partially offset by a $4.2 billion decrease in home equity.
During 2018, we sold $11.6 billion of consumer real estate loans compared to $4.0 billion in 2017. In addition to recurring loan sales, the 2018 amount includes sales of loans, primarily non-core, with a carrying value of $9.6 billion and related gains ot $733 million recorded in other income in the Consolidated Statement of Income.
Table
23 Consumer Real Estate Portfolio W
(Dollars in millions) Core portfolio
Residential mortgage
Home equity
Outstanding*
$ 193,695 40,010
December 31
176,618 44,245
Nonperforming
1,010 $ 1,087 955 1,079
Net Charge-oils (21 )18 2017
11 $ 78
145) 100
Total core portfolio
Non-core portfolio
Residential mortgage Home equity
Total non-core portfolio Consumer real estate portfolio
Residential mortgage Home equity
14,862 8,276
23,138
208,657 48,286
27,193 13,499
203,811 57,744
883 938
1,893 1,893
1,389 1,565
2,476 2,644
17 (80)
(63)
28 <2)
155) 113
(100) 213
Total consumer real estate portfolio
Allowance for Loan and Lease Losses
December 31
Provision for Loan nnd Lease Losses
214 228
218 367
(79) J91) (170)
1201) (339) (540)
(280) (133)|1010|(60) (53)
(104)
(439i
(97) (395) (492)
Core portfolio
Residential mortgage Home equity
208 278 486
422 506 928
483 _ 652 1.135
7C1 1,019 1.720
Total core portfolio
Non-core portfolio
Residential mortgage Home equity
Total non-core portfolio Consumer real estate portfolio
Residential mortgage Home equity Total consumer real estate portfolio
710)
Ill Outstandings and nonperforniing loans eKClude loans accounted to' under the fair value option Consume' leans accounted for under the fair volue option included resiiiei'lie' n-.tiflgnge loans o< $."-.'16 n'ii uin
$567 million and home equity loans cf $346 mill on and $3*31 million at Oecembcr 31 2018 and 201/ f cr aortilirinal intcrrnaiion. see Nolo 21 fair Value 0,'inon in me Consol dote,: Hns-nci.il Stalcn-eiit-. (7! Net (,'iarge-cffs encljde wile o'fs i," the PCI loan pcrt'clip ro' more m'ormalion see Consume.! Fcrtlolo Crsd''. R s'k Management - Purchased Cied limpoiied Loan Portlolic .in page li'r.
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We believe that the presentation of information adjusted to exclude the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option is more representative of the ongoing operations and credit quality of the business. As a result, in tho following tables and discussions of the residential mortgage and home equity portfolios, we exclude loans accounted for under the fair value option and provide information that excludes the impact of the PCI loan portfolio and the fully-insured loan portfolio in certain credit quality statistics. We separately disclose information on the PCI loan portfolio on page 57.
Residential Mortgage
The residential mortgage portfolio made up the largest percentage of our consumer loan portfolio at 47 percent of consumer loons and leases at December 31, 2018. Approximately 44 percent of the residential mortgage portfolio was in Consumer Banking and 37 percent was in GWIM. The remaining portion was in Ali Olher and was comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased puisuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties.
S3 Bank of America 2018
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Outstanding balances in the residential mortgage portfolio increased $4.7 billion in 2018 as retention of new originations was partially offset by loan sales of $8.9 billion and runoff.
At December 31, 2018 and 2017, the residential mortgage portfolio included $20.1 billion and $23.7 billion of outstanding fully-insured loans, of which $14.0 billion and $17.4 billion had FHA insurance with the remainder protected by long-term standby agreements. At December 31, 2018 and 2017, $3.5 billion and $5.2 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.
Tabie 24 presents certain residential mortgage key credit statistics on both a reported basis and excluding the PCI loan poitfolio and the fully-insured loan portfolio. Additionally, in the "Reported Basis-columns in the following tahle, accruing balances past due and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the residential mortgage portfolio excluding the PCI loan portfolio and the fully-insured loan portfolio.
Table
24 Residential Mortgage - Key Credit Statistics
Excluding Purchased Credit-Impaired and Fully-Insured Loans U>
December 31
(Dollars in millions) Outstandings
Accruing past duo 30 days or more Accruing past due 90 days oi more Nonperlorming loans Percent of portfolio
Refreshed LTV greater than 90 but less than or equal to 100
Hefrcshed Ltv greater than 100
Refreshed FICO below 620
2006 and 2007 vintages (2)
2018
208,557 3,945 1,884 1,893
2% 1 4 6
2017
203.811 5,987 3,230 2.476
3% 2 6 10
184,627 1,155
1% 1 2 5
2017 172,069 1.521
0.01%
(0.051*.
Nel charge-off ratio 13)
tl) Outstandings, accruing past due, nonperforming loans and percentages of portfolio rjdudc-loons accounted lor under Ihe fair value option.
(2| These vintages of loans accounted for $536 million, 0' 2fi percent, end $825 million, or 33 percent, ot nonperforming residential mortgage loans etOecember 31.2018 and 2017. (31 Net charge off ratios ere calculated as net charge-offs divided by average outstanding loans excluding loans accounted (or under Ihe fair valuo optiun.
Nonperforming residential mortgage loans decreased $583 million in 2018 primarily driven by sales. Of the nonperforming residential mortgage loans at December 31, 2018, $716 million, or 38 percent, were current on contractual payments. Loans accruing past due 30 days or more decreased $366 million due to continued improvement in credit quality as v/ell as loan sales in the non-core portfolio.
Net charge-offs increased $128 million to $28 million in 2018 compared to $100 million of net recoveries in 2017 primarily due to net recoveries related to loan sales in 2017.
Loans with a refreshed LTV greater than 100 percent represented one percent of the residential mortgage loan portfolio at both December 31, 2018 and 2017. Of the loans with a refreshed LTV greater than 100 percent, 99 percent and 98 percent were performing at December 31, 2018 and 2017. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property-securing the loan.
Of the $184.6 billion in total residential mortgage loans outstanding at December 31, 2018, as shown in Table 24, 30 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that have
entered the amortization period was $8.6 billion, or 16 percent, at December 31. 2018. Residential mortgage loans that have entered the amortization period generally have experienced a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. At December 31. 2018. $177 million, or two percent, of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to $1.2 billion, or one percent, for the entire residential mortgage portfolio. In addition, at December 31, 2018, $365 million, or four percent, of outstanding interest-only residential mortgage loans that had entered the amortization period were nonperforming, of which $128 million were contractually current, compared to $1.9 billion, or one percent, for the entire residential mortgage portfolio. Loans that have yet to enter the amortization period in our interest-only residential mortgage portfolio aie primarily weli-collateralized loans to our wealth management clients and have an interest-only period of three to ten years. Approximately 90 percent .of these" loans that have yet to enter the amortization period will not be required to make a fully-amortizing payment until 2022 or later.
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Tabic 25 presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 1.6 percent of outstandings al both December 31, 2018 and 2017. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 13 percent of outstandings at both December 31, 2018 and 2017.
Table
25 Residential Mortgage State Concentrations
Nonperforming (l|
74,463 19.085 11,296 7,747 6,959
65,077 184.627
[Dollars in millions) California New York 13) Florida 13) Texas
New Jersey 13) Other
Residential mortgage loans (4)
Fully-Insured loan portfolio 20,130
Purchased credit-impaired residential rnoitgagQ loan portfolio (5) 3,800
December 31
68,455 17,239 10,880 7.237 6,099 62,159
172,069
23,741 8,001
314 222 221 102 98 936 1,893
433 227 280 126 130 1.280 2.476
Net Charge-offs I2) 2018 201
(22) 10 (6) 4 8 34 28
11031 (21 (13) 1
17 (100)
Total residential mortgage loan portfolio
If] Outstandings and nonperforming loans exclude loans accounted (or under the lair value option.
121 Net ctiaigc-offs exclude $154 million and $131 million of writeoffs in the residential mortgage PCI loan pottfolio In 2018 and 2017. For more information on PCI v-nte-olfs. see Consiniei Prut-olio Credit Risk
Management - Purchased Credrt-impairod Loan Portfolio on page 57 13) In trese states, foreclosure requites a court order follo-A-ing a legal oroceedmg (judicial states). t4) Amounts exclude the PCI residential mottgage and luiry-insured loan portfolios.
ISI At December 31,2G18 and 2017.49 percent and 47 petcent of PCI residential mortgBge loans were in Celrfomio. There wero no olher significant single state concentrations.
Home Equity
At December 31, 2018, the home equity portfolio made up 11 percent of the consumer portfolio and was comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages.
At December 31, 2018, our HELOC portfolio had an outstanding balance of $44.3 billion, or 92 percent of the total home equity portfolio, compared to $51.2 billion, or 89 percent, at December 31, 2017. HELOCs generally have an initial draw penod-of 10 years, and after the initial draw period ends, the loans generally convert to 15-year amortizing loans.
At December 31. 2018, our home equity loan portfolio had an outstanding balance of $1.8 billion, or four percent of the total home equity portfolio, compared to $4.4 billion, or seven percent, at December 31, 2017. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years, and of the $1.8 billion at December 31. 2018. 68 percent have 25- to 30-year terms. At December 31, 2018, our reverse mortgage portfolio had an outstanding balance of $2.2 billion, or four percent of the total home equity portfolio, compared to $2.1 billion, or four percent, at December 31, 2017. We no longer originate reverse mortgages.
At December 31, 2018, 75 percent of the home equity portfolio was in Consumer Banking. 17 percent was in All Olher and the remainder of the portfolio was primarily in GWIM. Outstanding
balances in the home equity portfolio decreased $9.5 billion in 2018 primarily due to paydowns and loan sales of $2.7 billion outpacing new originations and draws on existing lines. Of the total home equity portfolio at December 31, 2018 and 2017, $17.3 billion and $18.7 billion, or 36 percent and 32 percent, were in first-lien positions. At December 31, 2018, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-hen loan totaled $7.9 billion, or 17 percent of our total home equity portfolio excluding the PCI loan portfolio.
Unused HELOCs totaled $43.1 billion and $44.2 billion at December 31. 2018 and 2017. The decrease was primarily due to accounts reaching the end of their draw period, which automatically eliminates open line exposure, and customers choosing to close accounts. Both of these more than offset the impact of new production. The HELOC utilization rate was 51 percent and 54 percent at December 31, 2018 and 2017.
Table 26 presents certain home equity portfolio key credit statistics on both a reported basis and excluding the PCI loan portfolio. Additionally, in the "Reported Basis" columns in the following table, accruing balances past due 30 days or more and nonperfornvng loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the home equity portfolio excluding the PCI loan portfolio.
55 Rank of America 2018
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Table
26 Home Equity - Key Credit Statistics
Excluding Purchased Credit-Impaired Loans W
December 31
[Dcflars In millions} Outstandings
Accruing past due 30 days or more (2) Nonperforming loans (2) Percent of portfolio
Refreshed CLTV greater than 90 but less than or equal to 100
Refreshed CLTV greater than 100
Refreshed FICO below 620
2006 and 2007 vintages (3)
43,286 $ 363 1,893
2% 3 5 22
57,744 $
502 2,644
6 29
2018 47,441 $ 363 1,893
2% 3 B 21
2017 50.028 502 2,644
3% 4
6 27
2017
0.34%
Net charge-off ratio (4)
_ _ -% _ 036%
ID Outstandings, acciutnf post due. nonpe'fo""f"C forms ond percentages of tho portfolio erdude loons accounted for under the lair velue option.
121 Accruing past due 30 days or more Include $4B million and 167 million and nonpertormlng loans Include 3216 million end $344 million of loans where we serviced the underlying firs', lion at December 31. 2018 and 2017.
(a) Those vintages of loans have higher refreshed combined loan-tn-vatue ICLTV) ratios and accounted for 49 percent and 52 percent of nonperforming home equity loans at December 31. 201S and 2017. ond $11
million end $193 million of net charge-offs In 201fi and 2017. 14} Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans excluding loans accounted for under tho fair valuo option.
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Nonperforming outstanding balances in the home equity portfolio decreased $751 million in 2018 as outflows, including sales, outpaced new inflows. Of the nonperforming home equity loans at December 31, 2018, $1.1 billion, or 59 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, junior-lien loans where the underlying first lien is 90 days or more past due, as well as leans that have not yet demonstrated a sustained period of payment performance following a TDR. In addition, $463 million, or 24 percent, of nonperforming home equity loans were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans that were 30 days or more past due decreased $139 million in 2018.
In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first lien is not. For outstanding balances in the home equity portfolio on which we service the first-lien loan, we are able to track whether the first-lien loan is in default. For loans where the first lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first lien. At December 31, 2018, we estimate that $610 million of current and $83 million of 30 to 89 days past due junior-lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $114 million of these combined amounts, with the remaining $579 million serviced by third parties. Of the $693 million of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that approximately $221 million had first-lien loans that wore 90 days or more past due.
Net charge-offs decreased $215 million to a net recovery of $2 million in 2018 compared to net charge-offs of $213 million in 2017 driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy.
Outstanding balances with a refreshed CLTV greater than 100 percent comprised three percent and four percent of the home equity portfolio at December 31, 2018 and 2017. Outstanding balances with a refreshed CLTV greater than 100 percent reflect loans where our loan and available line of credit combined with any outstanding senior hens against the property are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first lien that is available to reduce the
severity of loss on the second lien. Of those outstanding Balances with a refreshed CLTV greater than 100 percent, 96 percent of the customers were current on their home equity loan and 91 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at December 31, 2018.
Of the $47.4 billion in tolal home equity portfolio outstandings at December 31, 2018, as shown in Table 26, 20 percent require interest-only payments. The outstanding balance of HELOCs lhat have reached the end of their draw period and have entered the amortization period was $15.8 billion at December 31. 2018. The HELOCs that have entered the amortization period have experienced a higher percentage of early stage delinquencies and nonperforming status when compared to the HELOC portfolio as a whole At December 31, 2018. $267 million, or two percent, of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more. In addition, at December 31, 2018, $1.7 billion, or 11 percent, of outstanding HELOCs that had entered the amortization period were nonperforming. Loans that have yet to enter the amortization period in our interest-only portfolio are primarily post-2008 vintages and generally have better credit quality than the previous vintages that had entered the amortization period. We communicate to contractually current customers more than a year prior to the end of their draw period to inform them of the potential change to the payment structure before entering the amortization period, and provide payment options to customers prior to the end of the draw period.
Although we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period. During 2018. 14 percent of these customeis with an outstanding balance did not pay any principal on their HELOCs.
Table 27 presents outstandings, nonperforming balances and net charge-offs by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 13 percent of the outstanding home equity portfolio at both December 31, 2018 and 2017. Loans within this MSA contributed $35 million and $58 million of net charge-offs in 2018 and 2017 within the home equity portfolio. The Los Angeles-Long Beach-Santa Ana MSA within California made up 11 percent of the outstanding home equity portfolio
Bank of America 2018 SG
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at both December 31, 2018 and 2017. Loans within this MSA contributed net recoveries of $23 million and $20 million within the home equity portfolio in 2018 and 2017.
Table
27 Home Equity State Concentrations
[Dollars In millions) California Florida P) New lersey [31 New York (3) Massachusetts Other
Home equity loons (4)
Purchased credit-Impaired home equity portfolio <5)
Outstandings I1)
2018
13.228 5,363 3,833 3,549 2.376
19,092
47,441 845
December 31
15,145 6,308 4,546 4,195 2.751
22,083
55£28 2,716
Nonpcrlormlng (1)
2018
536 315 160 194 65
_ 633 1,893
766 411 191 252 92 932
Net Charge-offs (2) 118 201 (54) i
1 25 23 5
(2)
(2) $
(37) 38 44 35 9 124 2.1.3
Total home equity loan portfolio
111 Outstandings and nonperlormhig loans exclude loans accounted for under ttie lair value option.
12) Net charge-offs exclude $119 million and $7G million of write-offs In the home equity PCI loan portfolio In 2018 and 2017. For more information ot) PCI write oils, see Consumer Portfolio Credit Kisfr Management -
Purchased Credit-Impaired loan Porllollo. Ol In these states, foreclosure requires a court order following a legal proceeding (judicial states). HI Amount excludes the PCI home equity portfolio.
Is) At December 31,2018 and 2017, 34 percent and 28 percent ol PCI home equity loans were In California. There were no other significant single state concentrations.
Purchased Credit-Impaired Loan Portfolio Table 28 presents the unpaid principal balance, carrying value,
Loans acquired with evidence of credit quality deterioration since related valuation allowance and the net carrying value as a percentage origination and for which it is probable at purchase that we will be of the unpaid principal balance for the PCI loan portfolio, unable to collect all contractually required payments are accounted for under the accounting standards for PCI loans.
Table
28 Purchased Credit-impaired Loan Portfolio
(Dollars in millions) Residential mortgage U) Home equity
Total purchased credit-Impaired loan portfolio
Unpaid Principal Balance
3,872 896
30 61
Related Valuation Allowance
December 31, 2018
3,800 $ 845
4,645
Carrying Value Net of Valuation Allowance
3,770 784
Percent of Unpaid Principal Balance
97.37*
87.50
95.51
Residential mortgage (») $ 8,117 1 8,001 *
Home equity 2,737 2,716
Total purchased credit-Impaired loan portfolio $ 10,904 i 10.717 t 289 $ 10.428 95.63
111 At December 31, 2016 and 2017, pay option loans liao an unpaid principal balance ol $757 million and $14 billion and a carrying value of $744 million and $14 billior. Tins includes S64b ni ihon and $1.2 billion of loans that were credil-nnpaired upon acquisition and $67 million and $141 million of loans that were 90 days or more past due. Ine total unpaid principal balance cf pay cption loans with accumulated negative amorbzation was $73 million and S1G0 million, including $4 million and $9 million ol negative amortization at December 31, 2018 and 2017.
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The total PCI unpaid principal balance decreased $6.1 billion, or 56 percent, in 2018 primarily driven by loan sales with a carrying value of $4.4 billion compared to sales of $803 million in 2017.
Of the unpaid principal balance of $4.8 billion at December 31, 2018. $4.3 billion, or 90 percent, was current based on the contractual terms, $208 million, or four percent, was in early stage delinquency and $205 million was 180 days or more past due, including $172 million of first-lien mortgages and $33 million of home equity loans.
The PCI residential mortgage loan and home equity portfolios represented 82 percent and 18 percent of the total PCI loan portfolio at December 31, 2018. Those loans to borrowers with a refreshed FICO score below 620 represented 19 percent and 21 percent of the PCI residential mortgage loan and home equity portfolios at December 31, 2018. Residential mortgage and home equity loans with a refreshed LTV or CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 10 percent and 28 percent of their respective PCI loan portfolios and 11 percent and
57 Bank of America 2018
32 percent based on the unpaid principal balance ai December 31. 2018.
U.S. Credit Card
At December 31. 2018, 97 percent of the U.S. credit card portfolio was managed in Consumer Banking with the remainder in GWIM. Outstandings in tho U.S. credit card portfolio increased $2.1 billion in 2018 to $98.3 billion due to higher retail volume partially offset by payments as well as the sale of a small portfolio. In 2018, net charge-offs increased $324 million to $2 ii billion, and U.S. credit card loans 30 days or more past due and still accruing interest increased $142 million and loans 90 days or more past due and still accruing interest increased $94 million, each driven by portfolio seasoning and loan growth.
Unused lines of credit for U.S. credit card totaled $334.8 billion and $326.3 billion at December 31, 2018 and 2017 The increase was driven by account growth and lines of credit increases.
Table 29 presents certain state concentrations for the U.S. credit card portfolio.
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Table
29 U.S. Credit Card State Concentrations
Accruing Past Due 90 Days or More
Net Charge-offs
(Dollars In millions)
California
Florida
Texas
New York
Washington
Othor
Total U.S. credit card portfolio
16,062 8,840 7,730 6,066 4,558
55,082
98,338
15.254 8.359 7.451 5.977 4,350
54,894
96.285
163 119 84 81 24
523 994
135 94 76 91 20 483 900
479 S
332
224
268 63 1,471 2,837 t
41.2 259 194 218 56 1.374 2,513
Direct/Indirect Consumer
At December 31, 2018, 55 percent of the direct/indirect portfolio was included in Consumer Banking (consumer auto and specialty lending -automotive, marine, aircraft, recreational vehicle loans and consumer personal loans) and 45 percent was included in GWIM (pnncipally securities-based lending loans).
Outstandings in the direct/indirect portfolio decreased $5.2 billion in 2018 to $91.2 billion primarily due to declines in
securities-based lending due to higher paydowns, and in our auto portfolio as paydowns outpaced originations. Net charge-offs decreased $19 million to $195 million in 2018 due largely to clarifying regulatory guidance related to bankruptcy and repossession issued during 2017.
Table 30 presents certain state concentrations for the direct/indirect consumer loan portfolio.
Table
30 Direct/Indirect State Concentrations
(Dollars in millions)
California
Florida
Texas
New York
New Jersey
Other
Total direct/Indirect loan portfolio
Outstandings
11,734 10,240 9,876 6,296 3,308 49,712
91,166
December 31
12.897 11,184 10,676 6.557 3.449 51.579
96.342
Accruing Past Due 90 Days or More
4 4 6 2 1 21 38
3 5 5 2 1 24 40
Net Charge-offs 2018 2017
21 36 30 S 2 97 195
21
43
38|101010|99 21.4
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table 31 presents nonperforming consumer loans, leases and foreclosed properties activity during 2018 and 2017. During 2018. nonperforming consumer loans declined $1.3 billion to $3.8 billion primarily driven by loan sales of $969 million.
At December 31, 2018. $1.1 billion, or 29 percent, of nonperforming loans were 180 days or more past due and had been written down to their estimated property value less costs to sell. In addition, at December" 31, 2018, $1.9 billion, or 49 percent, of nonperforming consumer loans were modified and are now current after successful trial periods, or are current loans classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties increased $8 million in 2018 to S244 million as additions outpaced liquidations. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once we acquire the underlying real estate upon foreclosure of the delinquent PCI loan,
it is included in foreclosed properties. Certain delinquent government-guaranteed loans (principally FHA insured loans) are excluded from our nonperforming loans and foreclosed properties activity as wo expect we will be reimbursed once the property is conveyed to the guarantor for principal and. up to certain limits, costs incurred during the foreclosure process and interest accrued during the holding period.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2018 and 2017. $221 million and $330 million of such junior-lien home equity loans were included in nonperforming loans and leases.
Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have boon granted to borrowers experiencing financial difficulties. Nonperforming TDRs, excluding those modified loans in the PCI loan portfolio, are included in Table 31.
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Table 31 Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
(Dollars In millions]
Nonperforming loans and leases, January 1
Additions Reductions:
Paydowns and payoffs
Sales
Returns to performing status (i) Charge-offs
Transfers to foreclosed properties Transfers to loans held-for-sale
Total net reductions to nonperfonning loans and leases
Total nonperforming loans and leases, December 31
Foreclosed properties, December 31 <2)
(1.052) (511)
(3.138) (676) 1217)
(198) (8381
201B 2017 5,166 $ 6,004 2,44.0 3.254
(958)
(969)
(1.283)
(401)
(151)
(2) (1.324)
3,842 244
4.086 $ _ 5.102
1.14%
Nonperforming consumer loans, teases ond foreclosed properties, December 31
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases 13) 0.86%
Nonperforming consumer loans, leases and forcciosec properties as a percentage of outstanding consumer loans, leases and foreclosed
properbes (3) 092 1.19
11) Consumer loans may be returned to performing status when all principal and Interest is current and full repayment ol the remaining contractus principal and interest is expected, or when the loan otherwise
becomes welt-secured and is in the process of collection. 121 Foreclosed property balances do nol include properties insured hy certain government-guaranteed loans, principally rilA-lnsured. ol $488 million ond $801 million at December 31. 2018 arid 2017, IS) Outstanding consumer loans end leases exclude loans accounted lor under die lair value option.
Table 32 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonuerfoiming loans and leases in Table 31.
Table 32 Consumer Real Estate Troubled Debt Restructurings
December 31, 2018 December 31, 2017
(Dollars In millions) Nonperforming Performing Total Nonperforming Performing lotal
Residential mortgage (L 2) $ 1,209 % 4,988 $ 6,197 $ 1.535 % 8,163 $ 9,698
Home equity 13) 1,107 1'25i 2.359 1,457 1.399 2.856
Total consumer real estate troubled debt restructurings $ 2,316 *_ 6,240 $ 8,666 % 2,992_ S 9,562 $ 12.554
111 At December 31, 2018 and 2017. residential mortgago TDRs deerneii'collateral dependent totaled $1.6 billion and $2.8 billion, and included $960 million and $12 billion nf loans classided as nonperforming and
$605 million and $1.6 billion of loans classified as performing. |2> Residential mortgage performing TDRs included $2.8 billion and $3.7 billion of loans that were fully insured at December 31. 2018 and 2C17
13; At December 31. 2018 and 2017. Home equrtyTDRs deemed collateral dependent totaled $1 3 billion and $1.6 billion, ond included $961 million and $1.2 billion ol loans c'assified as nonpcrlcimtng and $322 million end $388 million of loans classified as perrorming
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In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer's interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio).
Modifications of credit card and other consumer loans are made through renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table 31 as substantially all of the loans remain on accrual status until either charged off or paid in full. At December 31, 2018 and 2017, our renegotiated TDR portfolio was $566 million and $490 million, of which $481 million and $426 million were current or less than 30 days past due under the modified terms. The increase in the renegotiated TDR portfolio was primarily driven by new renegotiated enrollments outpacing runoff of existing portfolios.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with an assessment of the credit risk profile of the borrower or counterparty based on an analysis of its financial position. As part of the overall credit risk assessment, our commercial credit exposures are assigned a risk rating and are subject to approval based on defined credit approval standards. Subsequent to loan origination, risk ratings are monitored on an ongoing basis, and if necessary, adjusted to reflect changes in trie financial condition,
59 Bank of America 2018
cash flow, risk profile or outlook of a borrower or counterparty. In making credit decisions, we consider risk rating, collateral, country, industry and single-name concentration limits while also balancing these considerations with the total borrower or counterparty relationship. We use a variety of tools to continuously monitor the ability of a borrower or counterparty to perform under its obligations. We use risk rating aggregations to measure and evaluate concentrations within portfolios. In addition, risk ratings are a factor in determining the level of allocated capital and the allowance for credit losses.
As part of our ongoing risk mitigation initiatives, we attempt to work with clients experiencing financial difficulty to modify their loons to terms that better align with their current ability to pay. In situations where an economic concession has been granted to a borrower experiencing financial difficulty, we identify these loans as TDRs. For more information on our accounting policies regarding delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see Note 1 - Summary of Significant Accounting Principles to tfie Consolidated Financial Statements.
Management of Commercial Credit Risk Concentrations
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure continue lo be aligned with our risk appetite. We review, measure and manage concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property
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type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables 37, 40, 43 and 44 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques lo manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, see Commercial Portfolio Credit Risk Management - Industry Concentrations on page 63 and Table 40.
We account for certain large corporate loans and loan commitments, including issued but unfunded letters of credit which are considered utilized for credit risk management purposes, that exceed our single-name credit risk concentration guidelines under the fair value option. Lending commitments, both funded and unfunded, are actively managed and monitored, and as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with our credit view and market perspectives determining the size and timing of the hedging activity. In addition, we purchase credit protection to cover the funded portion as well as the unfunded portion of certain other credit exposures. To lessen the cost of obtaining our desired credit protection levels, credit exposure may be added within an industry, borrower or counterparty group by selling protection. These credit derivatives do not meet the requirements for treatment as accounting hedges. They are carried at fair value with changes in fair value recorded in other income.
In addition, we are a member of various securities and derivative exchanges and clearinghouses, both in the U.S. and
other countries. As a member, we may bo required to pay a pro-rata share of the losses incurred by some of these organizations as a result of another member default and under other loss scenarios. For additional information, see Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
Commercial Credit Portfolio
During 2018, credit quality among large corporate borrowers was strong, and there was continued improvement in the energy portfolio. Credit quality of commercial real estate borrowers in most sectors remained stable with conservative LTV ratios. However, some of the commercial real estate markets experienced slowing tenant demand and decelerating rental income.
Total commercial utilized credit exposure increased $20 2 billion in 2018 to $621.0 billion primarily driven by commercial loan growth. The utilization rate for loans and leases, SBLCs and financial guarantees, and commercial letters of credit, in the aggregate, was 59 percent at both December 31, 2018 and 2017.
Table 33 presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes SBLCs and financial guarantees and commercial letters of credit that have been issued and for which we are legally bound to advance funds under prescribed conditions during a specified time period, and excludes exposure related to trading account assets. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes.
Table
33 Commercial Credit Exposure by Type
Total Commercial Committed
December 31
2017
2018
2018
487,748 37,762 34,517 28,161 10.257 1,467 888
852.491 37,762 35,380 33.025 19.999 1,622 888 981,167
$ 875,006 43,725 35,432 29,675 23.902 1.378 898
$ 1.010.016
605,724 43.725 34,941 25,425 9,090 1,210 898 621,013
(Dollars in millions)
491 4.250 14.812 168
863 4.864 9,742
155
Loans and leases (51 Derivative assets (6)
600.800
Total
380.367
Standby letters of credit and financial guarantees Debt securities and other investments Loans held-for-sale Commercial letters of credit Other
389.003
111 Commercial utilized exposure includes loans of S3.7 billion and $4 8 billion and issued letters of credit with a notional omount of S1CC million and $232 million accounted lor under the fair value opton at December 31, 2018 and 2017.
121 Commercial unfunded exposure Includes commitments accounted lor under the fair value option with a notional amount ol $3.0 billion and $4 6 billion at December 31. 2018 ond 2017. Excludes unused business card lines, which are not legally binding.
141 Includes the notional amount of unfunded legally binding lending commitments net of amounts disDibuted (I e. syndicated or participated) to other financial institutions lhe dis'.nbuled amounts were $10 7 billion
and $1111 billion at December 31, 2018 and 2017. (51 Includes credit risk exposure associated with assets under operating lease arrangements of $6.1 billion and $6.3 billion at December 31. 2018 and 2017
(41 Derivative assets are earned at rair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $32 4 billion und $34 6 billion at December 31.2018 3no 2017. Not reflected in ublized and committed exposure is additional non-cash denvabve collateral held ol $3313 billion and $26 7 billion a: December 31. 2018 and 2017. which consists p'imaiiiy ol other marketable seeurll'es
Outstanding commercial loans and leases increased $18.2 billion during 2018 primarily in the U.S. commercial portfolio The allowance for loan and lease losses for the commercial portfolio decreased $211 million to $4.8 billion at December 31, 2018. For additional information, see Allowance for Credit Losses on page 67. Table 34 presents our commercial loans and leases portfolio and related credit quality information a; December 31. 2018 and 2017.
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Table
34 Commercial Credit Quality
2017
299,277 98.776
(Dollars in millions}
398.053 60,845 22,534
382,623 58,298 22,116
Commercial and industrial. U.S. commercial Non-U.S. commercial
463,042 13,649
481,432 14,565
Total commercial and industrial Commercial real estate I1) Commercial lease financing
U.S. small business commercial (2)
Commercial loans excluding loans accounted for under the
fair value option 495,997 476,691
Loans accounted for under the fair value option (3) 3,667 4.782
814
299
Nonperlormlng December 31 2018 2017
874 156 18
794 80
1,113 112 2d
1.249
1.048 54
1,304 43
Accruing Post Due 90 Days or More
197 4 29
230 84
144 3
J47 4
19
170 75
245
Total commercial loans ond leases
HI Includes U.S. commercial real estate or 156.6 billion and $54.8 billion and non U.S. commercial real estaie of $4.2 billion and $3 5 biliion at December 31.2018 and 201?.
Includes card-related products.
Commercial bans accounted for under the fair value option include U S. commercial of $2.5 billion and $2.6 billion and non-U S, commercial ol $1.1 billion and $2.2 billion ot December 31, 2018 und 2017 For more Information on the fair value option, sec Note 21 - Fair Value Option to the Consolidated Financial Statements.
Table 35 presents net charge-offs and related ratios for our commercial loans and leases for 2018 and 2017. The decrease in net charge-effs of $378 million for 2018 was primarily driven by a single-name non-U.S. commercial charge-off of $292 million in 2017.
Table 35 Commercial Net Charge-offs and Related Ratios
Net Charge-off Ratios (D
215 68 283 1 (1) 283 240
232 440 672 9 5 686 215
0.07%
0.07
0.07
(0.01) O.OC 1.70 0.11
0.08%
0.48
018
0.02
0.02
0.15
1 60
0.20
(Dollars in millions)
Commercial and industrial: U.S. commercial Non-U.S. commercial
Total commercial and industrial Commercial real estate Commercial lease financing
523
901
U.S small business commercial
Total commercial
ID Net charge-off ratios ore calcu'atcd as nel cliarge-olfs divided by average outstanding loans and leases excluding loans accounted for under the fair value option.
Table 36 presents commercial reservable criticized utilized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial reservable criticized utilized exposure decreased $2.5 billion, or 18 percent, during 2018 driven by broad-based improvements including the energy sector. At December 31. 2018 and 2017, 91 percent and 84 percent of commercial reservable criticized utilized exposure was secured.
Table 36 Commercial Reservable Criticized Utilized Exposure (1, 2)
December 31
(Dollars in millions)
Commercial and industrial-U.S commercial' Non-U S commercial Total commercial and industrial Cti'Tnierciol real estaie Cni'iieicial luase fi^y-cing
7,986 1.013 8,999 936 366
2.43% $
0.97
2.03
1.50
1.62
1,766 11.657 SOS 581
3 li%
70
79 0 95 / 63
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.
10,301 1.99 1.2.804 2.57
U.S smatl business commercial 760 6.22 7 59 5.56
Total commercial reservable criticized utilized exposure ID $ 11,061 S 08_ i i3,66l 2 65
(11 Total commercial resorbable criticized utilized exposure Inciudes loans and leases ct 110.3 billion and S12 5 billion and commercial letters ol credit of i /81 million and $ 11 b'liron at December 31. 2018 and 2017.
12! Percentages ere calculated as commercial reservable criticised utilized exposure divided by total commercial reservab'e utilized exposure lor each exposure category
81 Bank of America 2018
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gov/Archives/ed«ar/data/70S58/00()0()708.Commercial and Industrial
Commercial and industrial loans include U.S. commercial and ncn-U.S. commercial portfolios.
U.S. Commercial
At December 31, 2018. 70 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 16 percent in Global Markets, 12 percent in GWIM (generally business-purpose loans for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans increased $11.4 billion in 2018 primarily in Global Banking. Reservable criticized utilized .exposure decreased $1.9 billion, or 19 percent, driven by broad-based improvements including the energy sector.
Non-U.S. Commercial
At December 31, 2018, 81 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 19 percent in Global Markets. Reservable criticized utilized exposure decreased $753 million, or 43 percent, and nonperforming loans and leases decreased $219 million, or 73 percent, due primarily to paydowns, sales and chargc-offs. Net charge-offs decreased $372 million in 2018 primarily due to a single-name non-U.S. commercial charge-off of $292 million in 2017. For more information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 65.
Commercial Real Estate
Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate and is
dependent on the sale or lease of the real estate as tho primary souice of repayment. The portfolio remains diversified across property types and geographic regions California represented the largest state concentration at 23 percent of the commercial real estate loans and leases portfolio at both December 3.1. 2018 and 2017. Tho commercial real estate portfolio is predominantly managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans increased $2.5 billion, or four percent,.during 2018 to $60.8 billion due to new originations, including higher hold levels on syndicated loans, outpacing paydowns.
During 2018, we continued to see low default rates and solid credit quality in both the residential and non-residential portfolios. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial roal estate portfolio, including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation.
Nonperforming commercial real estate loans and foreclosed properties increased $48 million, or 29 percent, during 2018 to $212 million, primarily duo to a single-name downgrade.
Table 37 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
Table 37 Outstanding Commercial Real Estate Loans
December 31
(Dollars In millions}
By Geographic Region
California
Northeast
Southwest
Southeast
Midwest
Florida
Illinois
Mrdsouth
Northwest
Non-OS.
Other U)
Total outstanding commercial roal estaie loans
By Property Type Non-residential
Office
Shopping confers / Retail Multi-family rental Hotels / Motels Industrial / Warehouse Unsecured Multi-use Other Total non-resldcntlol Residential
Total outstanding commercial real estate loans
2013
$ 14,002 10,895 7,339 5,726 3,772 3,680 2,989 2,919 2,178 4,240 3,105
$ 60,845
17,246 8.798 7.762 7.248 5.379 2,956 2,848 7,029
59.266 1.579
60,845
2017
13.607 10,072 6,970 5,487 3,769 3,170 3,263 2,962 2,657 3.538 2.803 58,298
16,718 8.B25 8,280 6.344 6.070 2,187 2.7 71 5.645
56.840 1,458
58.298
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W tncfudcs unsecured Joans to real estaie investment '.rusts and national home builders whose iiotcfoiins ol p'operties span nuill'pfe geographic regroru arid properties in irU.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans managed in Consumer Banking. Credit card-related products were 51 percent and 50 percent of the U.S small business commercial portfolio at December 31, 2018 and 2017. Of the U.S. small business commercial net charge-offs, 95 percent and 90 percent were credit card-related products in 2018 and 2017.
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Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table 38 presents the nonperforminE commercial loans, leases and foreclosed properties activity during 2018 and 2017. Nonperforming loans do not include loans accounted for under the fair value option. During 2018, nonperforming commercial loans and leases decreased $202 million to $1.1 billion. At December
31, 2018, 93 percent of commercial nonperforming loans, leases and foreclosed properties were secured and 55 percent were contractually current Commercial nonperforming loans were carried at 89 percent of their unpaid principal balance before consideration cf the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated collateral value less costs to sell.
Table 38 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1. 2)
(Dollars In millions)
Nonperforming; loons and leases, January 1
Additions Reductions-
Paydowns
Sales
Returns to performing status (3) Chargeoffs
Transfers to foreclosed properties Transfers to loans held-for-sale
* 1.304 1.41S
(771) (210) (246) (361) (12) (17)
2017 1.703 1.61G
(930) (136) (280) (455) (40) (174)
Total net reductions to nonperforming loans and leases
Total nonperforming loans and leases, December 31
Foreclosed properties, December 31
Nonperforming commercial loans, leases and foreclosed properties, December 31
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases I4)
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties (4)
111 Balances do not include nonperforming loans held for sale of 5292 million and 1339 million at December 31, 2018 and 2017.
(2) Induces U.S. small business commeiclal activity. Small business card loans ore excluded as they ore not classified as nonperforming
(31 Commercial loans and leases may be tetumed to performing ttatus whon all principal and interest Is current and full repayment ol the remaining contractual principal end interest is expected, or when the loon
otherwise becomes well-secured and is in the process ol collection. TDRs are generally classified as pel forming after a sustained period of demonstrated payment peiformnnce. 141 Outstanding commercial loans exclude loans accounted lor under the fair value option
Table 39 presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are "comprised of renegotiated small business card loans and small business loans. The renegotiated small business card loans are not classified as nonperforming as they are charged off no later than the end of the month in which the loan becomes 180 days past due. For more information on TDRs, see Note 5 - Outstanding Loans and Leases to the Consolidated Financial Statements.
Table
39 Commercial Troubled Debt Restructurings
December 31. 2018
(Dollars in millions) Commercial and industrial:
U.S commercial
Non-U.S. commercial
Total commercial and industrial Commercial real estaie Commercial lease financing
U.S. smo!l busircss commercial
Total commercial troubled debt restructurings
Nonperforming
306 78
384 114|1010|601 3
504
Performing
1.092 $ 162
1.264 6
68 1.328
18
1.346 $
1.398 240 1.638 120 71 1,829 21 l.BSO
Nonperforming
370
11_ 381
38 5
424 4
423
Performing
S66 219
1,085 9 13 1.107
1,236 230
1,466 47 18
1,531 19
1,550
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Industry Concentrations
Table.40 presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased $28.8 billion, or three percent, during 2018 to $1.0 trillion. The increase in commercial committed exposure was concentrated in the Asset Managers and Funds, Pharmaceuticals and Biotechnology, and Capital Goods industry sectors. Increases were partially offset by reduced exposure to the Media, Food and Staples Retailing, and Energy industry sectors.
Industry limits are used internally to manage industry concentrations and are based on committed exposure that is
63 Bank of America 2018
allocated on an industry-by-mdustry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. The MRC oversees industry limit governance.
Asset Managers and Funds, our largest industry concentration with committed exposure of S 107.9 billion, increased $16.8 billion, or 18 percent, during 2018. The change reflects an increase in exposure to several counterparties.
Real Estate, our second largest industry concentration with committed exposure of $86.5 billion, increased $2.7 billion, or three-percent, during 2018. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management - Commercial Real Estate on page 62.
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Capital Goods, our third largest industry concentration with committed exposure of $/5.1 billion, increased $4.7 biilion, or seven percent, during 2018. The increase in committed exposure occurred primarily as a result of increases in large conglomerates, as well as trading companies, distributors and electrical equipment companies, partially offset by a decrease in machinery companies.
Our energy-related committed exposure decreased $4.5 billion, or 12 percent, during 2018 to $32.3 billion. Energy sector net
charge-offs were $31 million in 20:18 compared to S.156 million in 2017. Energy sector reservable criticized exposure decreased $833 million during 2018 to $787 million due to improvement in credit quality coupled with exposure reductions. The energy allowance for credit losses decreased $225 million during 2018 to $335 million
Table 40 Commercial Credit Exposure by Industry (l)
Commercial Utilized
Total Commercial Committed (2)
December 31
(Dollars In millions)
Asset managers and funds
Real estate 01
Capital goods
Finance companies
Healthcare equipment and services
Government and public education
Materials
Retailing
Consumer services
Food, beverage and tobacco
Commercial services and supplies
Energy
Transportation
Global commercial banks
Utilities
Technology hardware and equipment
Individuals and trusts
Media
Pharmaceuticals and biotechnology Vehicle dealers
Consumer durables and apparel Software and services Insurance
Telecommunication services
Automobiles and components
Food and staples retailing
Religious and social organisations
Financial markets infrastructure (clearinghouses)
Other
Total commercial credit exposure by Industry
Net credit default protection purchased on total commitments l4) (1; Includes U.S. small business conin'ercial exposure
(21 Includes the notional umount cl unfunded legally binding lending commitments net of amounts distributed {i o
and $ 110 billion al December 31 2018 and 2017. (31 Industries are viewed front a variety of perspectives to best isolate the perceived risks For purposes of this
counterparucs using operating cash flows and primary souice of repayment as key (dctors. 1*1 Represents net notional credit protection purchased. For additional inlomiotior. see Commercial Portfolio Credi
2018
71,766 65,328 39,192 36,662 35.763 43.675 27,347 25,333 25,702 23,586 22,623 13,727 22,814 26,269 12,035 13,014 18,643 12,132 7,430 17.603 9,904 8,809 8.674 8.686 7,131 4,787 3,757 2.382 6,249 621,013
2018
107,888 S 86,614 75.080 56.659 56,489 54,749 51,865 47.507 43,298 42,745 39,349 32,279 31,523 28,321 27,623 26,228 25.019 24.502 23,634 20,446 20,199 19,172 16,807 14,166 13,893
9.093
5.620
4,107
6,241 1,010,016 $ (2.663) $
, syndicated or participated! to otticr f.nancia- mstituiio-is the distributee amounts wire $10 7 billion table the real estate Indus!-.1 is defined based o- tt-e primary business actr.ity ol the borrowers cr t Risk Monaginient - rtisk Mitigation
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.
Risk Mitigation
We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, wc may add credit exposure within an industry, borrower or counterparty group by selling protection.
At December 31, 2018 and 2017. net notional credit default protection purchased in our credit derivatives portfolio to hedge our funded and unfunded exposures for which we elected the fair
value option, as well as certain other credit exposures, was $2.7 billion and $2.1 billion. We recorded net losses of $2 million for 2018 compared to net losses of $66 million in 2017 on these positions. The gains and losses on these instruments were, offset by gains and losses on the related exposures. The Value-at-Risk (VaR) results for these exposures are included in the fair value option portfolio information in Table 47. For additional information, see Trading Risk Management on page 71.
Bonk of America 2018 64
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Tables 41 and 42 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2018 and 2017.
Table 41 Net Credit Default Protection by Maturity
Less than or equal to one year
Greater than one year and less than or equal to five years
Greater than tive years
December 31
78 2
42% 58
Total nel credit dofaolt protection
Percent of Total
Percent of Total
Not Notional ID
Table 42 Net Credit Default Protection by Credit Exposure Debt Rating
Net Notional dl
December 31
13.2% 21.6 41.9 18.9
3.9
0.5
(700) (501) (804) (422) (205) (31)
26.3% $ 18.8 30.2 15.8
7.7
1.2
(280) (159) (893) (403) (84) (10)
(Dollars in millions) Ratings (2. 3) A
BBB
BB
B
100.0%
(2,663)
100.0% $ (2,129)
CCC and below
Total net credit default protection $
(il Represents net credit default protection purchased.
Ratines are refreshed on a quarterly basis.
Ratings ol BBS- or higher are considered to meet the definition of Investment grade. I'll NR is comprised of Index positions held and any names that have not been rated.
In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and. to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In order to properly reflect counterparty credit risk, we record counterparty credit risk valuation adjustments on certain derivative assets, including our purchased credit default protection
In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required by the counterparty, where applicab!e, and/or allow us to take additional protective measures such as early termination of all trades. For more information on credit derivatives and counterparty credit risk valuation adjustments, see Note 3 - Derivatives to the Consolidated Financial Statements.
Non-U.S. Portfolio
Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non-U.S. risk and exposures. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g . related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through country risk governance.
Table 43 presents our 20 largest non U.S. country exposures at December 31, 2018. These exposures accounted for 89 percent and 86 percent of our total non-U.S. exposure at December 31, 2018 and 2017. Net country exposure for these 20 countries increased $44.1 billion in 2018, primarily driven by increased placements with central banks in the U.K., Japan and Germany.
Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S.
Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents. Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with credit default swaps (CDS), and secured financing transactions. Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero. Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold.
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Table
43 Top 20 Non-U.S. Countries Exposure
(Dollars in millions)
United Kingdom
Germany
Japan*
Canada
China
France
Netherlands
India
Brazil
Australia
South Korea
Switzerland
Hong Kong
Mexico
Belgium
Singapore
Spain
United Arab Emirates
Taiwan
Italy
Total top 20 non-U.S. countries exposure
Funded Loans and Loan Equivalents
J 28.833 24,856 17.762 7,388 12,771 7,137 8,405 7,147 6,651 5,173 5.634 5,494 5,287 3,506 4,684 3.330 3,769 3.371 2,311 2,372
165,884
Unfunded Loan Commitments
20,410 6,823 1,316 7.234
681 5.849 2.992
451
544 3,132
463 2,580
442 1,275 1,016
125 1,138
135 13 1,065
57,684 S
Securities/
Other Investments
2,639
443 1.341 3.773
495 1,214
973 3,379 3,172 1.507 2.456
201 1.224 1,444
147 1.770
792 55
623
597
Counfy Exposuic at December 31 2C18
I 58,301
33,957
21,442
20,036
14,925
15,531
12,759
11.289
10.576
10.383
9,450
8.610
7,274
6.365
5,950
5,587
5,989
3.699
3.235
4,525
269.883
Net Country Exposure at December 31 2018
t 54,854
28,657
20.023
19.615
14.641
12,651
11,577
11,112
10,249
9,930
9,170
7,764
7.236
6.236
5,578
5,617
4,650
3,649
3.235
3.081
120,558) $
Increase (Decrease) from December 31 2017
17,259 7,154 10.933 792 (1.284) 2.108 3.110 615 (467) (659) 1.269 1.967 (1,442) 749 1.613 (746) 1,542 262 523 (1,165)
44,133
A number of economic conditions and geopolitical events have given rise to risk aversion in certain emerging markets. Our largest emerging market country exposure at December 31, 2018 was China, with net exposure of $14.6 billion, concentrated in large state-owned companies, subsidiaries of multinational corporations and commercial banks.
The outlook for policy direction and therefore economic performance in the EU remains uncertain as a consequence of reduced political cohesion among EU countries. Additionally, we believe that the uncertainty in the U.K.'s ability to negotiate a favorable exit from the EU will further weigh on economic performance. Our largest EU country exposure at December 31, 2018 was the U.K. with net exposure of $54.9 billion, a $17.3 billion increase from December 31, 2017. The increase was driven by corporate loan growth and increased placements with the central bank as part of liquidity management.
Markets have reacted negatively to the escalating tensions between the U.S. and several key trading partners. We are closely
monitoring our exposures to tariff-sensitive industries and our international exposure, particularly to countries that account for a large percentage of U.S. trade.
Table 44 presents countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2018, the U.K. and France were the only countries where total cross-border exposure exceeded one percent of our total assets. At December 31, 2018, Germany and China had total cross-border exposure of $20 4 billion and $19.5 billion representing 0.87 percent and 0.83 percent of our total assets. No other countries had total cross-border exposure that exceeded 0.75 percent of our total assets at December 31, 2018.
Cross-border exposure includes the components of Country Risk Exposure as detailed in Table 43 as well as the notional amount of cash loaned under secured financing agreements. Local exposure, defined as exposure booked in local offices of a respective country with clients in the same country, is excluded.
Table
44 Total Cross-border Exposure Exceeding One Percent of Total Assets
(Dollars In millions) United Kingdom
December 31 2018
2017 2016 2018
Public Sector $ 1.505
923 2.975 633
Banks 3.458
2.S84 4.557 2.385
Private Sector S 46,191
47.205 42,105 29.847
Cross-border Exposure
51.154
51,112 49,637 32.865
Exposure as a Percent of Total Assets
2.11%
2.24
2 27
1.40
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2017 2.904 \27.SC3 .12,333 14?
2016 4.956 J.205 23,123 M.354 1.34
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Provision for Credit Losses
The provision for credit losses decreased $114 million to $3.3 billion in 2018 compared to 2017 primarily due to improvement in the commercial portfolio, partially offset by an increase in the consumer portfolio. The provision for credit losses was $481 million lower than net charge-offs for 2018, resulting in a reduction in the allowance (or credit losses. This compared to a reduction of $583 million in the allowance for credit losses in 2017.
The provision for credit losses for the consumer portfolio increased $222 million to $2.9 billion in 2018 compared to 2017. The increase was primarily driven by a slower pace of improvement in the consumer real estate portfolio, and portfolio seasoning and loan growth in the U.S. credit card portfolio, partially offset by the impact of the sale of the non-U.S. consumer credit card business in 2017.
The provision for credit losses for the commercial portfolio, including unfunded lending commitments, decreased $336 million to $333 million in 2018 compared to 2017. The decrease was primarily driven by a 2017 single-name non-U.S. commercial charge-off and improvement in the commercial portfolio.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is comprised of two components. The first component covers nonperforming commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components, each of which is described in more detail below. The allowance for loan and lease losses excludes loans held-for-sale (LHFS) and loans accounted for under the fair value option as the fair value reflects a credit risk component
The first component of the allowance for loan and lease losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans arc subject to impairment measurement based on the present value of projected future cash flows discounted at the loan's original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan's observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present valuo of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans.
The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer (including credit card and olher consumer loans) and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, which include both quantitative and qualitative components, generally by product type. Loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores. Our consumer real estate loss forecast model estimates
the portion of loans that will default based on individual loan attributes, the most Significant of which are tefrcshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of December 31, 2018, the loss forecast process resulted in reductions in the allowance related to the residential mortgage and home equity portfolios compared to December 31, 2017.
The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry performance trends, geographic and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data, including external default data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the loss given default (l.GD) based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the valuo of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor's liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor's credit risk. As of December 31, 2018, the allowance for the U.S. commercial and non-U.S. commercial portfolios decreased compared to December 31, 2017.
Also included within the second component of the allowance for loan and lease losses are reserves to cover losses that are incurred but, in our assessment, may not be adequately represented in the historical loss data used in the loss forecast models. For example, factors that we consider include, among others, changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and size of the portfolio, changes in portfolio concentrations, changes in the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements. Further, we consider the inherent uncertainty in mathematical models that are built upon historical data.
During 2018, the factors lhat impacted the allowance for loan and lease losses included improvement in the credit quality of the consumer real estate portfolios driven by continuing improvements in the U.S. economy and strong labor markets, proactive credit risk management initiatives and the impact of high credit quality originations. Evidencing the improvements in the U.S. economy and strong labor markets are low levels of unemployment and increases in home prices. In addition to these improvements, in the consumer portfolio, nonperforming consumer loans decreased $1.3 billion in 2018 as returns to performing status, loan sales, paydowns and charge-offs continued to outpace new nonaccrual loans. During 2018, the allowance for loan and lease losses in the commercial portfolio reflected decreased energy reserves primarily driven by improvement in energy exposures including reservable criticized utilized exposures
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We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios ond the models used to estimate incurred losses in those portfolios.
The allowance for loan and lease losses for the consumer portfolio, as presented in Table 45, was $4.8 billion at December 31, 2018, a decrease of $581 million from December 31, 2017. The decrease was primarily in the consumer real estate portfolio, partially offset by an increase in the U.S. credit card portfolio. The reduction in the allowance for the consumer real estate portfolio was due to improved home prices, lower nonperforming loans and a decrease in loan balances in our non-core portfolio. The increase in the allowance for the U.S. credit card portfolio was driven by portfolio seasoning and loan growth.
The allowance for loan and lease losses for the commercial portfolio, as presented in Table 45, was $4.8 billion at December 31, 2018, a decrease of $211 million from December 31, 2017 primarily driven by improvement in energy exposures. Commercial reservable criticized utilized exposure decreased to $11.1 billion at December 31. 2018 from $13.6 billion (to 2.08 percent from 2.65 percent of total commercial reservable utilized exposure) at December 31, 2017, driven by broad-based improvements including the energy sector. Nonperforming commercial loans decreased to $1.1 billion at December 31. 2018 from $1.3 billion (to 0.22 percent from 0.27 percent of outstanding commercial loans excluding loans accounted for under the fair value option)
at December 31, 2017. See Tables 34, 35 and 36 for more details on key commercial credit statistics
The allowance for loan and lease losses as a percentage of total loans and leases outstanding was 1.02 percent at December 31, 2018 compared to 1.12 percental December 31, 2017.
Reserve for Unfunded Lending Commitments
In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers' acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of our historical experience are applied to the unfunded commitments to estimate the funded exposure at default (EAD). The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models.
The reserve for unfunded lending commitments was $797 million at December 31, 2018 compared to $777 million at December 31, 2017.
Table
45 Allocation of the Allowance for Credit Losses by Product Type
Percent ol Total
Percent of Loans and Leases Outstanding ID
Percent of Total
Percent of Loans and Leases Outstanding ID
(Dollars In minions)
Allowance, for loan and tease- losses
Residential mortgage Home equity UJS. credit card Direct/Indirect consumer Other consumer
Total consumer
U.S. commercial 12) Non-U.S. commercial Commercial real estate Commercial lease financing
Total commercial
Allowance for loan and lease losses (3) Reserve for unfunded lending commitments
422 S06 3,597 248 29
4.802
3.010 677 958 154
4,799
9,601 797
December 31. 2018
4.40% 5.27 37.47 2.58 0.30
50.02
31.35 7.05 9.98 1.60
49.98 100.00%
0.20%
1.05
3.66
0.27
n/m
1.08
0.96
0.69
1.57
0.68
0.97
1.02
701 1,019 3,368
264 31
5,383
3,113 803 935 159
5.0:0
10,393 77 7
December 31,2017
6 74% 9 80 32.41 2.54 0.30
51.79
29 95 7.73 9 00 1.53
48_21 100 00%
0.34%
1.76
3 50
0 27
n/m
1.18
1.04
0.82
1.60
0.72
1.05
1.12
Allowance for credit losses
I-i Ratios are calculated as allowance for loan ond lease losses as e percentage of loans anc leases outstanding excljding leans accojnted fot under the lair value option. Consumer loans accounted for under the Ian value oplon include residential mortgage loans ol s336-niillion and 1557 million and home ecjity 'oans ol 1346 million and S3G1 mill on al December 31. 2018 and ZOlr Commercial louns eccojnled for under the fair value option include U.S. commercial loans cf S2.5 billion end S2 6 billion and non U.S commercial loans ol Sl.l btilion and 42 2 bill on »l December 31. 2016 and 2017 17: Includes allowance lor loan 3rd loase losses lor U S. sma:i business commercial 103ns 01 i'171 million end $4 30 miil.on af December 31. 2018 arc V01/ (ill Includes 191 milLon and $289 mi lion ol valuation allowance presented with lhe allcwunre In' loan and lease losses relaled to PCI loans al December 31 2Q18 and 2C17. n/m * not meaningful
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Table 46 presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for 2018 and 2017.
Table 46 Allowance for Credit Losses
(Dollars in millions) 2018 2017
Allowance for loan and lease losses, Januory 1 $ 10.393 % 11.237
Loans and leases charged off
Residential mortgage (207) (188)
Home equity (483) (582)
U S. credit card (3,345) (2,968)
Non-U.S. credit card ID - (103)
Direct/Indirect consumer (495) (491)
Other consumer (197) _ _|212)
Total consumer charge-offs _ (4,727) (4,544)
U.S. commercial P) (575) (589)
Non-U.S. commercial (82) (446)
Commercial real estate (10) (24)
Commercial lease financing _ (8) (16)
Total commercial charge-offs _ (675) (1,075)
Total loans and leases charged off (5,402) (5,619)
Recoveries of loans and leases previously charged off
Residential mortgage 179 288
Home cquiry -485 369
U.S. credit card 608 455
Non-U\S. credit card (D — 28
Direct/Indirect consumer 300 277
Other consumer 15 49
Total consumer recoveries 1,487 1,466
U.S. commercial 13) 120 142
Non-U.S. commercial 14|910|Commercial real estate 9 15
Commercial lease financing ^ 9 11
Totaf commercial recoveries 152 174
Total recoveries of loans ond leases previously charged off 1,639 1.640
Net charge-otii _ _ (3,763) (3,979)
Write-offs of PCI loans (273) 1207)
Provision for loan and lease losses 3,262 3,381
Other «) (IB) [39)
Allowance for loan and lease losses, December 31 9,601 10,393
Reserve for unfunded lending commitments, January 1 777 762
Provision for unfunded lending commitments 20 15
Reserve for unfunded lending commitments, December 31 797 777
Allowance for credit losses, December 31 * 10,398 $ 11,170
Loan ond allowance ratios:
Loans and leases outstanding at December 31 (5) $ 942,546 t 931.039
Allowance for loan and lease losses as a oo'centage of total loans a-d leases uijlsiarding ni December 31 i'->: 1.02% 1.12'Xi
Corsumer allowance for loan and lease losses as 3 percentage cf total ccr'su'tier loans and leoses otilrtnntling al Doce-ubij-i 31 if>) 1.08 i .15
Commercial a:iov/ance for loan and lease losses as a percentage of toui coTine-'ciai lesrs anc eases ojtsta-'ding al r^ecn-i l-c 311'i 0.97 1 05
Aver age loans and leases outstanding (5) $ 927,531 * 911.988
Net oarge ofts as a percentage of average loans ana !eascs outsta-dirg:~ fat 0.41% 0 44%
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Net charge effs and PC! write-offs as a percentage of avcrsgo loans arc! leases outstanding tS> 0.44 0 '.6
Allowance for loan and leese losses as a percentage of ;otal nonperfcrming loans anil leases at december 31 194 161
Ratio of tho allowance for loan and tease losses at Dccerrber 31 to net charge ofls if) 2.65 2 61
Ratio of the allowance for loan and tease losses at Dccemtser 3i to net charge ctfs ond PCI write-offs 2.38 2 48
Amounts included in allowance for loan and lease losses for loans and eases tnat are excluded Trom nor.pe'fonmng foano and leases at
December 310) $ 4,031 $ 3.971
Allowance for loan and lease losses as a percentage cf total nonpar forming loans and leases, excluding tito allowance for ican and lease tosses
for loans and leases that are excluded from nonpcrfonning loans and leases at December 31 is. 9) 113% 99%
ID Represents net charge-oils related to Uie ron-u.S. credit cord loan portfolio, wtiicli was sold in 2017 I?) IndurfM US small business commercial charge-offs oi $267 nlllion and $258 m:'.tion in 2018 and 2017, (3) Includes U.S. snail business commercial recoveries of $47 million ond $43 million in 2018 and 2017
(4> Pfiirefily represents lhe net Impact of portfolio sales, consolidations anil deconsolidations, foreign currency translation niijuc'm.;ni_*,1 transfers to ft cir: lor ™> nun ronam nthm rr-la^Mticfltmni
(5) Outstanding loan and lease balances and ratios do not include loans accounted for ondsr the fair value- option of f 4 3 billion end $B I hillion nt December 31, 2018 and 2017. Average loans accounted for under
the fair value option were $5 5 billion and $G.7 billion In 2013 end 2017 !61 Excludes consumer loans accounted (or under the fair value option of $632 miH'on and $928 million ai December 31, 2018 ond 2017 (7) Excludes commercial loans accounted for under the (air value option of $3.7 biiiron and S4.8 trillion at Dec«mber 31. 2016 ana 201/
KI Net char2e-o(ls excljfle $273 million and $207 million of write-offs in the PCI loan portfolio In 2018 end 2017 For more infomvition on i'CI write nfls, see Consumer Portfolio Crctiit H15K Management - Purchased
Credit-impaired Loan Portfolio on page 57. PJ Primarily Includes amounts allocated to U.S. credit card and unsecured consumer lend=n( port'uhys m Consigner Banking and PCI loans in AJI O'fier
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Market Risk Management
Market risk is the risk that changes in market conditions may adversely impact the value of assets or liabilities, or otherwise negatively impact earnings. This risk is inherent in the financial instruments associated with our operations, primarily within our Global Markets segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on our results. For more information, see Interest Rate Risk Management for the Banking Book on page 74.
Our traditional banking loan and deposit products are non-trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one ofthe primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option.
Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.
Global Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which we are exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of Global Markets are monitored and governed by their respective governance functions.
Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. The Enterprise Model Risk Committee (EMRC), a subcommittee ofthe MRC, is responsible for providing management oversight and approval of model risk management and governance. The EMRC defines model risk standards, consistent with our risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The EMRC oversees that model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process for continued compliance.
Interest Rate Risk
Interest rate risk represents exposures to instruments whose values vary with the level or volatility of interest rates. These instruments include, but are not limited to, loans, debt securities,
certain trading-related assets and liabilities, deposits, borrowings and derivatives. Hedging instruments used to mitigate these risks include derivatives such as options, futures, forwards and swaps.
Foreign Exchange Risk
Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in currencies other than the U.S. dollar. The types of instruments exposed to this risk include investments in non-U.S. subsidiaries, foreign currency-denominated loans and securities, future cash flows in foreign currencies arising from foreign exchange transactions, foreign currency-denominated debt and various foreign exchange derivatives whose values fluctuate with changes in tho level or volatility of currency exchange rates or non-U.S. interest rates. Hedging instruments used to mitigate this risk include foreign exchange options, currency swaps, futures, forwards, and foreign currency-denominated debt and deposits.
Mortgage Risk
Mortgage risk represents exposures to changes in the values of mortgage-related instruments. The values of these instruments are sensitive to prepayment rates, mortgage rates, agency debt ratings, default, market liquidity, government participation and interest rate volatility. Our exposure to these instruments takes several forms. For example, we trade and engage in market-making activities in a variety of mortgage securities including whole loans, pass-through certificates, commercial mortgages and collateralized mortgage obligations including collateralized debt obligations using mortgages as underlying collateral. In addition, we originate a variety of MBS, which involves the accumulation of mortgage-related loans in anticipation of eventual securitization, and we may hold positions in mortgage securities and residential mortgage loans as part of the ALM portfolio. We also record MSRs as part of our mortgage origination activities. Hedging instruments used to mitigate this risk include derivatives such as options, swaps, futures and forwards as well as securities including MBS and U.S. Treasury securities. For more information, see Mortgage Banking Risk Management on page 76.
Equity Market Risk
Equity market risk represents exposures to securities that represent an ownership interest in a corporation in the form of domestic and foreign common stock or other equity-linked instruments. Instruments that would lead to this exposure include, but are not limited to, the following: common stock, exchange-traded funds, American Depositary Receipts, convertible bonds, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products. Hedging instruments used to mitigate this risk include options, futures, swaps, convertible bonds and cash positions.
Commodity Risk
Commodity risk represents exposures to instruments traded in the petroleum, natural gas, power and metals markets. These instruments consist primarily of futures, forwards, swaps and options. Hedging instruments used to mitigate this risk include options, futures and swaps in the same or similar commodity product, as well as cash positions.
Issuer Credit Risk
Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Our portfolio is exposed to issuer credit risk where the value ol an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration or by defaults. Hedging instruments
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used to mitigate this risk include bonds, CDS and other credit fixed-income instruments.
Market Liquidity Risk
Market liquidity risk represents the risk that the level of expected market activity changes dramatically and, in certain cases, may even cease. This exposes us to the risk that we will not be able to transact business and execute trades in an orderly manner which may impact our results. This impact could be further exacerbated if expected hedging or pricing correlations are compromised by disproportionate demand or lack of demand for certain instruments. We utilize various risk mitigating techniques as discussed in more detail in Trading Risk Management.
Trading Risk Management
To evaluate risk in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures arc utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments.
VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios In order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level. This means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days.
Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience.
VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher
or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A minor portion of risks related to our trading positions is not included in VaR. These risks are reviewed as part of our ICAAP. For more information regarding ICAAP, see Capital Management on page 43.
Global Risk Management continually reviews, evaluates and enhances our VaR model so that it reflects the material risks in our trading portfolio. Clianges to the VaR model are reviewed and approved prior to implementation and any material changes are reported to management through the appropriate management committees.
Trading limits on quantitative risk measures, including VaR, are independently set by Global Markets Risk Management and reviewed on a regular basis so that trading limits remain relevant and within our overall risk appetite for market risks. Trading limits are reviewed in the context of market liquidity, volatility and strategic business priorities. Trading limits are set at both a granular level to allow for extensive coverage of risks as well as at aggregated portfolios to account for correlations among risk factors. All trading limits are approved at least annually. Approved trading limits are stored and tracked in a centralized limits management system. Trading limit excesses are communicated to management for review. Certain quantitative market risk measures and corresponding limits have been identified as critical in the Corporation's Risk Appetite Statement. These risk appetite limits are reported on a daily basis and are approved at least annually by the ERC and the Board.
In periods of market stress. Global Markets senior leadership communicates daily lo discuss losses, key risk positions and any limit excesses. As a result of this process, the businesses may selectively reduce risk.
Table 47 presents the total market-based portfolio VaR which is the combination of the total covered positions (and less liquid trading positions) portfolio and the fair value option portfolio. Covered positions are defined by regulatory standards as trading assets and liabilities, both on- and off-balance sheet, that meet a defined set of specifications. These specifications identify the most liquid trading positions which arc intended to be held for a short-term horizon and where we are able to hedge the material risk elements in a two-way market. Positions in less liquid markets, or where there are restrictions on the ability to trade the positions, typically do not qualify as covered positions. Foreign exchange and commodity positions are always considered covered positions, except for structural foreign currency positions that are excluded with prior regulatory approval. In addition, Table 47 presents our fair value option portfolio, which includes substantially all of the funded and unfunded exposures for which we elect the fair value option, and their corresponding hedges. Additionally, market risk VaR for trading activities as presented in Table 47 differs from VaR used for regulatory capital calculations due to the holding period being used. The holding period for VaR used for regulatory capital calculations is 10 days, while for the market risk VaR presented below, it is one day. Both measures utilize the same process and methodology
The total market-based portfolio VaR results in Table 47 include market risk to which wo are exposed from all business segments, excluding credit valuation adjustment (CVA), DVA and related hedges. The majority of this portfolio is within the Global Markets segment
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Table 47 presents year-end, average, high and low daily trading VaR for 2018 and 2017 using a 99 percent confidence level. The amounts disclosed in Table 47 and Table 48 align to the view of covered positions used in the Basel 3 capital calculations. Foreign exchange and commodity positions are always considered covered positions, regardless of trading or banking treatment for the trade.
except for structural foreign currency positions that are excluded with prior regulatory approval.
The average total covered positions and less liquid trading positions portfolio VaR decreased curing 2018 primarily due to a decrease in credit risk along with an increase in portfolio diversification.
Table
47 Market Risk VaR for Trading Activities
(Dollars In millions) Foreign exchange Interest rate Credit Equity
Commodities Portfolio diversification
Total covered positions portfolio Impact Irom less liquid exposures
Total covered positions and less liquid trading positions portfolio
Fair value option loans Fair value option hedges Fair vnlua option portfolio diversification Total fairvalue option portfolio
(59)
45 5
High (il 15
22 29 19 5
119)
•I1 9
21 20 18
_40 10
D
33 33
63 14 11
12 3
Portfolio diversification
Total market'&rised portfolio
11) The high and lotrfaf each portfolio may runt strained on different trading days than the high and low lor the components. Thorelota Ihe impact tiorn toss liquid exposures and the amount ol portfolio diversification, which Is the difference between the total portfolio and the sum ot the Individual components, is not relevant
The graph below presents the daily covered positions and less liquid trading positions portfolio VaR for 2018. corresponding to the data in Table 47.
Daily Total Covered Positions ond Less I jquid Trading Portfolio VaH Histoiy
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Additional VaR statistics produced within our single VaR model are provided in Table 48 at the same level of detail as in Table 47. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution. Table 48 presents average trading VaR statistics at 99 percent and 95 percent confidence levels for 2018 and 2017.
Average Market Risk VaR for Trading Activities - 99 percent and 95 percent VaR Statistics
{Dollars in millions)
Foreign exchange Interest rate CierJit Equity
Commodities Portfolio diversification
Total covered positions portfolio
Impact from less liquid exposures
Total covered positions and less liquid trading positions portfolio
Fair value option loans Fair value option hedges
Fair value option portfolio diversification
Total lair value option portfolio
Portfolio diversification
Total market-based portfolio
99 percent
8 25 25 20|1010|(S5)_ 31 3
34 _ 11 9
(11)|10 10|(5) 38
95 percent
5 16 16 11 4 (33)
18 1
19 6 6
(7)
(3)
99 percent
11 21 26 18 5
147)
34|1010|40 10 7
(3)
9 (4)
95 percent
6 14 15 10|1010|(30)
18 2
_?° 6 S (6)
13)
Backtesting
The accuracy of the VaR methodology is evaluated by backtesting, which compares the daily VaR results, utilizing a one-day holding period, against a comparable subset of trading revenue. A backtesting excess occurs when a trading loss exceeds the VaR for the corresponding day. These excesses are evaluated to understand the positions and market moves that produced the trading loss with a goal to ensure that the VaR methodology accurately represents those losses. We expect the frequency of trading losses in excess of VaR to be in line with the confidence level of the VaR statistic being tested. For example, with a 99 percent confidence level, we expect one trading loss in excess of VaR every 100 days or between two to three trading losses in excess of VaR over the course of a year. The number of backtesting excesses observed can differ from the statistically expected number of excesses if the current level of market volatility is materially different than the level of market volatility that existed during the three years of historical data used in the VaR calculation.
The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the VaR component of the regulatory capital calculation. This revenue differs from total trading-related revenue in that it excludes revenue from trading activities that either do not generate market risk or the market risk cannot be included in VaR. Some examples of the types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intraday trading revenues.
We conduct daily backtesting on the VaR results used for regulatory capital calculations as well as the VaR results for key legal entities, regions and risk factors. These results are reported to senior market risk management. Senior management regularly reviews and evaluates the results of these tests.
During 2018, there were three days in which there was a backtesting excess for our total covered portfolio VaR, utilizing a one-day holding period.
Total Trading-related Revenue
Total trading-related revenue, excluding brokerage fees, and CVA, DVA and funding valuation adjustment gains (losses), represents the total amount earned from trading positions, including market-based net interest income, which are taken in a diverse range of financial instruments and markets. Trading account assets and liabilities are reported at fair value. For more information on fair value, see Note 20 - Fair Value'Measurements to the Consolidated Financial Statements. Trading-related revenue can be volatile and is largely driven by general market conditions and customer demand. Also, trading-related revenue is dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. Significant daily revenue by business is monitored and the primary drivers of these are reviewed.
The following histogram is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for 2018 and 2017. During 2018, positive trading-related revenue was recorded for 98 percent of the trading days, of which 79 percent were daily trading gains of over $25 million. This compares to 2017 where positive trading-related revenue was recorded for 100 percent of the trading days, of which 77 percent were daily trading gains of over $25 million.
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Trading Portfolio Stress Testing
Because the very nature of a VaR model suggests results can exceed our estimates and it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the change in the value of our trading portfolio that may result from abnormal market movements.
A set of scenarios, categorized as either historical or hypothetical, are computed daily for the overall trading portfolio and individual businesses. These scenarios include shocks to underlying market risk factors that may be well beyond the shocks found in the historical data used to calculate VaR. Historical scenarios simulate the impact of the market moves that occurred during a period of extended historical market stress. Generally, a multi-week period representing the most severe point during a crisis is selected for each historical scenario. Hypothetical scenarios provide estimated portfolio impacts from potential future market stress events. Scenarios are reviewed and updated in response to changing positions and new economic or political information. In addition, new or ad hoc scenarios arc developed to address specific potential market events or particular vulnerabilities in the portfolio. The stress tests are reviewed on a regular basis and the results are presented to senior management.
Stress testing for the trading portfolio is integrated with enterprise-wide stress testing and incorporated into tho limits framework. The macroeconomic scenarios used for enterprise-wide stress testing purposes differ from the typical trading portfolio scenarios in that they have a longer time horizon and the results are forecasted over multiple periods for use in consolidated capital and liquidity planning. For more information, see Managing Risk on page 40.
Interest Rate Risk Management for the Banking Book
The following discussion presents net interest income for banking book activities.
Interest rate risk represents the most significant market risk exposure to our banking book balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create' interest rate sensitive positions on our balance sheet
We prepare forward-looking forecasts of net interest income/The baseline forecast takes into consideration expected future business growth, ALM positioning and the direction of interest rate movements as implied by the market-based forward curve. We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing, maturity characteristics and investment securities premium amortization. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 49 presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2018 and 2017.
December 31, 2018 Three-month LIBOR
redcral Funds
10-Year Swap
2.81* 2 64
2.6094 2.50
2.71% 2.75
Forward Rates
Spot rates
December 31. 2C17
2.4051 2.48
1.69% 2.14
1.50* 2.00
12-monlh lor,v2/:} rates
Spot rales
12-month 'Yirward rates
Table 50 shows the pretax impact to forecasted net interest income over the next 12 months from December 31, 2018 and 2017, resulting from instantaneous parallel and non-parallel shocks to the market-based forward curve. Periodically we evaluate the scenarios presented so that they are meaningful in the context of the current rate environment.
Dunng 2018, the asset sensitivity of our balance sheet to rising rates declined primarily due to increases in long-end rates. We continue to be asset sensitive to a parallel move in interest rates with the majority of that impact coming from the short end of the yield curve. Additionally, higher interest rates impact the fair value of debt securities and, accordingly, for debl securities classified as AFS, may adversely affect accumulated 0CI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near-term adverse impact to Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on Basel 3, see Capital Management - Regulatory Capital on page 44.
long Rate (bps)
Table 50 Estimated Banking Book Net Interest Income Sensitivity to Curve Changes
December 31
- Short Rate Ibps)
2.651 i (4.109)
{Dollars in millions)
UOO -100
3,317 (5,183)
? 100 *
-100
Parallel Srufts +100 bps instantaneous shift
1,977 (1,616)
-100 bps instantaneous srufl
2.182 (2.765)
Flattcncrs Short-end
*100
instantaneous change Long-crrc'
instantaneous change
(2,478) 673
12.394) 1.135
Slcepeners Short-end
instantaneous change Longeod
instantaneous change
The sensitivity analysis in Table 50 assumes tnat we take no action in resporss to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, certain residential mortgages, and inteiest late and foreign exchange derivatives in maraging interest rale sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in cur projected estimates of net interest income. The sensitivity analysis in Table 50 assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In lughei rate scenarios, any
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deposits or market-based funding would reduce our benefit in those scenarios.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging activities, see Note 3 - Derivatives to the Consolidated Financial Statements.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mibgate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during 2018 reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow
hedges). The net losses on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were $1 3 billion, on a pretax basis, at both December 31. 2018 and 2017 These net losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield cuives at December 31, 2018, the pretax net losses are expected to be reclassified into earnings as follows: 25 percent within the next year, 56 percent in years two through five and 11 percent in years six through 10, with the remaining eight percent thereafter. For more information on derivatives designated as cash flow hedges, see Note 3 - Derivatives to the Consolidated Financial Statements.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at December 31, 2018.
Table 51 presents derivatives utilized in our ALM activities and shows the notional amount, fair value, weighted-average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at December 31, 2018 and 2017. These amounts do not include derivative hedges on our MSRs.
Table 51 Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2018
Expected Maturity
(Dollars In millions, average estimated duration in years)
Receive-fixed interest rate swaps W
Notional amount
Weighted-average fixed-rate Pay-fixed interest rate swaps ID
Notional amount
Weighted-average fixed-rate Same-currency basis swaps 121
Notional amount Foreign exchange basis swaps u. 3-4)
Notional amount Option products
Notional amount Foreign exchange contracts (l J. 5)
Notional amounts)
Nel ALM contracts
For tootnotcs. sec page 76.
Fair Value
* 2,128
(1.716)
Total
Average Estimated
2023 Thereafter Duration
5.17
- $ 10.801 $ 31.304
-% 2.59% 2.55%
$ 198,914 t 27.176 $ 16.347 $ 14.640 $ 19.B66 $ 36.215 $ 84,670
2.66% 1.87% 2.68% 3.17% 2.86% 2.37% 2.97%
% 49,276 $ 1.210 $ 4,344 $ 1,616 $
2.60% 2.07% 2.16% 2.22%
6,260 35,608
10.239
S 101.203 $ 7,628 $ 15,097 * 15,493 $ 2,586 $ 2,017 $ 58,382
2,741
9,978
106,742 13,946 21.448
(8.447) (27.823)
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Table 51 Asset and Liability Management Interest Rate and Foreign Exchange Contracts (continued)
Deccnbsr 31. 2017
Expected Maturity
$ 2,330
(Dollars in millions, average estimated duration in years)
Recetve-fixed interest rate swaps U)
Notional amount
(37)
Weighted-average fixed-rate Pay-fixed interest rate swaps (i)
Notional amount
(17)
Weighted-average fixed-rale Same-currency basis swaps (2)
|1,G16)
Notional amount Foreign exchange basis swaps (1.3,4)
Notional amount Option products
Notional amount Foreign exchange contracts (i.4, 5)
(11.783)
2,097
Notional amount <6> Net ALM contracts
(GJ Reflects the net of tong ond short positions. Amounts shown as negative reflect e net short posftion.
Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rale risks, among others. We determine whether loans will be held for investment or held for sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Changes in interest rates and other market factors impact the volume of mortgage originations. Changes in interest rates also impact the value of interest rate lock commitments (IRLCs) and the related residential first mortgage LHFS between the date of the IRLC and the date the loans are sold to the secondary market. An increase in mortgage interest rates typically leads to a decrease in the value of these instruments. Conversely, when there is an increase in interest rates, the value of the MSRs will increase driven by lower prepayment expectations. Because the interest rate risks of these two hedged items offset, we combine them into one overall hedged item with one combined economic hedge portfolio consisting of derivative contracts and securities.
During 2018 and 2017, we recorded gains of $214 million and $118 million related to the change in fair valuo of the MSRs, IRLCs and LHFS, net of gains and losses on the hedge portfolio. For more information on MSRs, see Note 20 - Fair Value Measurements to the Consolidated Financial Statements.
Compliance and Operational Risk Management
Compliance risk is the risk of.legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation arising from the failure of the Corporation to comply with tho requirements of applicable laws, rules, regulations and our internal policies and procedures (collectively, applicable laws, rules and regulations).
Operational risk is the risk of loss resulting from inadequate or failed processes, people and systems or from external events. Operational risk may occur anywhere in the Corporation, including third-party husiness processes, and is not limited to operations functions. Effects may extend beyond financial losses and may result in reputational risk impacts. Operational risk includes legal risk. Additionally, operational risk is a component in the calculation of total risk-weighted assets used in the Basel 3 capital calculation. For more information on Basel 3 calculations, see Capital Management on page 43.
FLUs and control functions are first and foremost responsible for managing all aspects of their businesses, including their compliance and operational risk. FLUs and control functions are required to understand their business processes and related risks and controls, including the related regulatory requirements, and monitor and report on the effectiveness of the control environment In order to actively monitor and assess the performance of their processes and controls, they must conduct comprehensive quality assurance activities and identify issues and risks to remediate control gaps and weaknesses. FLUs and control functions must also adhere to compliance and operational risk appetite limits to meet strategic, capital and financial planning objectives. Finally, FLUs and control functions are responsible for the proactive identification, management and escalation of compliance and operational risks across the Corporation.
Global Compliance and Operational Risk teams independently assess compliance and operational risk, monitor business activities and processes, evaluate FLUs and control functions for adherence to applicable laws, rules and regulations, including identifying issues and risks, determining and developing tests to be conducted by the Enterprise Independent Testing unit, and reporting on the state of the control environment. Enterprise Independent Testing, an independent testing function within IRM, works with Global Compliance and Operational Risk, the FLUs and
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control functions in the identification of testing needs and test design, and is accountable for test execution, reporting and analysis of results.
The Corporation's approach to the management of compliance risk is described in the Global Compliance - Enterprise Policy, which outlines the requirements of the Corporation's compliance risk management program, and defines roles and responsibilities of FLUs, IRM and Corporate Audit, the three lines of defense in managing compliance risk. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of compliance risks throughout the Corporation. For more information on FLUs and control functions, see Managing Risk on page 40.
The Corporation's approach to operational risk management is outlined in the Operational Risk Management - Enterprise Policy which establishes tho requirements of the Corporation's operational risk management program and specifies the responsibilities and accountabilities of the first and second lines of defense for managing operational risk so that our business processes are designed and executed effectively.
The Global Compliance Enterprise Policy and Operational Risk Management - Enterprise Policy also set the requirements for reporting compliance and operational risk information to executive management as well as the Board or appropriate Board-level committees in support of Global Compliance and Operational Risk's responsibilities for conducting independent oversight of our compliance and operational risk management activities. The Board provides oversight of compliance risk through its Audit Committee and the ERC, and operational risk through the ERC.
A key operational risk facing the Corporation is information security, which includes cybersecurity. Cybersecurity risk represents, among other things, exposure to failures or interruptions of service or breaches of security, resulting from malicious technological attacks or otherwise, that impact the confidentiality, availability or integrity of our operations, systems or data, including sensitive corporate and customer information. The Corporation manages information security risk in accordance with internal policies which govern our comprehensive information security program designed to protect the Corporation by enabling preventative and detective measures to combat information and cybersecurity risks. The Board and the ERC provide cybersecurity and information security risk oversight for the Corporation and our Global Information Security Team manages the day-to-day implementation of our information security program.
Reputational Risk Management
Reputational risk is the risk that negative perceptions of the Corporation's conduct or business practices may adversely impact its profitability or operations. Reputational risk may result from many of the Corporation's, activities, including those related to the management of our strategic, operational, compliance and credit risks.
The Corporation manages reputational risk through established policies and controls in its businesses and risk management processes to mitigate reputational risks in a timely manner and through proactive monitoring and identification of potential reputational risk events. If reputational risk events occur, we focus on remediating the underlying issue and taking action to minimize damage to the Corporation's reputation. The Corporation has processes and procedures in place to respond to events that give rise to reputational risk, including educating individuals and organizations that influence public opinion, implementing external communication strategies to mitigate the risk, and informing key stakeholders of potential reputational risks.
The Corporation's organization and governance structure provides oversight of reputational risks, and reputational risk reporting is provided regularly and directly to management and the ERC. which provides primary oversight of reputational risk. In addition, each FLU has a committee, which includes representatives from Compliance, Legal and Risk, that is responsible for the oversight of reputational risk. Such committees' oversight includes providing approval for business activities that present elevated levels of reputational risks.
Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 -Summary of Significant Accounting Principles to the Consolidated Financial Statements, are essential in understanding the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could materially impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market-sensitive assets and liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative of deficiencies in our models or inputs.
Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management's estimate of probable incurred credit losses in the Corporation's loan and lease portfolio excluding those loans accounted for under the fair value option. The allowance for credit losses includes both quantitative and qualitative components. The qualitative component has a higher degree of management subjectivity, and includes factors such as concentrations, economic conditions and other considerations. Our process for determining the allowance for credit losses is discussed in Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Our estimate for the allowance for loan and lease losses is sensitive to the loss rates and expected cash flows from our Consumer Real Estate and Credit Card and Other Consumer portfolio segments, as well as our U.S. small business commercial card portfolio within the Commercial portfolio segment. For each one-percent increase in the loss rates on loans collectively evaluated for impairment in our Consumer Real Estate portfolio segment, excluding PCI loans, coupled with a one-percent decrease in the discounted cash flows on those loans individually evaluated for impairment within this portfolio segment, the allowance for loan and lease losses at December 31, 2018 would have increased $24 million. We subject our PCI portfolio to stress
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scenarios to evaluate the potential impact given certain events. A one-percent decrease in the expected cash flows would result in a $41 million impairment of the portfolio. Within our Credit Card and Other Consumer portfolio segment and U S. small business commercial card portfolio, for each one-percent increase in the loss rates on loans collectively evaluated for impairment coupled with a one-percent decrease in the expected cash flows on those loans individually evaluated for impairment, the allowance for loan and lease losses at December 31, 2018 would have increased $44 million.
Our allowance for loan and lease losses is sensitive to the risk ratings assigned to loans and leases within the Commercial portfolio segment (excluding the U.S. small business commercial card portfolio). Assuming a downgrade of one level in the internal risk ratings for commercial loans and leases, except loans and leases already classified as Substandard and Doubtful as defined by regulatory authorities, the allowance for loan and lease losses would have increased $2.5 billion at December 31, 2018.
The allowance for loan and lease losses as a percentage of total loans and leases at December 31, 2018 was 1.02 percent and these hypothetical increases in the allowance would raise the ratio to 1.30 percent.
These sensitivity analyses do not represent management's expectations of the deterioration in risk ratings or the increases in loss rates but are provided as hypothetical scenarios to assess the sensitivity of the allowance for loan and lease losses to changes in key inputs. We believe the risk ratings and loss severities currently in use are appropriate and that the probability of the alternative scenarios outlined above occurring within a short period of time is remote.
The process of determining the level of the allowance for credit losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
Fair Value of Financial Instruments
Under applicable accounting standards, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. We classify fair value measurements of financial instruments and MSRs based on the three-level fair value hierarchy in the accounting standards.
The fair values of assets and liabilities may include adjustments, such as market liquidity and credit quality, where appropriate. Valuations of products using models or other techniques are sensitive to assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of our valuation date. Inputs to valuation models are considered unobservable if they are supported by little or no market activity. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. In keeping with the prudent application of estimates and management judgment in determining the fair value of assets and liabilities, we have in place various processes and controls that include: a model validation policy that requires review and approval of quantitative models used for deal pricing, financial statement fair value determination and risk quantification; a trading product valuation policy that requires verification of all traded product valuations; and a periodic review and substantiation of daily profit and loss reporting for all traded products. Primarily through validation controls, we utilize both broker and pricing service inputs which can and do include both market-observable and internally-modeled values and/or valuation inputs. Our reliance cn this information is affected by our understanding of how the broker and/or pricing service develops
its data with a higher degree of reliance applied to those that aie more directly observable and lesser reliance applied to those developed through their own internal modeling. For example, broker quotes in loss active markets may only be indicative and therefore less reliable. These processes and controls are performed independently of the business For additional information, see Nole 20 - Fair Value Measurements and Note 21 - Fair Value Option to (he Consolidated Financial Statements.
Level 3 Assets and Liabilities
Financial assets and liabilities, and MSRs, where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting standards. The fair value of these Level 3 financial assets and liabilities and MSRs is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation.
Love! 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. For more information on transfers into and out of Level 3 during 2018, 2017 and 2016, see Note 20 - Fair Value Measurements to the Consolidated Financial Statements.
Accrued Income Taxes and Deferred Tax Assets
Accrued income taxes, reported as a component of either other assets or accrued expenses and other liabilities on the Consolidated Balance Sheet, represent the net amount of current income taxes we expect to pay to or receive from various taxing jurisdictions attributable to our operations to date. We currently file income tax returns in more than 100 jurisdictions and consider many factors, including statutory, judicial and regulatory guidance, in estimating the appropriate accrued income taxes for each jurisdiction.
Net deferred tax assets, reported as a component of other assets on the Consolidated Balance Sheet, represent the net decrease in taxes expected to be paid in the future because of net operating loss (NOL) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. NOL and tax credit carryforwards resull in reductions to future tax liabilities, and many of these attributes can expire if not utilized within certain periods. We consider the need for valuation allowances to reduce net deferred tax assets lo the amounts that we estimate are more likely than not to be realized.
Consistent with the applicable accounting guidance, we monitor relevant tax authorities and change our estimates of accrued income taxes and/or net deferred tax assets due lo changes in income tax laws and their interpretation by the courts and regulatory authorities. These revisions of our estimates, which also may result from our income tax planning and from the resolution of income tax audit matters, may be material to our operating results for any given period.
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See Note 19 - Income Taxes to the Consolidated Financial Statements for a table of significant tax attributes and additional information. For more information, see page 13 under Item IA. Risk Factors - Regulatory, Compliance and Legal
Goodwill and Intangible Assets
The nature of and accounting tor goodwill and intangible assets are discussed in Note 1 - Summary of Significant Accounting Principles. and Note 8 - Goodwill and Intangible Assets. Beginning with our annual goodwill impairment test as of June 30, 2018, we conducted a qualitative assessment, rather than a quantitative assessment as previously performed, that is more fully described in Nole 1 -Summary of Significant Accounting Principles to the Consolidated Financial Statements.
We completed our annual goodwill impairment test as of June 30, 2018 for all of our reporting units that had goodwill. We performed that test by assessing qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its respective carrying value. Factors considered in the qualitative assessments include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity- and reporting-unit specific considerations. If based on the results of the qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed.
Based on our qualitative assessments, we determined that for each reporting unit with goodwill, it was more likely than not that its respective fair value exceeded its carrying value, indicating there was no impairment. For more information regarding goodwill balances at June 30, 2018, see Note 8 - Goodwill and Intangible Assets to the Consolidated Financial Statements.
Representations and Warranties Liability
The methodology used to estimate the liability for obligations under representations and warranties related to transfers of residential mortgage loans is a function of the type of representations and warranties provided in the sales contracts and considers a variety of factors. These factors, which incorporate judgment, are subject to change based on our specific experience. Our experience in negotiating settlements with trustees and other counterparties is an important input in determining our estimate of the liability. We also consider actual defaults, estimated future defaults, historical loss experience, estimated home prices and other economic conditions. Changes to any one of these factors could impact the estimate of our liability.
The representations and warranties provision may vary significantly each period as the methodology used to estimate the expense continues to be refined. The estimate of the liability for representations and warranties is sensitive to future defaults, loss severity and the net repurchase rate. An assumed simultaneous increase or decrease of 10 percent in estimated future defaults, loss severity and the net repurchase rate would result in an increase or decrease of approximately $200 million in the representations and warranties liability as of December 31, 2018. These sensitivities are hypothetical and are intended to provide an indication of the impact of a significant change in these key assumptions on the representations and warranties liability. In reality, changes in one assumption may result in changes in other assumptions, which may or may not counteract the sensitivity.
For more information on representations and warranties exposure, see Note 12 - Commitments and Contingencies to the Consolidated Financial Statements.
2017 Compared to 2016
The following discussion and analysis provide a comparison of our results of operations for 2017 and 2016. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes.
Overview
Net Income
Net income was $18.2 billion, or $1.56 per diluted share in 2017 compared to $17.8 billion, or $1.49 per diluted share in 2016. The results for 2017 included a charge of $2.9 billion related to the Tax Act. The pretax results for 2017 compared to 2016 were driven by higher revenue, largely the result of an increase in net interest income, lower provision for credit losses and a decline in noninterest expense.
Net Interest Income
Net interest income increased $3.6 billion tc $44.7 billion in 2017 compared to 2016. Net interest yield on an FTE basis increased 12 bps to 2.37 percent for 2017. These increases were primarily driven by the benefits from higher interest rates and loan and deposit growth, partially offset by the sale of the non-U.S. consumer credit card business in the second quarter of 2017.
Noninterest Income
Noninterest income increased $80 million to $42 7 billion in 2017 compared to 2016. The following highlights the significant changes.
Service charges increased $180 million primarily driven by the impact of pricing strategies and higher treasury services related revenue.
Investment and brokerage services income increased $487 million primarily driven by the impact of AUM flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.
Investment banking income increased $770 million primarily due to higher advisory fees and higher debt and equity issuance fees.
Trading account profits increased $375 million primarily due to increased client financing activity in equities, partially offset by weaker performance across most fixed-income products.
Other income decreased $1.8 billion primarily due to lower mortgage banking income, with declines in both MSR results and production. Included in 2017 was a $793 million pretax gain recognized in connection with the sale of the non-U.S. consumer credit card business and a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act.
Provision for Credit Losses
The provision for credit losses decreased $201 million to $3.4 billion for 2017 compared to 2016 primarily due to reductions in energy exposures in the commercial portfolio and credit quality improvements in the consumer real estate portfolio. This was partially offset by portfolio seasoning and loan growth in the U.S. credit card portfolio and a single-name non-U.S. commercial charge-off.
Noninterest Expense
Noninterest expens.e decreased $340 million to $54.7 billion for 2017 compared to 2016. The decrease was primarily due to lower operating costs, a reduction from the sale of the non-U.S. consumer credit card business and lower litigation expense, partially offset by a $316 million impairment charge related to certain data centers that were in the process of being sold and
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$145 million for the shared success discretionary year-end bonus awarded to certain employees.
Income Tax Expense
Tax expense for 2017 included a charge of $1.9 billion reflecting the impact of the Tax Act. Other than the impact of the Tax Act, the effective tax rate for 2017 was driven by our recurring tax preference benefits as well as an expense recognized in connection with the sale of the non-U.S. consumer credit card business, largely offset by benefits related to the adoption of the new accounting standard for the tax impact associated with share-based compensation, and the restructuring of certain subsidiaries. The effective tax rate for 2016 was driven by our recurring tax preferences and net tax benefits related to various tax audit matters, partially offset by a charge for the impact of U.K. tax law changes enacted in 2016.
Business Segment Operations Consumer Banking
Net income for Consumer Banking increased $1.0 billion to $8.2 billion in 2017 compared to 2016 primarily driven by higher net interest income, partially offset by higher provision for credit losses and lower mortgage banking income which is included in other noninterest income. Net interest income increased $3.0 billion to $24.3 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits, as well as pricing discipline and loan growth. Noninterest income decreased $227 million to $10.2 billion driven by lower mortgage banking income, partially offset by higher card income and service charges. The provision for credit losses increased $810 million to $3.5 billion due to portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense increased $131 million to $17.8 billion driven by higher personnel expense, including the shared success discretionary year-end bonus, and increased FDIC expense, as well as investments in digital capabilities and business growth. These increases were partially offset by improved operating efficiencies.
Global Wealth & Investment Management
Net income for GWIM increased $312 million to $3.1 billion in 2017 compared to 2016 due to higher revenue, partially offset by an increase in noninterest expense. Net interest income increased $414 million to $6.2 billion driven by higher short-term interest rates. Noninterest income, which primarily includes investment and brokerage services income, increased $526 million to $12.4 billion. The increase in noninterest income was driven by the impact of AUM flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing. Noninterest expense increased $390 million to $13.6 billion primarily driven by higher revenue-related incentive costs.
Global Banking
Net income for Global Banking increased $1.2 billion to $7.0 billion in 2017 compared to 2016 driven by higher revenue and lower
provision for credit losses. Revenue increased $1.6 billion to $20.0 billion driven by higher net interest income and noninterest income. Net interest income increased $1.0 billion to $10.5 billion due to loan and deposit-related growth, higher short-term rates on nn increased deposit base and the impact of the allocation of ALM activities, partially offset by credit spread compression. Noninterest income increased $521 million to $9.5 billion largely due to higher investment banking fees. The provision for credit losses decreased $671 million to $212 million in 2017 primarily driven by reductions in energy exposures and continued portfolio improvement, partially offset by Global Banking's portion of a 2017 single-name non U.S. commercial charge-off. Noninterest expense increased $110 million to $8.6 billion in 2017 primarily driven by higher investments in technology and higher deposit insurance, partially offset by lower litigation costs.
Global Markets
Net income for Global Markets decreased $524 million to $3.3 billion in 2017 compared to 2016. Net DVA losses were $428 million compared to losses of $238 million in 2016. Excluding net DVA. net income decreased $405 million to $3.6 billion primarily driven by higher noninterest expense, lower sales and trading revenue and an increase in the provision for credit losses, partially offset by higher investment banking fees. Sales and trading revenue, excluding net DVA, decreased $423 million primarily due to weaker performance in rates products and emerging markets. The provision for credit losses increased $133 million to $164 million in 2017, reflecting Global Markets' portion of a single-name non-U.S. commercial charge-off. Noninterest expense increased $560 million to $10.7 billion primarily due to higher litigation expense and continued investments in technology.
All Other
The net loss for All Other increased $1.6 billion to a net loss of $3.3 billion, driven by a charge of $2.9 billion due to enactment of the Tax Act. The pretax loss for 2017 compared to 2016 decreased $523 million reflecting lower noninterest expense and a larger benefit in the provision for credit losses, partially offset by a decline in revenue. Revenue declined $1.5 billion primarily due to lower mortgage banking income. All other noninterest loss decreased marginally and included a pretax gain of $793 million on the sale of the non-U.S. credit card business and a downward valuation adjustment of $946 million on tax-advantaged energy investments in connection with the Tax Act.
The benefit in the provision for credit losses increased $461 million to a benefit of $561 million primarily driven by continued runoff of the non-core portfolio, loan sale recoveries and the sale of the non-U.S. consumer credit card business.
Noninterest expense decreased $1.5 billion to $4.1 billion driven by lower litigation expense, lower personnel expense and a decline in non-core mortgage servicing costs.
The income tax benefit was $1.0 billion in 2017 compared to a benefit of $3.1 billion in 2016. The decrease in the tax benefit was driven by the impacts of the Tax Act. Both periods include income lax benefit adjustments to eliminate the FTE treatment of certain tax credits recorded in Global Banking.
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Statistical Tables
Table of Contents
Page
Table I - Outstanding Loans and Leases 81
Table II - Nonperforming Loans, Leases and Foreclosed Properties 82
Table III - Accruing Loans and Leases Past Due 90 Days or More 82
Table IV - Selected Loan Maturity Data 83
Table V - Allowance for Credit Losses 83
Table VI - Allocation of the Allowance for Credit Losses by Product Type 84
Table
Outstanding Loans and Leases
December 31
[Dollars In millions)
Consumer
Residential mortgage Home equity U.S. credit card Non-U.S. credit card Direct/Indirect consumer U) Other consumer I2)
Total consumer loans excluding loans accounted for under the fair value option Consumer loans accounted for under the fair value option 13)
$ 208,557 4B.286 98.338
91,166 202
446,549 682
203.811 57.744 96,285
96.342 166
454,348 928
191,797 66,443 92,278 9,214 95,962
456,320 1,051
187,911 75,948 89.602 9.975 90,149 713 454,2941 1,871
216,197 85.725 91,879 10,465 81.386 841
486.493 2.077
Total consumer
299,277 98,776 60.846 22,534
270,372 89,397 07.355 22.375
284,836 97,792 68,298 22.116
252.771 91.549 57,199 21,352
220.293 80,083 47,682 19,579
Commercial
481.432 14,565
439.499 12.993
422.871 12.876
367.637 13.293
463,042 13,649 476.691 4,782
452,492 6,034
495,997 3^667 499,664
435.747
5,06_7_
440,814
896,983
380,930 6.604 387,534
876.104
U.S. commercial Non-U.S. commercial Commercial real estate WI Commercial lease financing
U S small business commercial 15)
481,473
458,526 (9,214) 906.683
Total commercial loans excluding loans accounted for under the fair value option Commercial loans accounted for under (lie fair value option (3)
Total commercial
936,749
946,895
Less: Leans of husiness held tor sole I6!-
Total loons and lease*
111 Includes auto ond specialty tending loans and leases of $50.1 billion. iS2A billion. $50.7 billion, $43.9 billion and 138.7 billion, unsecured consumer lendirg loans of $383 mil ion, $469 million $585 million, $886 m Nion and $1.5 billion. US. securities based lending loars cf $370 billion, $39,8 billon, $40.1 billion. $39 8 billion ar.d $35.8 billion, non US consumer loans of $2 S billion. $3.0 bi.l.ori. $3 0 oiffion, $3 3 billion and $4.0 billion, student loans of $0. $0. $497 million. $564 million and $63? million, and other consumer loans of $746 million, $684 million. $1.1 bl'ion, $i.G billion and $761 million a*. December 31 2018, 2017. 2016. 2015 and 2014. respectively.
121 Substantially all of other consumer ot Decembei 31, 2018 and 2017 is consume! ovctdralts Other consumer at Oecenilje' 31. 2016. 2015 ard 2014 also includes consumer finance loans of $465 rvlliDn, $564 million and $G7fi million, respectively.
131 Coiv.U'nei loans accounted lor under the fair value option weio lesidenbal mortgage "loans of $336 million. $567 million. $710 millon, $ 1 6 bill'on arid $1.9 billion, and home ecuity loans of $146 million, $361 mil'icn. $341 mil ion, $250 mtll.on and $196 million al December 31, 201B. 2017, 2016. 2015 ard 2014, •espectively Commercial loans ntoounled for under the fair value option were U.S. ccnvneicial leans o< $2.5 billion $2 6 billion. $2.9 bit icn, $2.3 billicn ond $1.9 billion, ard non 1I.S commercial loans of $1.1 billion, $2 2 billion. 13 1 bil!icn. $2.8 billion and $4 7 billion at Decambor 31. 2016. 7G1/. 2016. 2015 and 2014. rcstictttcriy
14! Includes U S. coitvnerciat leal estate .oans ol $o€.C bullion. $54.8 billion.$54.3 ljili.cn . $53 6 billion and $4 5 2 n-llion. and non US comrneicial real esuvu loans ot $4.2 bill on, $3 5 billion. !3 1 billion. $3.5 tili.on
and $2.5 billion et December 31 2018, 2C17. 2016, 2015 and 2014. respectively rsj Includes card-related products
re: Represents ncn U-S. creoil card loans, which were included in assets 0* business held for sa'c on the Consolidated Balance Shee'
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Table
II Nonperforming Loans, Leases and Foreclosed Properties W
December 31
1,893 1.893 56
2,476 2.644 46
4,803 t 3.337 24 1
8,165
6,889 3.901 28 1
10,819
3,056 2,918 28 2
6,004
1,256 279 72 36
1,643 60
1,703
(Dollars in manors; ' Consumer
Residential mortgage
Home equity
Direct/Indirect consumer
814 299 112
24 1,249
55
794 80 1E6 18 1,048 54 1,102
867 158 93 12_ 1.130 82 1.212
701 1
321 3
1.026 87 1,113 11.932 697 12,629
Other consumer Total consumer (2>
Commercial
U.S. commercial Non-U.S. commercial Commercial real estate Commercial lease financing
1,304
7,707 377
4,944 300
3,470 288
9,377 459 9.836
U.S. small business commercial
Total commercial (a)
Total nonperforming loans and (eases
6.758
5,244
8.084
Foreclosed properties
Total nonperformtng loans, leases and foreclosed properties
1*1 8alances do not Incfuda PCI loans even though the customer maybe contiactunlfy past due. PCI loans were recorded at fair value upon acquisition and accrete interest income over the reinalntiu life of trie loan. In
addition, balances do not include foreclosed properties insured by certain government-guaranteed loons, pnnclpally FHAnnsured luans, that entered fcreclosure ol $468 million. $801 million, $12 bill.on. $1.4
billion and $11 billion at December 31. 2018. 2017,2016.2015 end 2014, respeebvely [31 In 2018, $625 million in interest income was estimated to be contractually due cn $3.8 billion of consumer loans and leases classified as nonperforming at December 31. 2018, as presented in the tflble ebove.
plus $6.8 billion ol Toils classified as performing at December 31, 2018. Approximately $388 million of the esbtnaled 1625 million In contractual Inteiest was received and included in interest Income for 2018. Ill In 2018. $119 million in interest income was estimated to be contractually due on $1.1 billion ot commercial loans and leases classjlletl as nonpctfornilng at December 31 2018. as presented In the table above.
plus $1-3 billion of TDRs classified as performing at December 31. 2018. Approximately $84 million of the esumaled $119 million in contractual interest was received and included In interest income for 2018,
Table
III Accruing Loans and Leases Past Due 90 Days or More W
December 31
2015
4,793 782 66 34 4
7.150 789 76 39 3
(Dollars in millions)
1,884 994
3,230 900
Consumer Residential mortgage 12) U.S. credit card Non-U.S. credit card Direcylnd'ieet consumer Other consumer
5,679
8.057
144 3 4 19
113
- 1 3 15
Total consumer Commercial
4 29|1010|19
137 71 208
230 84 314
3.230
170 75 245 4,415
.132
_ 61 1.93 8,250
U.S. commercial Non-US. commercial Commercial real estate Commercial leass financing
U.S. small business commercial Total commercial
Total accruing loans and leases past due 90 days or more
it • Oui (.ul*;' Is rc c'oss--fV censuvne' rat. csuivrscemcn 10.1/15 as *io:tjM.vlo*mn.e. .it 90 flws pas! Juc eiceol l".r nr:i loan porlloro. She .'uiiy .nsiircd loan Mto':o unci lo*ns accou'ilco" Ioi unoei the la I I': Ga'ances are full/ insured loans
11.407 866 95 64 1
12,433
40 153
67
220
12.1353 'dltie option
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Selected Loan Maturity Data December 31, 2018
(Dollars in millions)
u s commercial
U.S commercial real estate
Non-U.S. and other !3)
Total selected loans Percent of total
Sensitivity of selected loans to changes in interest rates for loans due after one year. Fixed interest rates Floating or adjustable interest rates
Due tn One Year or Less
* 74,365 11.622 42,217
128.204 $
Due After Five Years
47,888 4,590 6,579
69,057
27,664 31,393
Total
316,369 56.605 104,156
477.130
289,869
rl! Loan malunue* ore based on the remaining maturities under contractual terms.
13) Includes loans accounted lor under the fair value option.
(31 Loon maturities include non-U S commercial and commercia1 real estate leans.
Table V Allowance for Credit Losses
(Dollars In millions)
Allowance for loan ond lease losses, January 1 Loans and leases charged off
Residential mortgage Home equity U.S. credit card Non-U.S. credit card (1) Direct/Indirect consumer Other consumer
Total consumer charge-offs
U S. commercial 12) Non-U.S. commercial Commercial real estaie Commercial lease financing
Total commercial charge-offs
Total loans and leases charged off
Recoveries of loans and leases previously charged off
Residential mortgage Home equity U S. credit card Non-U S. credit card ID Direct/Indirect consumer Other consumer
Total consumer recoveries U S. commercial (3i Nor-O.S. commercial Commerci.'il real estate Ccmir ^'ciai loasc- trancing
Total commercial recoveries
Total recoveries of loans ond leases previously charged off
(207) (483) (3,345)
(495) (197)
(4,727) (575) (82) (10) (B)
(675)
(5.402)
179 485 508
300 15 1.487 120 14 9 9
152 1.639
1188) (S82) 12,968) (103) (491) (212)
(4,544)
1589) (446] 124) 116)
(1,075)
(5.619)
288 369 455
28 277
49 1.466 _ 142 6
15
174 ",640
(403) (752) (2,691) (238) (392) 1232)
J4708) (567) (1331 110) (30)
jm_
15.448)
272 347 422
63 258
27 1.389 175
13
41 9
238 1.627
14,419
(866) (975) (2,738) 1275) (383) (224)
(5,461) (536) (59) 130) (19) (644) (6.105)
393 339 424 87 2/1 31 1,545 172 5 35 10 222 1.767
2014
17,428
(855) (1,364) (3.068) (357) (456) (2G8) 16,368) (584) (35) 129) 110.' (658) (7.026)
969 457 430 115 287 39 2.297 214 1
112
19
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Net chargc-offs (3.763) (3.979) (3.821) '4138) (1,383)
Write-offs ol PCI loans (273) (207) (340) (808) (810)
Provision for loan and lease losses 3.262 3.381 3.581 3,043 2,23]
Other 14) (18) (39) (1/4) (82) (47)
Total allowance for loan and lease losses. December 31 9,601 10.393 11,480 12,234 1.4,419
Less: Allowance included in assets of business held for sate (5) — — (243) -
Allowance for loan and lease losses, December 31 9,601 10,393 11,237 12,234 14,419
Reserve for unfunded lending commitments, January 1 777 762 646 528 484
Provision for unfunded lending commitments 20 15 15 118 44
Other (4) - - 100
Reserve for unfunded lending commitments, December 31 797 777 7C2
Allowance for credit losses. December 31 S 10.398 $ 11.170 % 11,999 $ 12,880 $ 14,947
111 Represents net charge-offs related to the non-US credit card Iran portfolio, which was sold in 2017:
12) Includes U S smell business commercial charge-offs of $287 ml:llc-n. $256 million. $253 million. $282 million and $345 million in 2016. 2017. 2016. 2015 and 2014, respectively
(31 Includes U.S. small business commercial recoveries ot $47 million, $43 million. $45 million, $57 million and $63 million in 2018, 2017, 2015, 2015 and 2014. respect vely.
!4| Primarily represents the net impact cf portlolio sales, consolidations ond deccnsolidabons. foreign currency translation adjustments, tiansfeis (0 held for sale and certain other reclassihcalions
IS) Rep-esents allowance iclated to the non U.S cred.t card loon portfolio, which was sold in 2017.
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.
Table V Allowance for Credit Losses (continued)
i 908.81.2
1.26%
1 36
1.16 $ 832,255 0 43% 0.47
1.49 3.00
2.7G
$ 3.951
98*.
$ 867.422 1.66% 2 05
16 $ 888,804
0 49% 0.58
121
3.29
78 S 5.944
71%
» 890,045
1.37%
1 63
1.11 $ 869.065 0.50% 0.59
130 2.82
2.3a
S 4,518 82%
(Dc'lurs in millions) ^017 Loan and allowance ralios I6':
Lcansand leasesoutstsp.d'ngot December 31.(7) $ 942.646 S 931,039
Allowance for loan and lease losses as a percentage of tolal loans and leases outstanding at
December 31 (') 1.02% 112%
Ccnsumei allowance fcr Icrm and tease losses as a percentage of total consumer loans and
leases outstanding at December 31 (8) 1-08 1.18
Commercial' allowance for loan and lease fosses as a percentage of total commercial loans and
leases outstanding al December 3.1 19) 0.97 1.05
Average loans and leases outstanding (7) * 927,531 $ 911.988 .
Net charge-offs ot a percentage of average leans and leases outstanding 17. io) 0.41% 0 44%
Net chargc-ofts and PCI write-offs os a percentage of average loans and leases outstanding 17) 0.44 0.46
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases fit
December 31 (?i 194 161.
Ratio of the allowance for loan and lease fosses at December 31 to net charge-offs I10) 2.65 2.61
Ratio of the allowance for loan ond lease losses at December 31 to net charge-ofls ond PCI write-
offs 2.38 2.48
Amounts included in allowance for loan and lease losses for loans and leases that are excluded
from nonperforming loans and leases at December 31H1) * 4,031 $ 3,971
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases,
excluding lhe allowance for loan and lease losses for loans and leases that are excluded from
nonpcrloiming loans and leases at December 31(7. il) 113% 99%
It) Loan ond allowance ratios for 7C10 Include 3243 nillloi cl non-U.S. credit card Allowance ior loan and lease losses and $9.2. Union of ending non US, crccit card loans, wtilcli were sold In 2017.
HI Outstanding loan and lease balances and ratios do not include loans accounted for jnder the fair value option of $4.3 billion. 15.7 billion, $7.1 billion. 16.9 billion and $8.7 billion at December 31. 2018. 2017.
2016. 2015 and 2014. respectively. Average loans accounted (or under the fair value option wore $5.5 billion, $6.7 billion. $8 2 billion, $7.7 billion and $9.9 billion in 2018. 2017. 2016. 2015 and 2014.
respectively
141 FxcluCes consumer loans accounted lor under the fair value option ol $6B2 million, $928 million, $1.1 billion, $1 9 billion and $2.1 billion ot December 31, 2018. 2017. 2016, 2015 and 2014, respectively 191 Excludes commercial loans accounted for under the fair value option of.$3.7 billion, $4.8 billion. $6D billion. $5.1 billion and $6 6 billion at December 31, 2016, 2017, 201S. 2015 and 2014, respectively (lot Net charge-otf s exclude $273 million. $207 million, $340 million, $806 million and $810 million of write-offs in the FCt loan portfolio In 2018. 2017, 2016, 2015 end 2014 respectively, rormore hlormfltton on PCI
wnte-olfs. see Consumci Portfolio Credit Risk Management - Purchased Credit-impaired Loan Portfolio on page 57. till Pnmorlly Includes amounts allocated to U.S credit cord and unsecured consumer lending portfolios In Consumer Danhmg and PCI loans and the non-U.S. credit card portfolio in AflOrher.
Table
VI Allocation of the Allowance for Credit Losses by Product Type
December 31
(Dollars in millions)
Allowance for loan and lease losses
Residential mortgage Home equity U.S credit card Non-V.S. credit card Direct/lndirec". consumer Other consumer
Total consumer
U S commercial (U Non-U.S commercial •Commercial real estate Commccia' lease fmuncinc Total commercial
Toraf allowance foi iuar. end lease iosses !2|
Less' Allowance niclJded in assets ol fcusmoss held fo- saie t3>
Allowance for loan and lease losses
Reserve for unfunded lending commitments
Allowance for credit losses
ill inc.wUts .ili-i*.ni'.e U" iuar, ,i,-,d lease losses 20:4. -esuefivrv
Percent ofTotal
Fercent ofTotal
422
506 3.597
9 80 32.41
701 1,019 3.368
264 31
1,738 2,934 243 244 51
8.82% 15 14 25.56 2.12 2.13 0.44 54.21 28 97 7 61 8.01 120 45.79
Percent of Total
5 74% $ 3,012
2.54 0.30
248 29
4.40% t 5.27 37.47
5,383
6.222
4,602
50.02 31.35 7.05 9.98 1.60 49.98
3.010 677 958 154
4,799
3.326 874 920 138
5.258
3,113 803 935 159
5.010
2.58 0.30
51.79
23.95 7.73 9.00-1.53
9.601
10.393
48.21
100.00%
100 00%
J1/.80
(243)
11,237
% 11.170
762 t 11,939
$ 10.398
ti-i U S --nail iiusincss con-.;nercio' 'oans ol S4~4 n-.llluyi 1439 m,liion. $416 million. 1'iOi* rntiin
60.36_ 24 23 6 17 7.90 1.34 39.64
G9.23 18 16 4.50 7.05 1.06-30.77
9,982 2,619
649 1.016
153 4.437
14,413
$ 1,500 2.414 2,927 274 223 47 7,385 2,964 754 967 164 4,849
12,234
100.00%
t 1.2,880 _ $ .14,947
unit $5:)o nii''iir,n'7t"Di7ceir.'b5f 31. 2Q~ifi,'?~Gl7' ^liiu. 2015 anil
12-']0/2019, 3.39 PM
Document .uov/Archivcs/eclgar/data/70858/00000708581.
12» induces <7016. ac-lb e".J ?C;<5 ;ssps=tr.sl,-(¦"; Represents allu»;tnr,K fi.i icon aur: itja«»e losses is'atrJ ;."> ir.c ncn-U 5 cred-t card loan •jortfclio. *li:cn was scld m 2017
Bank of America 20] 8 84
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Market Risk Management on page 70 in the MD&A and the soctions referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
Item 8. Financial Statements and Supplementary Data
Table of Contents
PaRf;_ _
Consolidated Statement of Income 88
Consolidated Statement of Comprehensive Income 88
Consolidated Balance Sheet 89
Consolidated Statement of Changes in Shareholders' Equity 90
Consolidated Statement of Cash Flows 91
Note 1 - Summary of Significant Accounting Principles 92
Note 2 - Noninterest Income 100
Note 3 - Derivatives 101
Note 4 - Securities 108
Note 5 - Outstanding Loans and Leases ' 111
Note 6 - Allowance for Credit Losses 122
Note 7 - Securitizations and Other Variable Interest Entities 123
Note 8 - Goodwill and Intangible Assets 127
Note 9 - Deposits 128
Note 10 - Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and
Restricted Cash 128
Note 11 - Long-term Debt 131
Note 12 - Commitments and Contingencies 132
Note 13 - Shareholders' Equity 138
Note 14 - Accumulated Other Comprehensive Income (Loss) 140
Note 15 - Earnings Per Common Share 141
Note 16 - Regulatory Requirements and Restrictions ' 141
Note 17 - Employee Benefit Plans 143
Note 18 - Stock-based Compensation Plans 148
Note 19 - Income Taxes 148
Note 20 - Fair Value Measurements 150
Note 21 - Fair Value Option 160
Note 22 - Fair Value of Financial Instruments 162
Note 23 - Business Segment Information 163
Note 24 - Parent Company Information 166
Note 25 - Performance by Geographical Area 167
Glossary 168
Acronyms 169
85 Bank o' America 2018
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.
Report of Management on Internal Control Over Financial Reporting
The management of Bank of America Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.
The Corporation's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for .external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (n) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance wilh accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (ni) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation's assets that could have a matenal effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to tho risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2018 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control -Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2018, the Corporation's internal control over financial reporting is effective.
The Corporation's internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2018.
Brian T. Moynihan
Chairman, Chief Executive Officer and President
Paul M. Donofrlo
Chief Financial Officer
Bank of America 2018 86
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Bank of America Corporation:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bank of America Corporation and its subsidiaries as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated financial statements") We also have audited the Corporation's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2018 and December 31. 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in tbe United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Corporation's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Corporation's consolidated financial statements and on the Corporation's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial
statements.
We have served as the Corporation's auditor since 1958.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
87 Bank of America ?018
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Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
(In millions except p?' snare information) Interest Income
Loans and leases
Debt securities
Federal funds solo and securities borrowed or purchased under agreements to resell Trading accou"t assets Other interest income
40,811 1 11,724
3.176
4,611
6,247
36.221 t 33,228
10,471 9,167
2,390 1.118
4.474 4,423
4,023 3,121
Total interest income
Interest expense
Deposits
Short-term borrowings Trading account liabilities Long-term debt
Total interest expense Net Interest Income
4,495 5,839 1,358 7,645
19,337
1.931. 3,538 1,204 6.239
12,912
1,015 2.350 1.018 5,578
9.961
Noninterest Income
Card income Service charges
investment, and brokerage services Investment banking income Trading account profits Other income
Total noninterest income
Total revenue, net of Interest expense
6,051 7,767 14,160 5,327 8,540 1,970
43,815
5,902 7,818 13,636 6,011 7,277 1,841 42,685 87,352
5.851 7,638 13,349 5,241 6,902 3,624 42,605_ 83,701
Provision for credit losses
Noninterest expenso
Personnel
Occpancy
equipment
Marketing
Professional fpes
Data processing
Telecommunications
Other general operating Totn ncrinterest experse Income before Incomo taxes Income tax expense Net Income
Preferred stock dividends
Net Income applicable to common shareholders
31,880 4.066 1.705 1,674 1.699 3.222 699 8.436
53,381
34.584
6,437
28,147
1,451 26,696
31,931 4,009 1.692 1.746 1.888 3,139 699 J3.639 54,743 29.213 10,981
18,232
1,614_ 16,618
32,01.8 4,038 3,804 1,703 1,971 3.007 746 9.79G
55,083
25,021 7,199
17,822 1.682
16,140
Per common share Information
Earnings Diluted earnings Average common shores Issued and outstanding
2.64 2.61 10,096.5
1 63 $ 1.57
156 1.49
10.195 6 10.284 1
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Document
Average diluted common shares Issued ond outstondlng 10.236.9 10,778.4 11.046.8
Consolidated Statement of Comprehensive Income
IDonus .n mMiens) 2018 2017 2016
Net Income $ 28,147 $ 18.232 $ 17,822
Other comprehensive Income (loss), nct-ol-tnx:
Net change in debt and equity securities (3,953) 61 (1.345)
Net change in debit valuation adjustments 749 (293) 1156)
Net change in derivatives (53) 64 182
Employee benefit plan adjustments (405) 288 (524)
Net change in foreign currency translation adjustments (254) 86 (87)
Other comprehensive Income (loss) (3,916) 206 (1,930)
Comprehensive Income $^ 24,231 t_ 18,438 $ 15.892
See accompanying Notes to Consolidated Financial Statements.
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Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
December 31
{Deltas in millions)
Assets
Cash and due tiom banks
Interest-bearing deposits with the Federal Reserve, non-U S. central banks and other banks Cash ano casn equivalents
Time deposits placed i-nd other short-term investments
Federal (i.nds sold arid securities borrowed or purchased under agreements to resell (includes $56,399 and $52,906 measured at fair value!
Trading account assets (includes $119,363 and $106,274 pledged as collateral)
Dotivattve assets
Debt securities:
Carried at fair value
Held to-maturity, ol cost (lair value - $200,435 and $123,299)
Total debt securities
Loans a'td leases (includes $4,349 and $5,710 measured at fair value) Allowance for loan and lease losses Loans and leases, net of allowance
Premises and equipment, net Goodwill
Loans held-for-sale (includes $2,942 and $2,156 measured at fair value) Customer and othor receivables
Other assets (includes $19,739 and $22,581 measured at fair value)
29,063 148,341 177,404
7,494
261,131 214,348 43,725
238.101 203,652
441J53 946.895 (9.601)
937.294
9,906 68,951 10,367 65,814 116,320
29.480 127,954 157,434
1.1.153
212.747 209,358 37.7G2
315,117 125,013
440.130_
936.749
(10,393)
926,356
9,247 68,951 11.430 61,623 135,043
$ 2,354,507
Liabilities
Deposits in U S offices: Nonintcrest-beanng
Interest-bearing (includes $492 and $449 measured at fair value) Deposits In non-U S offices:
I
Noninterest bearing Interest-bear ng
Total deposits
Federal funds purchased and securlies loaned or sold under agreements to repurchase (includes $28,875 and $36,182 measured at fair value)
Trading account liabilities
Deiivauve liabilities
Short-term bonowmgs (incLdes $1,648 and $ 1.494 measured at fair value)
Accrued expenses .ind other abilities (includes $20,075 and $22,840 measured at fair value and $797 and 3777 of reserve for unfunded lending commitments)
Lui-g-term deb: (includes $27,637 and $31,786 measured al fair value)
Total liabilities
14.060 63,193 1,381.476
$ 412.587 $ 430,650 891,636 796.576
186,988 68,220 37.891 20.189
165,078 229,340 2,089,182
14,024 68,295 1.309,545
176,865 81,187 34,300 32.666
152.123 227.402 2.014,088
Commitments and contingencies (Note ' - Secjrrli/abons and Other Variable Interest Entities and Note 12 - Convmtmc'Ks and Contingencies;
Shareholders' equity
Preferred s'.ocK $0 01 nor va'ue, authorised ~ 100,000,000 shares: issued and outstanding - 3,843,140 and 3,837,683 shares Connon slock orr: aCciUonD; ca ri .n capital. $0.01 par value; authorized - 12,600,000,000 shares; issued and outstanding - 9,669.286,370 and 10,287,302,431 shares
Retained earnings
Accum.t'atC;d otnor comccnensive income (loss)
Total shareholders' equity
Total liabilities ond shareholders' equity
22.323
22,326
11B.896 138,089
136,314 113.816
(12.211) (7.082)
265,325 267,146
2,354.507 $ 2.281.234
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.
Asseti of consolidated vailabic Interest entitles Included In total assets above (Isolated to settle the liabilities of the variable Inteiest entitles)
Tiacinp.accctJ'i! dsseis 5 5,798 t 6.521
Loans and Isdws 43.850 48,929
Allowance for nun ard ior»e ioms.s _ _ (912, (1.0J6J
loflfll and lease*, net of dils-ian.ee 42,938 47.913
All other aise'.s 337 1.721
Total assets of consolidated variable Interest entitles * 49.073
Liabilities of consolidated variable Interest entitles Included tn total liabilities above
Short term borrowings S 742 S 312
Lung term debt -includes $10,943 ond S9.B7 2 of non recourse delrt) 10,944 9,873
All othei habitues {includes $27 and of r.on recourse liabilities) ^ _ 30 „ 37
Total liabilities of consolidated vail able Interest entitle* " $ 11,716 t 10,222
See accompanying Notes to Consolidated Financial Statements.
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Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(In millions)
Balance, December 31, 2015
Net income
Net change in debt and equity securities
Nel change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign cu.-re.'icy translabo." adjustments
Dividends declared:
Common
Preferred Issuance of preferred stock
Common stock issued under employee p:ans, net, and related tax effects
Common stock repurchased
Preferred Stock
Common Stock and Additional Paid-in Capital
5.1 (332.8)
Retained Earnings
87.658
17,822
(2.573) (1.682)
Accumulated Other Comprehensive Income (Loss)
(5.358)
(1,345) |156) 182 1524) (87)
Total Shareholders' Equity
255.615 17,822 (1.345) (156) 3 82 (524) (87)
(7.573) (1,682| 2.947
1,108 (5.112)
Balance, December 31, 2016
Net income
Net change in ccct and equity securities
Net change in debit valuation adjustments
Net change in derivatives
Employee benefit plan adjustments
Net change in foreign currency translation adjustments
Dividends declared:
Common
Preferred
Common stock issued in connection with exercise of warrants and exchange ol preferred stock
Common stock issued under employee plans, net. and other
Common stoct repurchased
Balance, December 31, 2017
Cumulative adjustment for adoption of hedge accounting standard
Adoption ol accounting standard raialnil to certain lax effects slranded in accumulated other comprehent>v« income floss)
Net income
Net change in deht and eouily securities
Net change tn debit valuet'On ad.ustmentr,
Net change m tlsnval ves
Employee bench*, ol;v- itij.ustme-its
Net change in foreign cut'e-ncy t'.'i.'is'at.o" adjustments
Divice'-.os declared
Comrron
Preferred issuance of pretsrret" stock Redemption c-' prelened sloe*
Conmion stccir issueu jrr.loi e r.;-,ioy--:o plans, ret, and ottier Ccmno-t sloe, icou'chase-.: Balance. December 31. 2018
(2,897)
22.323
4,515 (4,512)
22.326
138.089
2,933 932 (12,814)
10,287.3 $
58.2 901
(676.2) (20.094)
9.669.3 $ 118.896 $
101.225
(4,027) (1.57S)
(36)
(32)
1,270 28,147
(5,424) (1,451)
(12)
136.314
(7,288)
61 (293)
64 288
86
17,082)
57 (1.270)
(3,953) 749 (53) (405) (254)
(12.211) t
266,195
18,232 61 (293) 64 288 86
(4.027) (1.578)
932 (12,814)
267,146_ 25
28,147 (3.953) 749 (53) (405) (254)
(5.424) (1.451) 4.515 (4,512) 889 (20.094) 265,325
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See accompanyin''. Notes to Consolidated Financial Statements
lianh ol Amenca 21)18 90
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Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
{Oc'lnrs id rtY.lliorv,} Operating activities
Net income
Adjustment:- tc reconcile net income to net cash provided by operating activities-P'ovision for credit :osses Ga.ns on s^les cf dent securities Depreciation and premises improvements amortization Anorli.'at'on of !'ilangib'es
Net amortization of premium/discount on debt securities Deferred income taxes Stock-based compensation Loans he.d-for-sale.
Criginalio'is ana purchases
Proceeds from sales and oaydowns of loans originally classified as held for sale and instruments front related securili'ntion activities
Net change in:
Trading antJ derivative instruments
Othnr assels
Accrued expenses and other liabilities
Olher operating activities, net
Net cosh provided by operating activities
28,147
3,282 (154) 1.525 538 1.824 3,041 1,729
(28,071) 28,972
(23,673) 11,920 13,010 (2.570)
39,520
3.396 (255) 1,482 621 2.251 8.175 1,649
(43,506) 40.548
(14,663) 120.090) 4,673 7,351
9,864
17,822
3.597 (490) 1.511 730 3.134 5.793 1.367
(33,107) 32,588
(2.635) (14,103) (35) 1,105 17.277
Investing activities
Net change in. Time deposits placed and other short-term investments
Federal funds sold and securities borrowed or purchased under agreements to resell
Debt securities carried at fair value-Proceeds from soles Proceeds f-'om paydowns and maturities Purchases ,
Held-lo-matur;ty debt secunhes Proceeds from paydowns and maturities Purchases
Loans and cases
Proceeds from sales of loans originally classr'red as held for investment and instruments trcm related securili-al.on activities
Purchases
Other changes in loais arid leases, net Other investhg activit'es. net
Net cash us,jd ir investing activities Financing activities Net change rr
Dooos is
Feoeral funds p^rchasec anj secu-ities loaned or so'd unosr agreements to repurchase
S"ort .trni bo'iowings Long-Ism- d«o*.
Proceeds f'om issua'-c1
Retirement Preferred ;,fcc-r
Proceeds Iron is'iuarce
3.C59 (48,384)
6,117 78,513 (76,640)
18.789 (35.980)
21,365 (4.629)
(31,292) (1,986)
(71,468)
71,931 10.070 (12.478)
64,278 (63,046)
(1.292) (14,523)
73.353 93,874 (166,975)
16,653 125.088)
11.996 (6.846)
(4.1.104) 8,411
(51,5411
48.611 7.024 8,538
53,486 (49,480)
(2,117) (5,742)
71,547 108,592 (189,061)
18,677 (39.899)
18.787 (12.283J (31,194) 403 162,285)
63.675 (4.0001 14.014)
35,537 (51,6231
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.
RoOemp-ion (4,612)
Common slock repurchased (20,094) (12.814) (5.112)
Cosh dividends, pairj (6,895) (5.700) (4.194)
Other financing acuvit es, nm (651) (397) (63)
Net cash provided by financing activities 53,118 49,268 33.153
Effect of exchange rate changes on cash and cash equivalents (1,200) 2,105 240
Net increase (decrease) in cash anc cash equivalents 19.970 9.696 (11.615)
Cash and cash equivalents at January 1 157,434 147,738 159.353
Cosh ond co»h equivalents at Decembor 31 $ 177,404 t 157.434 $ 147,738
Supplemental cash flow disclosures
Interest paid $ 19,087 $ 12,852 $ 10,510
Income taxes paid, not 2,470 3,235 1,043
See accompanying Notes to Consolidated Financial Statements.
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Bank of America Corporation and Subsidiaries Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Principles
Bank of America Corporation, a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout, the U.S and in certain international markets. The term "the Corporation" as used herein may refer to Bank of America Corporation, individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates.
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries and those variable interest entities (VIEs) where the Corporation is the primary beneficiary Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assels. Equity method investments are subject to impairment testing, and the Corporation's proportionate share of income or loss is included in other income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could materially differ from those estimates and assumptions. Certain prior-period amounts have been reclassified to conform to current-period presentation.
New Accounting Standards
Effective January 1, 2018, the Corporation adopted the following new accounting standards on a prospective basis.
Revenue Recognition - The new accounting standard addresses the recognition of revenue from contracts with customers. For additional information, see Revenue Recognition Accounting Policies in this Note, and .
Hedge Accounting - The new accounting standard simplifies and expands the ability to apply heoge accounting to certain risk management activities For additional information, see.
Recognition and Measurement of Financial Assets and Liabilities - The new accounting standard relates to the recognition and measurement of financial instruments, including equity investments For additional information, see and .
Tax Effects in Accumulated Other Comprehensive Income - The new accounting standard addresses certain tax effects stranded in accumulated other comprehensive income (OCI) related to the 2017 Tax Cu-.s and Job Act (the Tax Act). For additional information, see .
Effective January 1, 2018, the Corporation adopted the following new accounting standards on a retrospective basis, resulting in restatement of all prior periods presented in the Consolidated Statement of Income and the Consolidated Statement of Cash Flows. The changes in presentation aie not material to the individual line items affected.
Presentation of Pension Costs - The new accounting standard requires separate presentation of the service cost component of pension expense from all other components of net pension benefit/cost in the Consolidated Statement of Income As a result, the service cost component continues to be presented in personnel expense while other components of net pension benefit/cost (e.g. interest cost, actual return on plan assets, amortization of prior service cost) are now presented in other general operating expense. For additional information, see .
Classification of Cash Flows and Restricted Cash - The new accounting standards address the classification of certain cash receipts and cash payments in the statement of cash flows as well as the presentation and disclosure of restricted cash. For more information on restricted cash, see .
Lease Accounting
On January 1, 2019, the Corporation adopted the new accounting standards that require lessees to recognize operating leases on the Consolidated Balance Sheet as right of-use assets and lease liabilities based on the value of the discounted future lease payments. Lessor accounting is largely unchanged. Expanded disclosures about the nature and terms of lease agreements will be required prospectively. The Corporation elected to apply certain transition elections which allow for the continued application of the previous determination of whether a contract that existed at transition is or contains a lease, the associated lease classification, and the recognition of leases on January 1, 2019 through a cumulative-effect adjustment to retained earnings', with no adjustment to comparative prior periods presented. Upon adoption, the Corporation recognized right-of-usc assets and lease liabilities of $9.7 billion. Adoption ofthe standard did not have a significant effect on the Corporation's regulatory capital measures.
Accounting Standards Issued and Not Yet Adopted
Accounting for Financial Instruments - Credit Losses
The Financial Accounting Standards Board issued a new accounting standard that will be effective for the Corporation on January 1, 2020. The standard replaces the existing measurement of the allowance for credit losses that is based on management's best estimate of probable credit losses inherent in the Corporation's lending activities with management's best estimate of lifetime expected credit losses inherent in the Corporation's financial assets that are recognized at amortized cost. The standard will also expand credit quality disclosures. While the standard changes the measurement of the allowance for credit losses, it does not change the Corporation's credit risk of its lending portfolios. The credit loss estimation models and processes to be used in implementing the new standard have largely been designed and developed. The validation of the models and testing of controls are in process and expected to be completed during 2019. Currently, the impact of this new accounting standard may be an increase in the Corporation's allowance for credit losses at the date of adoption which would have a resulting negative adjustment lo retained earnings. The ultimate impact will be dependent on the characteristics of the
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Corporation's portfolio at adoption date as well as the macroeconomic conditions and forecasts as of that date.
Significant Accounting Principles
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash items in the process of collection, cash segregated under federal and other brokerage regulations, and amounts due from correspondent banks, the l-ederal Reserve Bank and certain non-U.S. central banks. Certain cash balances arc restricted as to withdrawal or usage by legal binding contractual agreements or regulatory requirements.
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase (securities financing agreements) are treated as collateralized financing transactions except in instances where the transaction is required to be accounted for as individual sale and purchase transactions. Generally, these agreements are recorded at acquisition or sale price plus accrued interest, except for certain securities financing agreements that the Corporation accounts for under the fair valuo option. Changes in the fair value of securities financing agreements that are accounted for under the fair value option are recorded in trading account profits in the Consolidated Statement of Income.
The Corporation's policy is to monitor the market value of the principal amount loaned under resale agreements and obtain collateral from or return collateral pledged to counterparties when appropriate. Securities financing agreements do not create material credit risk due to these collateral provisions; therefore, an allowance for loan losses is not necessary.
In transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral, it recognizes an asset on the Consolidated Balance Sheet at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Collateral
The Corporation accepts securities and loans as collateral that it is permitted by contract or practice to sell or repledge. At December 31, 2018 and 2017, the fair value of this collateral was $599.0 billion and $561.9 billion, of which $508.6 billion and $476.1 billion were sold or repledged The primary source of this collateral is securities borrowed or purchased under agreements to resell.
The Corporation also pledges company-owned securities and loans as collateral in transactions that include repurchase agreements, securities loaned, public and trust deposits, U.S. Treasury tax and loan notes, and short-term borrowings. This collateral, which in some cases can be sold or repledged by the counterparties to the transactions, is parenthetically disclosed on the Consolidated Balance Sheet.
In certain cases, the Corporation has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets are included on the Consolidated Balance Sheet in Assets of Consolidated VIEs.
In addition, the Corporation obtains collateral in connection with its derivative contracts. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts coilatc-ral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in master netting agreements, the
Corporation nets cash collateral received against derivative assets. The Corporation also pledges collateral on its own derivative positions which can be applied against derivative liabilities.
Trading Instruments
Financial instruments utilized in trading activities are carried al. fair value. Fair value is generally based on quoted market prices for tho same or similar assets and liabilities. If these market prices are not available, fair va'ues are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques where the determination of fair value may require significant management judgment or estimation. Realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in trading account profits.
Derivatives and Hedging Activities
Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that are both designated in qualifying accounting hedge relationships and derivatives used to hedge market risks in relationships that are not designated in qualifying accounting hedge relationships (referred to as other risk management activities). The Corporation manages interest rate and foreign currency exchange rate sensitivity predominantly through the use of derivatives. Derivatives utilized by the Corporation include swaps, futures and forward settlement contracts, and option contracts.
All derivatives are recorded on the Consolidated Balance Sheet at fair value, taking into consideration the effects'of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices in active or inactive markets or is derived from observable market- based pricing parameters, similar to those applied to over-the-counter (OTC) derivatives. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.
Valuations of derivative assets and liabilities reflect the value of the instrument including counterparty credit risk. These values also take into account the Corporation's own credit standing.
Trading Derivatives and Other Risk Management Activities
Derivatives held for trading purposes are included in derivative assels or derivative liabilities on the Consolidated Balance Sheet with changes in fair value included in trading account profits.
Derivatives used for other risk'management activities are included in derivative assets or derivative liabilities. Derivatives used in olher risk management activities have not been designated in qualifying accounting hedge relationships because they did not qualify or the risk that is being mitigated pertains to an item that is reported at fair value through earnings so that the effect of measuring the derivative instrument and the asset or liability to which the risk exposure pertains will offset in the Consolidated Statement of Income to the extent effective. The changes in the fair value of derivatives that serve to mitigate certain risks associated with mortgage servicing rights (MSRs), interest rate lock commitments (IRLCs) and first lien mortgage leans held-for-sale (LHFS) that are originated by the Corporation are recorded in other income. Changes in the fair value of derivatives that serve to mitigate interest rate risk and foreign currency risk are included
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in other income. Credit derivatives are also used by the Corporation to mitigate the risk associated with various credit exposures. The changes in the lair value of these derivatives are included in other income
Derivatives Used For Hedge Accounting Purposes (Accounting Hedges)
For accounting hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of a hedged item or forecasted transaction. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.
Fair value hedges are used to protect against changes in the fair value of the Corporation's assets and liabilities that are attributable to interest rate or foreign exchange volatility. Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings, together and in the same income statement line item with changes in the fair value of the related hedged item. If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying value of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying value of that asset or liability. For interest-earning assets and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability.
Cash flow hedges are used primarily to minimize the variability in cash flows of assets and liabilities or forecasted transactions caused by interest rate or foreign exchange rate fluctuations. Changes in the fair value of derivatives used in cash flow hedges are recorded in accumulated OCI and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Components of a derivative that are excluded in assessing hedge effectiveness are recorded in the same income statement line item as the hedged item.
Net investment hedges are used to manage the foreign exchange rate sensitivity arising from a net investment in a foreign operation. Changes in the spot prices of derivatives that are designated as net investment hedges of foreign operations are recorded as a component of accumulated OCI. The remaining components of these derivatives are excluded in assessing hedge effectiveness and are recorded in other income.
Securities
Debt securities are reported on the Consolidated Balance Sheet at their trade date. Their classification is dependent on the purpose for which the securities were acquired Debt securities purchased for use in the Corporation's trading activities are reported in trading account assets at fair value with unrealized gains and losses included in trading account. profits Substantially all othei debt securities purchased are used in the Corporation's asset and liability management (ALM) activities and are reported on the Consolidated Balance Sheet as either debt securities carried at fair value orar, nold-to-maturity (HTM) debt securities. Debt securities carried at fair value are either available-for-sale (AFS)
securities with unrealized gains and losses net-of-tax included in accumulated OCI or carried at fair value with unrealized gains and losses reported in other income. HTM debt securities, which are certain debt securities that management has the intent and ability to hold to maturity, are reported at amortized cost.
The Corporation regularly evaluates each AFS and HTM debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary. In determining whether an impairment is other than temporary, the Corporation considers the severity and duration of the decline in fair value, the length of time expected for recovery, the financial condition of the issuer, and other qualitative factors, as well as whether the Corporation either plans to sell the security or it is more likely than not that it will be required to sell the security before recovery of the amortized cost. For AFS debt securities the Corporation intends to hold, an analysis is performed to determine how much of the decline in fair value is related to the issuer's credit and how much is related to market factors (e.g , interest rates). If any of the decline in fair value is due to credit, an other-than-temporary impairment (OTTI) loss is recognized in the Consolidated Statement of Income for that amount. If any of the decline in fair value is related to market factors, that amount is recognized in accumulated OCI. In certain instances, the credit loss may exceed the total decline in fair value, in which case, the difference is due to market factors and is recognized as an unrealized gain in accumulated OCI. If the Corporation intends to sell or believes it is more likely than not that it will be required to sell the debt security, it is written down to fair value as an OTTI loss.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined using the specific identification method.
Equity securities with readily determinable fair values that arc not held for trading purposes are carried at fair value with unrealized gains and losses included in other income. Equity securities that do not have readily determinable fair values are held at cost and evaluated for impairment. These securities are reported in other assets or time deposits placed and other short-term investments.
Loans and Leases
Loans, with the exception of loans accounted for under the fair value option, are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. The Corporation elects to account for certain consumer and commercial loans under the fair value option with changes in fair value reported in other income.
Linder applicable accounting guidance, for reporting purposes, the loan and lease portfolio is categorized by portfolio segment and, within each portfolio segment, by class of financing receivables. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables is defined as the level of disaggregation of portfolio segments based on the initial measurement attribute, risk
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characteristics and methods for assessing risk. The Corporation's three portfolio segments are Consumer Real Estate, Credit Card and Other Consumer, arid Commercial, The classes within the Consumer Real Estate portfolio segment are residential mortgage and home equity. The classes within the Credit Card and Olher Consumer portfolio segment arc U.S. credit card, direct/indirect consumer and other consumer. The classes within the Commercial portfolio segment are U.S. commercial, non-U S. commercial, commercial real estate, commercial lease financing and U.S small business commercial.
Purchased Credit-Impaired Loans
At acquisition, purchased credit-impaired (PCI) loans are recorded at fair value with no allowance for credit losses, and accounted for individually or aggregated in pools based on similar risk characteristics. The expected cash flows in excess of the amount paid for the loans is referred to as the accretable yield and is recorded as interest income over the remaining estimated life of the loan or pool of loans. The excess of the contractual principal and interest over the expected cash flows of the PCI loans is referred to as the nonaccretable difference. If, upon subsequent valuation, the Corporation determines it is probable that the present value of the expected cash flows has decreased, a charge to the provision for credit losses is recorded. If it is probable that there is a significant increase in the present value of expected cash flows, the allowance for credit losses is reduced or, if there is no remaining allowance for credit losses related to these PCI loans, the accretable yield is increased through a reclassification from nonaccretable difference, resulting in a prospective increase in interest income. Reclassifications to or from nonaccretable difference can also occur for changes in the estimated lives of the PCI loans. If a loan within a PCI pool is sold, foreclosed, forgiven or the expectation of any future proceeds is remote, the loan is removed from the pool at its proportional carrying value. Ifthe loan's recovery value is less than its carrying value, the difference is first applied against the PCI pool's nonaccretable difference and then against the allowance for credit losses.
Leases
The Corporation provides equipment financing to its customers through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value of the leased property less unearned income. Leveraged leases, which are a form of financing leases, are reported net of nonrecourse debt. Unearned income on leveraged and direct financing leases is accreted to interest income over the lease terms using methods that approximate the interest method.
Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, represents management's estimate of probable incurred credit losses in the Corporation's loan and lease portfolio excluding loans and unfunded lending commitments accounted for under the fair value option. The allowance for credit losses includes both quantitative and qualitative components. The qualitative component has a higher degree of management subjectivity, and includes factors such as concentrations, economic conditions and other considerations. The allowance for loan and lease losses represents the estimated probable credit losses on funded consumer and commercial loans and leases while the reserve for unfunded lending commitments, including standby letters of credit (SBLCs) and b;nding unfunded loan commitments, represents estimated probable credit losses o
n these unfunded credit instruments based on utilization assumptions. Lending-related credit exposures deemed to be uncollectible, excluding loans carried at fair value, are charged off against these accounts.
The Corporation performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess the overall collectability of those portfolios. The allowance on certain homogeneous consumer loan portfolios, which generally consist of consumer re3l estate loans within the Consumer Real Estate portfolio segment and credit card loans within the Credit Card and Other Consumer portfolio segment, is based on aggregated portfolio segment evaluations generally by product type, l oss forecast models are utilized for these portfolios which consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, bankruptcies, economic conditions, credit scores and the amount of loss in the event of default.
For consumer loans secured by residential real estate, using statistical modeling methodologies, the Corporation estimates the number of loans that will default based on the individual loan attributes aggregated into pools of homogeneous loans with similar attributes. The attributes that are most significant to the probability of default and are used to estimate defaults include refreshed loan-to-value (LTV) or, in the case of a subordinated lien, refreshed combined LTV (CLTV), borrower credit score, months since origination (referred to as vintage) and geography, all of which are further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). The severity or loss given default is estimated based on the refreshed LTV for first-lien mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience with the loan portfolio, adjusted to reflect an assessment of environmental factors not yet reflected in the historical data underlying the loss estimates, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. Tho probability of default models also incorporate recent experience with modification programs including re-defaults subsequent to modification, a loan's default history prior to modification and the change in borrower payments post-modification. On homo equity loans where the Corporation holds only a second-lien position and foreclosure is not the.best alternative, the loss severity is estimated at 100 percent.
The allowance on certain commercial loans (except business card and certain small business loans) is calculated using loss rates delineated by risk rating and product type. Factors considered when assessing loss rates include the value of the underlying collateral, if applicable, the industry of the obligor, and the obligor's liquidity and other financial indicators along with certain qualitative factors. These statistical models are updated regularly for changes in economic and business conditions. Included in the analysis of consumer and commercial loan portfolios are qualitative estimates which are maintained to cover uncertainties that affect the Corporation's estimate of probable losses including domestic and global economic uncertainty and large single-name defaults.
For individually impaired loans, which include nonperforming commercial loans as well as consumer and commercial loans and leases modified in a troubled debt restructuring (TDR), management measures impairment primarily based on the present value of payments expected to be received, discounted at the loans' original effective contractual interest rates. Credit card loans are discounted at the portfolio average contractual annual percentage rate, excluding promotionally priced loans, in effect prior to restructuring. Impaired loans and TDRs may also be
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mcasuied based on observable market prices, or for loans that are solely dependent on the collateral for repayment, the estimated fair value of the collateral less costs tc sell. If the recorded investment in impaired loans exceeds this amount, a specific allowance is established as part of the allowance for loan and lease losses unless these are secured consumer loans that are solely dependent on collateral for repayment, in which case the amount that exceeds the fair value of the collateral is charged off.
Generally, the Corporation initially estimates the fair value of the collateral securing these consumer real estate-secured loans using an automated valuation model (AVM). An AVM is a tool that estimates the value of a property by reference to market data including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the property being valued is located. In the event that an AVM value is not available, the Corporation utilizes publicized indices or if these methods provide less reliable valuations, the Corporation uses appraisals or broker price opinions to estimate the fair value of tho collateral. While there is inherent imprecision in these valuations, the Corporation believes that they are representative of the portfolio in the aggregate.
In addition to the allowance for loan and lease losses, the Corporation also estimates probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and binding unfunded loan commitments. Unfunded lending commitments are subject to individual reviews and are analyzed and segregated by risk according to the Corporation's internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, utilization assumptions, current economic conditions, performance trends within the portfolio and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments.
The allowance for credit losses related to the loan and lease portfolio is reported separately on the Consolidated Balance Sheet whereas the reserve for unfunded lending commitments isreported on the Consolidated Balance Sheet in accrued expenses and other liabilities. The provision for credit losses related to the loan and lease portfolio and unfunded lending commitments is reported in the Consolidated Statement of Income.
Nonperforming Loans and Leases, Charge-offs and Delinquencies
Nonperforming loans and leases generally include loans and leases that have been placed on nonaccrual status. Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming.
In accordance wilh the Corporation's policies, consumer real estate-secured loans, including residential mortgages and home equity loans, are generally placed on nonaccrual status and classified as nonperforming at 90 days past due unless repayment of the loan is insured by the Federal Housing Administration (FHA) or through individually insured long-term standby agreements with Fannie Mae (FNMA) or Freddie Mac (FHLMC) (the fully-insured portfolio). Residential mortgage loans in the fully-insured portfolio are not placed on nonaccrual status and, therefore, are not reported as nonperforming. Junior-lien home equity loans are placed on nonaccrual status and classified as nonperforming when' the underlying first-lien mortgage loan becomes 90 days past due even if the junior-lien loan is current. The outstanding'balance of real estate-secured leans that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless the loan is fully insured, or for loans in bankruptcy, within
60 days of receipt of notification of filing, with the remaining balance classified as nonperforming.
Consumer loans secured by personal property, credit card loans and other unsecured consumer loans are not placed on nonaccrual status prior to charge-oft and. therefore, are not reported as nonperforming loans, except for certain secured consumer loans, including those that have been modified in a 1DR. Personal property-secured loans (including auto loans) are charged off to collateral value no later than the end of the month in which the account becomes 120 days past due, or upon repossession of an auto or, for loans in bankruptcy, within 60 days of receipt of notification of filing. Credit card and other unsecured customer loans are charged off no later than the end of the month in which the account becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud.
Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally placed on nonaccrual status and classified as nonperforming unless well-secured and in the process of collection.
Business card loans are charged off in tho same manner as consumer credit card loans. These loans are not placed on nonaccrual status prior to charge-off and, therefore, are not reported as nonperforming loans. Other commercial loans and leases are generally charged off when all or a portion of the principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or lease is contractually delinquent if the minimum payment is not received by the specified due date on the customer's billing statement. Interest and fees continue to accrue on past due loans and leases until the date the loan is placed on nonaccrual status, if applicable. Accrued interest receivable is reversed when loans and leases are placed on nonaccrual status. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. Loans and leases may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected.
PCI loans are recorded at fair value at the acquisition date. Although the PCI loans may be contractually delinquent, the Corporation does not classify these loans as nonperforming as Uie loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest income over the remaining life of the loan. In addition, reported net charge-offs exclude write-offs on PCI loans as the fair value already considers the estimated credit losses.
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties are classified as TDRs. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance or other actions designed to maximize collections. Loans that are carried at fair value, LHFS and PCI loans are not classified as TDRs.
Loans and leases whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms
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is expected Otherwise, the loans are placed on nonaccrual status and reported as nonperforming, except for fully-insured consumer real estate loans, until there is sustained repayment performance for a reasonable period, generally six months If accruing TDRs cease to perform in accordance with their modified contractual terms, they are placed on nonaccrual status and reported as nonperforming TDRs.
Secured consumer loans that have been discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrower are classified as TDRs at the time of discharge. Such loans are placed on nonaccrual status and written down to the estimated collateral value less costs to sell no later than at the time of discharge. If these loans are contractually current, interest collections are generally recorded in interest income on a cash basis. Consumer real estate-secured loans for which a binding offer to restructure has been extended are also classified as TDRs. Credit card and other unsecured consumer loans that have been renegotiated in a TDR generally remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or, for loans that have been placed on a fixed payment plan, 120 days past due.
A loan that had previously been modified in a TDR and is subsequently refinanced under current underwriting standards at a market rate with no concessionary terms is accounted for as a new loan and is no longer reported as a TDR.
Loans Held-for-sale
Loans that are intended to be sold in the foreseeable future, including residential mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, are reported as LHFS and are carried at the lower of aggregate cost or fair value. The Corporation accounts for certain LHFS, including residential mortgage LHFS, under the fair value option. Loan origination costs related to LHFS that the Corporation accounts for under the fair value option are recognized in noninterest expense when incurred. Loan origination costs for LHFS carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized as a reduction of noninterest income upon the sale of such loans. LHFS that are on nonaccrual status and are reported as nonperforming, as defined in the policy herein, are reported separately from nonperforming loans and leases.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the shorter of lease term or estimated useful life for leasehold improvements.
Goodwill and Intangible Assets
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit is a business segment or one level below a business segment.
The Corporation assesses the fair value of each reporting unit against its carrying value, including goodwill, as measured by allocated equity. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units
is comprised of allocated capital plus capital forthe portion of goodwill and intangibles specifically assigned to the reporting unit.
In performing its goodwill impairment testing, the Corporation first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity and reporting-unit specific considerations.
If the Corporation concludes it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. Ifthe fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired; however, if the carrying value of the reporting unit exceeds its fair value, an additional step is performed to measure potential impairment.
This step involves calculating an implied fair value of goodwill which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied/fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss establishes a new basis in the goodwill, and subsequent reversals of goodwill impairment losses are not permitted under applicable accounting guidance.
For intangible assets subject to amortization, an impairment loss is recognized if the carrying value of the intangible asset is not recoverable and exceeds fair value. The carrying value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.
Variable Interest Entitles
A VIE is an entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. The Corporation consolidates a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. On a quarterly basis, the Corporation reassesses its involvement with the VIE and evaluates the impact of changes in governing documents and its financial interests in the VIE. The consolidation status of the VIEs with which the Corporation is involved may change as a result of such reassessments.
The Corporation primarily uses VIEs for its securitization activities, in which the Corporation transfers whole loans or debt securities into a trust or other vehicle. When the Corporation is the servicer of whole loans held in a securitization trust, including nun-agency residential mortgages, home 'equity loans, credit cards, and other loans, the Corporation has the power to direct the most significant activities of the trust. The Corporation generally does not have the power to direct the most significant activities of a residential mortgage agency trust except in certain circumstances in which the Corporation holds substantially all of the issued securities and has the unilateral right to liquidate the trust. The power to direct the most significant activities of a commercial '¦
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mortgage securitization irust is typically held by the special servicer or by the party holding specific subordinate securities which embody certain controlling rights. The Corporation consolidates a whole-loan securitization trust if it has the power to direct the most significant activities and also holds securities issued by the trust or has other contractual arrangements, other than standard representations and warranties, that could potentially be significant to the trust.
The Corporation may also transfer trading account securities and AFS securities into municipal bond or resecuritization trusts. The Corporation consolidates a municipal bond or resecuritization trust if it has control over the ongoing activities of the trust such as the remarketing of the trust's liabilities or, if there are no ongoing activities, sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains securities or has liquidity or other commitments that could potentially be significant to the trust. The Corporation does not consolidate a municipal bond or resecuritization trust if one or a limited number of third-party investors share responsibility for the design of the trust or have control over the significant activities of the trust through liquidation or other substantive rights.
Other VIEs used by the Corporation include collateralized debt obligations (CDOs), investment vehicles created on behalf of customers and other investment vehicles. The Corporation does not routinely serve as collateral manager for CDOs and, therefore, does not typically have the power to direct the activities that most significantly impact the economic peiforniance of a CDO. However, following an event of default, if the Corporation is a majority holder of senior securities issued by a CDO and acquires the power to manage its assets, the Corporation consolidates the CDO.
The Corporation consolidates a customer or other investment vehicle if it has control over the initial design of the vehicle or manages the assets in the vehicle and also absorbs potentially significant gains or losses through an investment In the vehicle, derivative contracts or other arrangements. The Corporation does not consolidate an investment vehicle if a single investor controlled the initial design of the vehicle or manages the assets in the vehicles or if the Corporation does not have a variable interest that could potentially be significant to the vehicle.
Retained interests in securitized assets are initially recorded at fair value. In addition, the Corporation may invest in debt securities issued by unconsolidated VIEs. Fair values of these debt securities, which are classified as trading account assets, debt securities carried at fair value or HTM securities, are based primarily on quoted market prices in active or inactive markets, Generally, quoted market prices for retained residual interests are not available; therefore, the Corporation estimates fair values based on the present value of the associated expected future cash flows.
Fair Value
The Corporation measures the fair values of its assets and liabilities, where applicable, in accordance with accounting guidance that requires an entity to base fair value on exit price. Under this guidance, an entity is required to maximize the use of observable inputs and minimize tho use of unobservable inputs in measuring fair value. A hierarchy is established which categorizes fair value measurements into three levels based on the- inputs to the valuation technique with the highest priority given to unadjusted quoted prices in active markets and the lowest priority given to unobservable inputs. The Corporation categorizes its fair value measurements of financial instruments based on this three-level hierarchy.
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in OTC markets.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts where fair value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and agency mortgage-backed (MBS) and asset-backed securities (ABS), corporate debt securities, derivative contracts, certain loans and LHFS.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes retained residual interests in securitizations, consumer MSRs, certain ABS, highly structured, complex or long-dated derivative contracts, certain loans and LHFS, IRLCs and certain CDOs where independent pricing information cannot be obtained for a significant portion of the underlying assets.
Income Taxes
There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: first, a tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized, and second, the benefit is measured as the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Corporation records income tax-related interest and penalties, if applicable, within income tax expense.
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Revenue Recognition
The following summarizes the Corporation's revenue recognition accounting policies for certain noninterest income activities.
Card Income
Card income includes annual, late and over-limit fees as well as fees earned from interchange, cash advances and other miscellaneous transactions and is presented net of direct costs. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit cards and fixed rates for debit cards based on the corresponding payment network's rates. Substantially all card fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over 12 months Fees charged to cardholders that are estimated lo be uncollectible are reserved in the allowance for loan and lease losses. Included in direct cost are rewards and credit card partner payments. Rewards paid to cardholders are related to points earned by the cardholder that can be redeemed for a broad range ot rewards including cash, travel and gift cards. The points to be redeemed are estimated based on past redemption behavior, card product type, account transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The Corporation also makes payments to credit card partners. The payments are based on revenue-sharing agreements that are generally driven by cardholder transactions and partner sales volumes. As part of the revenue-sharing agreements, the credit card partner provides the Corporation exclusive rights to market to the credit card partner's members or customers on behalf of the Corporation.
Service Charges
Service charges include deposit and lending-related fees. Deposit-related fees consist of fees earned on consumer and commercial deposit activities and are generally recognized when the transactions occur or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing and insufficient funds/overdraft transactions. Commercial deposit-related fees are from the Corporation's Global Transaction Services business and consist of commercial deposit and treasury management services, including account maintenance and other services, such as payroll, sweep account and other cash management services. Lending-related fees generally represent transactional fees earned from certain loan commitments, financial guarantees and SBLCs.
Investment and Brokerage Services
Investment and brokerage services consist of asset management and brokerage fees. Asset management fees are earned from the management of client assets under advisory agreements or the full discretion of the Corporation's financial advisors (collectively referred to as assets under management (AUM)). Asset management fees are earned as a percentage of the client's AUM and generally range from 50 basis points (bps) to 150 bps of the AUM. In cases where a third party is used to obtain a client's investment allocation, tho fee remitted to the third party is recorded net and is not reflected in the transaction price, as the Corporation is an agent for those services.
Brokerage fees include income earned trom transaction-based services that are performed as part of investment management services and are based on a fixed price per unit or as a percentage of the total transaction amount Brokerage fees also include distribution fees and sales commissions that are primarily in the
Global Wealth & Investment Management (GWIM) segment and are earned over time. In addition, primarily in tlie Global Markets segment, brokerage fees are earned when the Corporation fills customer orders to buy or sell various financial products or when it acknowledges, affirms, settles and clears transactions and/or submits trade information to the appropriate clearing broker. Certain customers pay brokerage, clearing and/or exchange fees imposed by relevant regulatory bodies or exchanges in order to execute or clear trades. These fees are recorded net and are not reflected in the transaction price, as the Corporation is an agent for those services.
Investment Banking Income
Investment banking income includes underwriting income and financial advisory services income. Underwriting consists of fees earned for the placement of a customer's debt or equity securities. The revenue is generally earned based on a percentage of the fixed number of shares or principal placed. Once the number of shares or notes is determined and the service is completed, lhe underwriting fees are recognized. The Corporation incurs certain out-of-pocket expenses, such as legal costs, in performing these services. These expenses are recovered through the revenue the Corporation earns from the customer and are included in operating expenses. Syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication.
Financial advisory services consist of fees earned for assisting customers with transactions related to mergers and acquisitions and financial restructurings. Revenue varies depending on the size and number of services performed for each contract and is generally contingent on successful execution of the transaction. Revenue is typically recognized once the transaction is completed and all services have been rendered. Additionally, the Corporation may earn a fixed fee in merger and acquisition transactions to provide a fairness opinion, with the fees recognized when the opinion is delivered to the customer.
Other Revenue Measurement and Recognition Policies
The Corporation did not disclose the value of any open performance obligations at December 31, 2018, as its contracts with customers generally have a fixed term that is less than one year, an open term with a cancellation period that is less than ono year, or provisions that allow the Corporation to recognize revenue at the amount it has the right to invoice.
Earnings Per Common Share
Earnings per common share (EPS) is computed by dividing net income allocated to common shareholders by the weighted-average common shares outstanding, excluding unvested common shares subject to repurchase or cancellation. Net income allocated to common shareholders is net income adjusted for preferred stock dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have not been declared as of period end, less income allocated to participating securities. Diluted EPS is computed by dividing income allocated to common shareholders plus dividends on dilutive convertible preferred stock and preferred stock that can be tendered to exercise warrants, by the weighted-average common shares outstanding plus amounts representing the dilutive effect of stock options outstanding, restricted stock, restricted stock units (RSUs), outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable.
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Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. When the functional currency of a foreign operation is the local currency, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U S. dollar reporting currency at period-end rates for assets and
liabilities and generally at average rates for results of operations. The resulting unrealized gains and losses are reported as a component of accumulated OCI, net-of-tax. When the foreign entity's functional currency is the U.S. dollar, the resulting remeasurement gains or losses on foreign currency-denominated assets or liabilities are included in earnings
NOTE 2 Noninterest Income
The table below presents the Corporation's noninterest income disaggregated by revenue source for 2018. 2017 and 2016. For more information, see Note 1 - Summary of Significant Accounting Principles. For a disaggregation of noninterest income by business segment and All Other, see Note 23 - Business Segment Information.
(Dollars in millions) 2Ulf 201fc
Card Income
Interchange lees (1) * 4,093 1 3,942 $ 3,960
Other card income 1.958 1,960 1,891
Total card income 6,051 5,902 L851_
Service charges
Deposit-related fees 6,667 6,708 6,545
Lending-related fees _ 1^00 1.110 1,093
Total service charges 7,767 7,818 7,638
Investment ond brokerage services
Asset management Ices 10,189 9,310 8,328
Brokerage fees 3.971 4,526 5,021
Total investment and brokerage services 14.160 13,836 13,349
Investment banking Income
Underwriting Income 2,722 2.821 2.585
Syndication fees 1,347 1,499 1,388
Financial advisory services 1,258 1,691 1,268
Total investment banking income ____ 5,327 6.011 5,241
Trading account profits B.540 7,277 6,902
Other Income 1,970 1,841 3,624
Total noninterest Income $ 43,815 $ 42,685 $ 42.605
Ell During 3018. 2017 and 2016, g'Oss mwsiuliaftfe lei?*, weie 15.5 billion. Itj.il billion and 18.2 biliinn and aia piescnted nel oi i5.4 btllkin. M^B billion and $4,2 bttllon. rotpeclrvety, of expenses for rewards sod partner payments.
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NOTE 3 Derivatives Derivative Balances
Derivatives are entered into on behalf of customers, for trading or to support risk management activities Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the Corporation's derivatives and hedging
activities, see Note 1 - Summary of Significant Accounting Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2018 and 2017. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by cash collateral received or paid.
December 31, 2018
Gross Derivative Liabilities
(Dollars m billions) Interest rata contracts
Swaps
Futures and forwards Written options Purchased options Foreign exchange contracts
Swaps
Spot, futures and forwards Written options Purchased options Equity contracts Swaps
Futures and forwards Written options Purchased options Commodity contracts
Swaps
Futures and forwards Written options Purchased options Credit derivatives (2. 3)
Purchased credit derivatives: Credit default swaps Total return swaps/options
Written credit derivatives: Credit default swaps Total return swaps/opt'ons
Gross cenvativR assets/l;3bililic-s Loss. I sgaily enforceable master netli-g agteentents Less. Cash collateral received/oaid
Contract/ Notional (1)
15,977.9 3.656.6 1,584.9 1,614.0
1.704.8 4,276.0 256.7 240.4
253.6 100.0 597.1 549.4
43.1 51.7 27.5 23.4
408.1 84.5
371.9 87.3
Trading and Other Risk
Management Derivatives
141.0 4.7
38.8 39.8
7.7 2.1
2.7 3.2
5.3 0.4
4.4
0.6
Qualifying Accounting Hodges
1.4 0.4
144.2 4.7
40.2 40.2
7.7 2.1
2.7 3.2
5.3 0.4
4.4
0.6
328.8 (252.7) (32.4)
Trading and Other Risk Management Derivatives
138.9 5.0 28.6
42.2 39.3 5.0
8.4 0.3 27.6
4.5 0.6 2.2
4.9 1.0
4.3 0.6
Qualifying Accounting Hedges
2.3 0.3
140.9 5.0 28.6
44.5 39.6 5.0
8.4 0.3 27.5
4.G 0.5
2.2
4.9 1.0
4.3
0.6
$ 317.8 (252.7) (27.2)
Total derivative asscts/llabllltles
ill rteriresents the tola! contract/net.anal ,111101.11: o' neii/acive assets line1 lindHitivs eulsttuKlinc
i?1 hie net derivative liaD I ly and notional amount of >v-ir.co credit oer-vatives lor wnlch tlio Cnriwalion neld nuicliiiscil ctetlit dArivalivcs with identical unce'tying 'clerenced names »verc $185 million and $347.8 oi!,ion at December 31. 2018
»3l Der vative assets and i,au:lities *or cedil delau'r sweps (CDS: -a'lect a central clearing counterpaity's a'ner.d't,ens to lef.al,y re-cliaracterlie daily cash verialicn margin from collateral, wivch secures an oulslanci'ig exposure, lo sef.lenieiil. whicn discharges an outstanding exposure, etlecti/e In 2018
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December 31, 2017
Gross Derivative Liabilities
(Dollars In billions)
Interest rate contracts
Swaps
Futures and forwards Written options Purchased options Foreign exchange contracts
Swaps
Spot, futures and forwards Written options Purchased options Equity contracts Swaps
Futures and forwards Written options Purchased options Commodity contracts Swaps
Futures and forwards
Written options
Purchased options Credit derivatives (21
Purchased credit derivatives: Credit default swaps Total return swaps/options
Written credit derivatives: Credit default swaps Total return swaps/options
Gross derivative ussets/liabilitics Less: Legally enforceable master netting agreements Less: Cash collateral received/paid
Contract/ Notional W
15,416 4 4,332 4 1,170 5 1.184.5
2,011.1 3,543.3 291 8 271.9
265.6 106.9 480.8 428.2
46.1 47.1 21.7 22.9
470 9 54.1
448.2 55.2
Trading and Other Risk Management Derivatives
175.1 0.5
35 6 39.1.
4.8 1.5
1.8 3.5
14
4.1 0.1
10.6 08 345.8
Qualifying Accounting Hedges
22 0.7
5.8
178.0 0.5
37.8 398
4.8 1.5
1.8 3.5
4.1 0.1
10.6 0.8
351.6 (279.2) (34.6)
Trading ano Other Risk Management Derivatives
172.S 05 35.5
36.1 39.1 5.1
4.4
0.9 23.9
46 0.6 1.4
111 1.3
3,6 0.2
340.8
Qualifying Accounting Hedges
2.7 0.8
174.2 0.5 35.5
38.8 39.9 5.1
4.4 0.9 23.9
4.6 0.6 LA
MA 1.3
3.6 0.2
» 346.0 (279.2) (32.5)
Total derivative assets/llabllltles
ill Represents the total contract/notional amount oi der>al\e assets ard lisbilrtics outstanding.
121 The net de'ivalive asset ond notional amount ot written credit der-vctlves tor which tl,s Corporation held purchased credit derivatives with idamical underlying releranced names we'e $6.4 billion and $435.1 billion ot December 31 20.lt .
Offsetting of Derivatives
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation's derivative counterparties. Where legally enforceable, these master, netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Ba
lance Sheet at December 31, 2018 and 2017 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 10 - Federal Funds Sold or Purchased. Securities Financing Agreements, Short-term Borrowings and Restricted Cash.
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.
Offsetting of Derivatives W
(Dollars in billions) Interest rate contracts
Over-the-counter
Over-the-counter cleared Porelgn exchange contracts
Over-the-counter
Over-the-counter cleared Equity contracts
Over-the-counter
Exchange-traded Commodity contracts
Over-the-counter
Exchange-traded Credit derivatives
Over-the-counter
Over-the-counter cleared
Total gross deiivab'vc assets/liabilities, before netting
Over-the-counter
Exchange-traded
Over-the-counter cleared Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter
Exchange-traded
Over-the-counter cleared _ Derivative assets/liabilities, after netting
Other gross derivative assets/liabifittos l2> Total derivative assets/liabilities
Less: Financial Instruments collateral O)
Derivative] Derivative Derivative Derivative
Assets Liabilities Assets Liabilities
December 31, 2018 December 31, 2037
$ 174.2 $ 169.4 $ 211.7 $ 20G.0
4.8 4.0 1.9 1.8
B6.3 78.7 80.8
0.9 0.9 0.9 _ 0 7
14.6 18 3 16.2
16.1 16.1 9.1 8.5
3.5 4.5 2.9 4.4
1.0 0.9 0.7 0.8
7.7 8.2 9.1 9.6
2.5 2.3 6.1 6.0
292.5 283.0 320.7 317.0
17.1 16.0 9.8 9.3
8.2 7.2 8.9 8.5
(264.4) (259.2) (296.9) (294.6)
(13.5) (13.5) , (8.6) (8.6)
(7.2) (7.2) (8.3) (8.5)
32.7 26.3 25.6 23.1
11.0 liJi 12.2 11.2
43.7 37.9 37.8 34.3
(16.3) (8.6) (11.2) (10.4)
Total net derivative assets/llobllltles _ _ * 27.4 $ 29.3 $ 26.6_ $ 23.9
U) OTC derivatives include bilateral transactions between the Corporation and a particular counterparty QiC-dearou* dcrivnuves Include bilateral transactions between the Corporation and fl counter party where the
transaction is cleared through o clearinghouse. Exchenge-traded derivatives include listed options transacted on an exchange. |2) Consists of derivatives entered into under master netting asreetrenls where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.
13) Amounts are limited to the derivative asser/habihty balance ard, accordingly, do nut include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third party custodians the! are not offset on the Consofidoted Balance Sheet bu: shown as a reduction to derive net derivative assets and liabilities
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ALM and Risk Management Derivatives
Ttie Corporation's ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity arid credit contracts are utilized in the Corporation's ALM and risk management activities.
The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation's goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result1 of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The
Corporation also utilizes derivatives such as interest rale options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs. For more information on MSRs, see Note 20 - Fair Value Measurements.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain 1 foreign currency-denominated assets and liabilities, as well as the Corporation's investments in non-U.S. subsidiaries. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include CDS, total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income
Derivatives Designated as Accounting Hedges
The Corporation uses various types of interest rate 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 Corporauon 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
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exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Fair Value Hedges
The table below summarizes information related to fair value hedges for 2018, 2017 and 2016.
Gains and Losses on Derivatives Designated as Fair Value Hedges
Hedged Item
(Dollars in millions) 2018 2017 2016 2018 2017 2016
Interesl rale risk on long-term debl (11 $ <1,538) S (1,537) $ (1,488) $ 1,429 $ 1,015 $ 646
Interest rate and foreign currency risk on long-term debl (2) (1,187) 1,811 (941) 1,079 (1.767) 944
Interest rate risk on available-for-sale securities 13) (52) (67 ) 227 5 0 35 (286)
Total $ (2,777) $ 207 $ (2,202| $ 2,558 J (687) $ 1,304
ID Amounts are recorded In Interest expense in trie Consolidated Statement of Income. In 2017 and 2016. amounts representing hedge ineffectiveness were losses ol $49? million and $842 million.
(2) In 2018, 2017 end 2016, Ihe derivative amount includes losses of 1992 million, fains ol $2.2 billion and losses ol 5910 million, respectively, in othor income and losses cf $116 million. $365 million and $30
million, icspectivcly, in interest expense. Line item totals are in the Consolidated Statement ol Income. (31 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)
December 31, 2018
[Uollais in millions)
Long-term debt
Available-for-sale debt securities
U) For assets, Increase (decrease) to carrying value and for liabilities, (Increase) decrease to carrying value.
At December 31, 2018, the cumulative fair value adjustments remaining on long-term debt and AFS debt securities from discontinued hedging relationships were a decrease to the related liability and related asset of $1.6 billion and $29 million, which are being amortized over the remaining contractual life of the de-designated hedged items.
Cash Flow and Net Investment Hedges
The following table summarizes certain information related to cash flow hedges and net investment hedges for 2018, 2017 and 2016.
(2.117) (29)
Carrying Value
(138,682) J 9S1
Of the $1.0 billion after-tax net loss ($1.3 billion pretax) on derivatives in accumulated OCI at December 31, 2018. $253 million after-tax ($332 million pretax) is expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected to primarily reduce net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 4 years, with a maximum length of time for certain forecasted transactions of 17 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
(Go'lars 'n millions, amounts pretax)
Cash flow hedges
Interest rate risk on variable-rate assets (D Price risk on certain restricted stocK awards (2) Total
Net Investment hedges
Foreign exchange risk (3)
2016
(109) $ 59
(50) S
2017
(340) $ (165) i (327) i (553)
41 27 148
(179) $
(299) *
(585)
(32)
1.782 $
(138) $
989 $ 11.588) J 1,636 * 411 $
(l? AfT.OL.ms reclassified from accumulated OCI a'e recorded tn .nterest -iDome in the lcnso.;dated Stater-mt c' Income
Amcjnhi rec!ass-:f ed (rorri flcci.TVjIatsd OCI are recorded w pcrsnnnf ¦ ejce,"-se ir- ire Consolidated Statement of Income :3| Amount reclassified Irom accunulatsc OCI are reccitied in otric income n lh-j Coiscliceled Slijten en: of Income Amounts eictuded 'rem eflec'ttei.ess testing and recognised in Olne- income iveic gains ol %M
rrulrcn, 4120 m- Noi and »325 m'l.icn ir 2Cl3. 2C1T £f.;j ?01fi msr-ec: -.e,/ v
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.
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 gains and losses on these derivatives are recognized in other income. The table below presents gains (losses) on these derivatives for 2018, 2017 and 2016. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item
Gains and Losses on Other Risk Management Derivatives
(Dollars In millions! 2018 _ 2017 2016
Interest rate risk on mortgage
activities!)) t (107) i 8 J 461
Credit risk on loans 9 16) (107)
Interest rate and foreign currency risk
on ALM activities 121 1,010 (36) (754)
the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in trading account profits as part of the initial mark to fair value. For derivatives, the majority of revenue is included in trading account profits. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.
The table below, 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 2018, 2017 and 2016. The difference between total trading account profits in the following table and in the Consolidated Statement of Income represents trading activities in business segments other than Global Markets. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 - Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.
HI Primarily related lo hedges ol inteiest rate risk on MSRs and IFtl.Cs to ongmale mortgage loans that will be held for sole. Ihe net gains on IFILCs, which arc not included in the table but are considered derivative instruments, were 147 million, 1220 million and S53?. million fcr 2018, 2017 and 2016. respectively
12! fnmaiily related to hedges ol debt securities carried at fair value and hedges ol foreign currency denominated debt.
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. As of December 31, 2018 and 2017, the Corporation had transferred $5.8 billion and $6.0 billion of non-U.S. government-guaranteed 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 $5.8 billion and $6.0 billion at the transfer dates. At December 31, 2018 and 2017, the fair value of the transferred securities was $5.5 billion and $6.1 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. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items including trading account profits and net interest income as well as other revenue categories.
Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the "Other" column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of
Net Interest Income
Sales and Trading Revenue
1,180 1,503 3,994 1,063 189
1,292 $ (7) (781) 1,853 64
220 6
1,619 552 68
Trading Account Profits
2018
2,692 1,502 4.832 3,468 319
7,929 $ 2,421 $ 2,463 $ 12,813
(Dollars In millions) Interest rate risk Foreign exchange risk Equity risk Credit risk Other risk
2017
712 1,417 2,689 1,685
203
1,560 (1) (517) 1,937 45
249 7
1,903 570 76
2,521 1.423 4.075 4.198 324
Total sales and trading revenue
Total sales and trading revenue
6.706
3,024
2,811
Interest rate risk Foreign exchange risk Equity risk Credit risk Other risk
Interest rate risk
Equity risk Credit r.sk
2,074 424
39
12,541
Foreign exchange risk
1,360
(10)
1,674 407
¦ 1.956 (7)
Total sales and trading revenue
6,547
1,355 4,019 4,054 439
•3,969 $ 2.687 t 13,203
til represents amounts m investment and brokerage servces ond other Income that are recorded In Global Markets ard included rn the definition ot sales and trading revenue. Includes investment and brokerage services revenue of J1.7 bullion. 52.0 billion end J2.1 billion lor 2018. 2017 and 2016. respectively
Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based cn a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred ard/or may only be required to make
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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 those instruments.
Credit derivative instruments where tho Corporation is the seller of credit protection and their expiration at December 31, 2018 and 2017 are summarized in the following table.
Credit Derivative Instruments
Less than Ono Yeor
One to Three Yeors
Three to Five Years
Over Five Years
IDoliars in millions) Credit default swaps: Investment grade Non-investment grade
Total
Total return swaps/options* Investment grade Non-investment grade Total
Total credit derivatives
Credit-related notes. Investment grade Non-investment grade
2 $ 132 134
105 472 577
711
44 636 680
December 31. 2018 Carrying Value
436 $ 914
488 1.691 2,179
532 $ 1,500
970 3,373 4,343
105 433 598
Total credit-related notes
Maximum Payout/Notional
Credit default swaps: Investment grade Non-Investment grade Total
Total return swaps/options: Investment grado Non-investment grade
Total
Total crodlt derivatives
53,758 24,297 78,055
G0.042 24,524
84.566 162,621 t
95.699 33,881 129,580
822 1.649
95.274 $ 34,530
59 39
20.054 14,426
72 70
$ 264,785 107,134 371,919
60,995 26,282
December 31, 2017
Carrying Value
Credit default swaps: Investment grade Non investment grade
|1010|203
|1010|453
61 484
245 2.133
313 3.273
2.378
Ictai return swaps/options: Investment grade Non-investment grade Total
Total credit derivatives Crcdivrclaled ncles: Investment grade Nor: nvistment grade Total credit-related notes
Credit default swaps ¦nvestment grade
689 1.548
7 i
34
_ 3 2.381
$ 696
1598
Maximum Payout/Notional
61,388 i 115/.80 S 107 081 * 21,579 S 30S.b23
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.
Nup- rvestms/il gMiJ'j Tola!
I otal return swaps/cctiorf. Investment Grace Man-investment grade Total
39.31? '.00,/CO
37.39'. 13.751
l-i.3
2.5St 511
39.098 WO 179
14.120
35.99!)
143 697
J42.673 448,201
40,118 15,105
Total credit derivatives
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 CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation's maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
Credit-related Contingent Features and Collateral
The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 102, the Corporation enters into legally enforceable master netting agreements which reduce risk by permitting closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
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A majority of tne Corporation's derivative contracts contain credit lisk-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 December 31, 2018 and 2017, the Corporation held cash and securities collateral of $81.6 billion and $77.2 billion, and posted cash and securities collateral of $56.5 billion and $59.2 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 OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.
At December 31, 2018, the amount of collateral, calculated based on the terms of the contracts, that tho Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $1.8 billion, including $1.0 billion for Bank of America, National Association (Bank of America, N.A. or BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 2018 and 2017, the liability recorded for these derivative contracts was not significant.
The table below presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 2018 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
Second Incremental notch
Additional Collateral Required to be Posted Upon Downgrade at December 31, 2018
One Incremental notch
{Dollars in millior.s)
Bank of America Corporation
Bank of America, N A. and subsidiaries (l)
l'i Inctuderj 'n Bann ot 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 December 31, 2018 if the long-term senior debt ratings for the Corporation cr certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
Second Incremental notch
Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2018
581 305
13 $ 1
One Incremental notch
(Dollars in millions) Derivative liabilities Collateral posted
Valuation Adjustments on Derivatives
The Corporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. Tho exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.
Valuation adjustments on derivatives are affected by changes in market spreads, non-credit related market factors such as interest rate and currency changes that affect the expected exposure, and other factors like changes In collateral arrangements and partial payments. Credit spreads and non-credit factors can move independently. For example, for an interest rate swap, changes in interest rates may increase the expected exposure, which would increase the counterparty credit valuation adjustment (CVA). Independently, counterparty credit spreads may tighten, which would result in an offsetting decrease to CVA.
The Corporation enters into risk management activities to offset market driven exposures! The Corporation often hedges the counterparty spread risk in CVA with CDS. The Corporation hedges other market risks in both CVA and DVA primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This movement is a consequence of the complex interaction of the risks being hedged, resulting in limitations in the ability to perfectly hedge all of the market exposures at all times.
The table below presents CVA, DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for 2018, 2017 and 2016. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.
Valuation Adjustments on Derivatives W
Gains (Losses)
(Dollars In im'lions)
i 374 S 214
77 t 187 $ 330 $
(15)
(19) ' nnrj :'01C
|141)
24
(55)
Denvnt ve assets ICVA) Derivative ossets/lisuil lies (FVA)
Derivative l aoil.tiets (DVA)
(324) (281)
¦ At Dtcernrcf .'il. ?01B. i'Ol' iwmJ ?01C, ejrnulative CVA reduced the dciuaUvo assets balance by $CC0 r\ I on. 5f77 million a-d i 1.0 h l-icn currulativc FVA reduced the net derivatives balance by • $15* r-.;!l on 12.36' n*ill on and i'jlJ6 nulho'--. and currulative DVA reduced the derivative Mobilities tialsrce nv 1432 m i c $150 niii .CT ana $774 mill on. respective y
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NOTE 4 Securities
The table below presents the amortized cost, gross unieahzed gains and losses, and fair value of AFS debt securities, other debt securities carried at fair value and HTM debt securities at December 31, 2018 and 2017.
Debt Securities
(Oollars in millions}
Avallable-for-salc debt securities
Mortgage-backed securities. Agency
Agoncy-colla.eralized mortgage obligations Commercial
Non-agency residential U) Total mortgage-becked securities U S. Treasury and agency securities Non-U.S. securities
Other taxable securities, substantially all asset-backed securities
Total taxable securities
Tax-exempt securities
Total available-for-sale debt securities
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
138 19 11
136
$ 121,826 5,530 14.078 1,917
$ (3,428) (110) (402) (11)
December 31, 2018
146,998 56,239 9,307 4,387
304 62 5 29
(3.951) (1.378) (6) (6)
$ 125,116 $ 5,621 14,469 1,792
216,931 17,349
400 99
(5,341) (72)
143,351 54,923 9,306 4,410
(5,413)
211,990 17,376
229,366
Othor debt securities carried at fair value
Total debt securities carried at fair value
Held-to-maturlty debt securities, substantially all U.S. agency mortgage-backed securities (2) Total debt securities t3,4)
December 31,2017
Avaffable-for-sale debt securities
Mortgage-backed securities: Agency
Agency-collaterali7ed mortgage obligations Commercial
Non-agency residential iU Total mortgage-Dackec securities U.S. Treasury and agency securities N011-U.S. securities
Other taxable securities, substantially all asset-backed securities
Total taxable secjrities Tax-exempt securities
Total available-for-sale debt securities Other debt securities carried at fair value
Total debt securities carried at fair value Held-to-maturlty debt securities, substantially all U.S. agency mortgage-backed securities
t 194,119 6.846 13,864 2.410
217.239 54,523 6.669 5.699
284,130 20,541
304,671 12,273
316.944
125.013
506 39 28
267
840 18 9 73
940 __138 1.078
252
192,929 6,804 13,684 2,669
(1,9931 216,086
(1,018) 53,523
13,014) (104)
6.677
5.770
(3.118)
(39)
13.157)
(1,825)
282,056 20,575
Total debt securities (3.4)
2S
(2) $
Available-for-sale marketable equity securities £5> ^ » ^ ZI $ —^ i
li, At" December 31. 2018 and 2017, the urvdanynj collateral tyue included ar p-cxunarel/ GS percent and ti'.5 pe'cenl prime. * psrceit end 13 percent Alt A. and 28 percent and 25 percent subpnme. t-j Dunng 2018 trie Corporation transleried AFS debt securities with ar. ainorh/en cosl ol 5 64.5 biilon to he rj to -nat-jnty. {3i Includes secij'ities p'edgedas collateial ol 140.6 billion arc 535 8 Cilnori at December 31. 2018 and 201?.
:3! The Corporation r.ad debt securities Irom FNMA ana FrflMC that car.'; exceeded 10 percent cf sharehriders' eguitv with an amortized cost of J 161.2 billion and 552.2 billion, and a lair value ol $153.5 billion and
551 * billion at December 31 2018. und an ainoitired cnslol 5163 6 d'tlic-" and 550.3 ci ior. ai.i a lair va'ue of 51.62 1 billion end S50 0 billion at December 31. 2017 (Si Classified in other assets or, the Consolidated Balance Sheet
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At December 31, 2018, the accumulated net unrealized loss on AFS debt securities included in accumulated OCI was $3 7 billion, net of the related income tax benefit of $1.2 billion The Corporation had nonperforming AFS debt securities of $11 million and $99 million at December 31, 2018 and 2017.
Effective January 1, 2018. the Corporation adopted an accounting standard applicable to equity securities. For additional information, see Note 1 - Summary of Significant Accounting Principles At December 31, 2018, the Corporation held equity securities at an aggregate fair value of $893 million and other equity securities, as valued under the measurement alternative.
at cost of $219 million, both of which are included in other assets. At December 31, 2018, the Corporation also held equity securities at fair valuo of $1.2 billion included in time deposits placed and other short-term investments.
The following table presents the components of other debt securities carried at fan value where the changes in fair value are reported in other income. In 2018, the Corporation recorded unrealized mark-to-market net losses of $73 million and realized net gains of $140 million, and unrealized mark-to-market net gains of $243 million and realized net losses of $49 million in 2017. These amounts exclude hedge results.
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The gross realized gains and losses on sales of AFS debt securities for 2018, 2017 and 2016 are presented in the table below.
Other Debt Securities Carried at Fair Value
(Coifcrs Mortgage-backed securities
U S. Treasury and agency securities
Non-U S. secunt.es
Orher taxable securities, substantially all asset-backed securities
Ul These securities ere primorily used to satisfy certain international ic_ itatory liquidity require-ncnts.
_ 2018 $ 169 (IS)
352 (97)
Gains and Losses on Sales of AFS Debt Securities
255
(Dollars in millions) Gross gams Gross losses
Net gains on tales dI AFS debt securities $
Income tax expense attributable to realized net gains on sales ot AFS debt securities $
520 (30)
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer at December 31, 2018 and 2017.
Temporarily Impaired and Other-than-temporarlly Impaired AFS Debt Securities
(Dollars In millions)
Temporarily Impaired AFS debt securities
Mortgage-backed securities: Agency
- Agcncy-cotlateralized mortgage obligations Commercial Non-agency residential
Total mortgage-backed securities U.S. Treasury and agency securities Non-U.S. securities
Other taxable securities, substantially all asset-backed securities
Total taxable securities Tax-exempt securities
Total temporarily Impaired AFS debt securities
Other-than-temporarlly Impaired AFS debt securities (D
Non-agency residential mortgage-backed securities
Total temporarily Impaired and other-than-temporarlly Impaired AFS debt securities
Twelve Months or Longer
Gross Unrealized Losses
Gross Unrealized Losses
Fair Value
Fair Value
Less than Twelve Months Gross
Fair Unrealized Value Losses
$ (3,379) (110) (394) (3)
S 113,982 4,455 13.335 155
$ (3,428) (110) (402) (11)
December 31, 2018
(49) $ 99,211
— 4,452
16.224 288 773 183
(3,886) (1.377) (1) (5)
(8) 11,991
131,927 51,662 794 368
(3,951) (1,378) (6) (6)
(8) 49
(65) 115,703
(1) 51,374
(5,269) (70)
184,751 2,380
(5,341) (72)
(5) 21
(1) 185
(5,413)
(72) 167,283 (2) ^148 (74) 169,431
(5,339)
(74) $ 169,434 $ (5.339) $ 187,265 $ (5,413)
December 31, 2017
Temporarily Impaired AFS debt securities
Mortgage backed securities-Agency
Agency-ccilaterclucd mortgage obligations
Commercial
Non.agency residential iotai mortgage-backed securities U.S. Treasury a'td agency securities Non U S. sect'iitics
Ot!;er taxnfjie secures, substantially an asset-backed securities
Total ta .able securities ~a* e _rnpt securities
Total temporarily Impaired AFS debt securities
73,5i5 2.743 5.575 335 82.188 27,537 772
110/.97 1.090 111 58?
1352) (29) 150) i'i (4 381 |2bl| U)
(690;
72.612 % (1,344)
i.684 . (52)
(1.554) (767)
(2) (2.323) _J102) i2,425)
4,586 (158)
78.882 24.035
92
103.009 7.100 110,109
$ 146.147 4,427 10,161 335
161,070 51.572 772 92
213.506 8.190 221.696
(1.696) (81) (208) 17) (1.992) (1,018) ID (2) (3,013) (104) (3.117)
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Other-than-temporarlly Impaired AFS debt securities (l)
Non-agency residential mcrt^ago backeri sscuntles 58 _ il) ' 58 .
Total temporarily Impaired and other-than-temporarlly Impaired
AFS deMiBCurMleg _ _ S_ 111.645 S JG93\ % 110.109 * (2.4251 $ 221-75_5 1_„ (3__*_?!
iH Includes otlw-< tJhtin tcmporar!1/ ninMied AfS r_*.b. jr.cuiili«on whicii en OTTt Inj... p.inirul'.y • eWi\«>*J lo cdnnfi*! In iruw.Si miti. i_iT_nns in uccurnulated OCt,
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In 2018. 2017 and 2016, the Corporation had $33 million, $41 million and $19 million, respectively, of credit-related OTTI losses on AFS debt securities which were recognized in other income. The amount of noncredit-related OTTI losses recognized in OCI was not significant for all periods presented.
The cumulative OTTI credit losses recognized in income on AFS debt securities that the Corporation does not intend to sell were $120 million, $274 million and $253 million at December 31, 2018, 2017 and 2016, respectively.
The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management's best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, .borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed lo each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security.
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency residential mortgage-backed securities (RMBS) were as follows at December 31, 2018.
Significant Assumptions
Range (D
Weighted 10th 90th
average Percenlllc (2| Percentile (2)
Prepayment speed 12.9% 3.3% 21.5%
Loss severity 19 8 8.5 36.1
Lite default rate _5:9___ 1.4 61.4
n> Represents the range ot inputs/assumptions based upon the underlying collateral. Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as LTV, creditworthiness of borrowers as measured using Fair Isaac Corporation (FICO) scores, and geographic concentrations. The weighted-average severity by collateral type was 16.0 percent for prime. 16.6 percent for Alt-A and 25.6 percent for subprime at December 31. 2018. Default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 14.7 percent for prime, 16.6 percent for Alt-A and 19.1 percent for subprime at December 31, 2018.
The remaining contractual maturity distribution and yields of the Corporation's debt securities carried at fair value and HTM debt securities at December 31, 2018 are summarized in the table below. Actual duration and yields may differ as prepayments on the loans underlying the mortgages or other ABS arc passed through to the Corporation.
Maturities of Debt Securities Carried at Fair Value and Held-to-maturlty Debt Securities
Due In One Year or Less
Oue after One Year through Five Years
Due after Five Years through Ten Years
Due after Ten Years
(Dollars in millions}
Amortiied cost of debt securities carried at fair value Mortgage-backed securities Agency
Agency-collateraliied mortgage obilgauons
Commercial
Non-agency residential Total mortgage backed securities U.S. Treasury and agency securities Non-U.S: securities
Other taxable securities, substantially ail asset-backed securities
Total taxable securities Tax-exempt securities
Total nmonlxod coot ol debt securities carried ot fair value
Amortized cost of HTM debt securities (2)
198 670 14.318 1.591
16.777
S 17.715 $ 657
1.78 0.78 130 3 34 148 2S9
2 581 33.659 682
2.022 38.944
7 526
2.4 2% 5 1.245
30
2 36 .148 188
236 10.976 14
6ES 36.133 6,102
12.265 23.159 21
3 54 166
2 59
3 93
1.81 * 42.295
* 1.475
2 53
2 51 2 36 4.43
3.48 2 43 2 44 2 43 2 89
2.39* S 123.757 2.50 5.591 828 3.268 133,444
21 121
86_ 133.072 2,723
96 9.88 3,49 257 6.57
559
49
55
47
3.34X t 125.110 3.1? 5,621 14,469 3.282
148,488 57,509 15,142
4.387
225,526 17.349
3.23 $203,652
3.33*
3.17
2.52
9.84
3.39
1.83
1.37
3.49 2.85 2.53 2.63 3.24
Debt securities carried at lair valuo Mortgage-backed securrjes. Agency
r-gency-collateralired mortgage obligauons
Commercial
Ncn agency residential Tots! To-tpege han-co securities .1 5 treas jrv and £gc"cy seci-riles Non U S srrt.ir'Oes
198 669 11 315
11.928 22 82!
t 120 493
5.501 79" 3 4
i 121.826 5,530 14.078 3.523 144.957 I 56,205 15,350
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.
Citier taxable securities, ubswi-aliy all aisel-backetl
SAcurti«!> ^.043 3S8 Ht 4,413
lots! ta*ab'e securities 16.767 37.066 35.466 130.524 220,725
"iax excnpl scci.iUles 936 7,537 6,164 2,719 17.376
Total debl securities carried at Talrvatuc $ 17,703 $ 45,505 $ 41,650 $133,243 $238,101
Fair valJe of HTM debt securities P) $ 657 $ 18 $ 1.429 $108,331 $200,435
li) Tbe weighred average vietd is computed based on e constant aliective tnlercM raie over the contractua* iile of eac'i security The ayenige y-eiti considers lhe contractual coupon and the omortiiation of premiums
and accretion of discounts, excluding the effect cf 'elated hedging derivatives. !?i SubsUinlinlly all tl S agftney M35.
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NOTE 5 Outstanding Loans and Leases
The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31, 2018 and 2017.
(Dollars in millions) Consumer real estate Core portfolio Residential mortgage Home equity Non-core portfolio Residential mortgage Home equity Credit card and other consumer U.S. credit card Direct/Indirect consumer (5) Other consumer (6)
Total consumer
Consumer loans accounted for under the fair value option ( ')
lotul Current Loans
90 Days or Total Past or Less Than Purchased Accounted lor
30-59 Days 60-89 Days More Due 30 Days 30 Days Past Credit- Under the Fair Total
Past Due Ul Past Due (1) Past Due (2) or More Due (3) Impaired <<) Value Option Outstandings
1.1BB 200
793 387
2,230 672
249
85
193,695 40,010
14,862 8,276
98,338 91,166 202
December 31, 2018
624 119
268 60
2,012 287
2,904 466
3,800 845
$ 191,465 39,338
994 40
S77 317
1,989 447
418
90
8,158 6,965
4,513
4,645
446,549 682
9C.349 90,719 202
3,025
682
447,231
694 1
29 124
83
232 49 16
114 54
1.399 50 69 275 233
297,878 96.726 60.786 22,259 14,332
493.981
493.981
Total consumer loans and leases
299,277 98,776 60,845 22,534 14,565
Commercial
14 37 96 720
495,997 3.667
U.S. commercial Non-U.S. commercial Commercial real estate (81 Commercial lease financing U.S. small business commercial
831
465
2,016
3,667
$ 927,177 97.92%
Total commercial Commercial loans accounted for under the fair value option (7)
3,667
499,664
1,635
5,233 $ 10,724
3,856
4.645
4,349
946.895
0.41%
0.17%
1.13%
0.43%
0.46%
100.00%
Totalcammerdnlloans andtcasci Total loans and leases (9)
Percentage of outstandings
0.55%
tn Consumer real estate loans 30-59 days past due Includes oilly^nsuiod loons ol $63/ million and nonperforming loans of 121/ million, consumer real estate loans 60-89 days past due Includes fully-tiuured loans
of {269 million and nonperforming loons of $146 million. 12' Consumer real estate Includes lull^lnsurcd loans ol il 9 billion
13; Consumer real estate includes $18 billion and direct/indirect consumer includes $53 nul ion of nonperforming leans. (41 PCI loan amounts are shown gross cf tne valuation allowance.
151 Total outstandings includes ajto and specialty lending loans and leases ol $50 1 billion, unsecured consumer lending loans cf $383 million. U S sccunties based lending loans of $37.0 billion, non-u\.S. consumer
loans of $2.9 billion and other consumer loans cl $746 million. Ifi) Substantially ali ot ctlier consumer is consumer overdrafts.
17) Consumer loans accounted for under the fair value option includes residential mortgage loans cl $336 million end homo itiuiry loans ol $3' also pledged $166 1 biliion ol loans with no related outstanding borrowings to secure potential borrowing
includes U,S. commercial loans of $2 5 billion and non-U S. commeiciai loans cf $ 1.1 c ilion. For additional information, see Note 70 - Fair Value Measurements and Note 21 - fair Value Option. ie, Tctal outstandings includes IJ tz. commercial real estate loans of $56 6 bill on and ncn-U 5 ccnimercial rea1 estate loans or $4 2 billion
191 Tota1 outstandings includes loans and leases pledged as collateral of $36 7 billion, the Co.'puroti capacity with the Federal freseive Dank and Fsdeiei Home LGan aonk (FHLB;
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90 Days or 30-59 Days 60-89 Days Mere PostOue(i) Past Ono
Total Past Doe 30 Days or More
Total Current or Less Than 30 D,-iys Past Due 131
Purchased
Credit-impaired
Loans Accounted for Uncer the rait Value Option
lota Outstancirgs
{Dollars in millions)
Consumer real estate
Core portfolio
Residential mortgage
Home equity Non-core portfolio
Residential mort/jage
Homo equ.ty
Credit card and other consumer
U.S. credit card
Direct/Indirect consumer 15)
Other consumer 16)
Total consjmer Consumer loans accounted for under the fair value option (7)
Total consumer loans and leases Commercial
U.S. commercial Non-U.S. commercial Commercial real estate (61 Commercial lease financing U.S small business commercial
Total commercial Commercial loans accounted for under the fair value option (7)
$ 1.2*2 215
1,028 224
542 330
3,581
547 52 48
110 95
321 108
468 121
405 104
244
1 10 68 45
$ 1,040 $ 473
3.535 572
900 44
C.564
6.504
425 3 29 26 88
571
December 3.1,2017
5.031 917
2,(503 i 174,015 796 43,449
14,161 $ 8.C01 9.8C5 2,716
1,847 478
94,438 95,864 166 431.959
1.216 56 67 204 228
11,672 431.959
1,791
283.620 97,736 58,211 21,912 13,421
474,900
176.618 44,245
27,193 13,499
96,285 96,342 166
454,348 928
455,276
284.836 97.792 58.298 22.116 13,649
476.691 4,782
Total commercial loans ond leases
Total loans and leases (9)
Percentage ol outstandings
111 Consumer real estate loans 30-59 cays past due includes (ulrylnsurcd loans of $650 million and nonperforming loans ol $253 million. Consumer real estate loans 60-69 days past due Includes fully-insured loans
of 1386 mrllion and nanpe'fdrmrng loans of $ 195 million. 12) Consumer real estate mcljdcs fully-insured loans ol $3.2 billion
la) Consumer teal estate includes $2.3 b.lliors and direct/livtiect consumer includes $43 mil ion ol nonpertorniing loans HI PCI loon uniouirts ore shown gross ol trie valuation allowance.
I&l tola! outstandings Incliiih-s auto and specialty lending loads and leases ul $52 4 billion unsecured consumei lending loans of $469 million, II.S securities-based lending loans of $39,8 billion. non-U.S. consumer
loans of $3.0 billion and otner consumer loans of $684 million. It) SutlsuintlaDy all ot otr.oi cnni.irocr is consumer ovcrdialta.
l'i Consumer loons accounted lor under t/ia fair value option includes rrr.riicntiot mortgage leans ol 1567 rrvilioir ono borne equity loons of $361 million. Commercial loans oocoumed for under ln« Wr value option
includes U Ji. commercial leans ol $2.6 billion and non U.S. commercial loons ol $2.2 trillion. Toi nddilin\al Inloiinatiun. see Note 1*0 - Tair Value Me osivrmcrits .-rnd Note 21 - fair Value Option. IS) Total nutstnndnigs includes U.S. commercial teal islam loans of $54.8 billion and non4! S comirwiciAl leal estate loans of $3.5 Milton
is) total outstandings Includes loans nnd lease:-, pledged ns cotlatetal of $40.1. biliion The Ce'Poi.HKin also pledged S 160.3 Initial oi loans mtli no iclolsu outstanding borrowings to secure potential borrowing capacity with the l-eriero, Reserve Bank and FH1.9.
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Ttie Corporation categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with its current consumer and mortgage servicing strategy Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation's underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent runoff portfolios.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.1 billion and $6.3 billion at December 31, 2018 and 2017, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans.
During 2018, the Corporation sold $11.6 billion of consumer real estate loans compared to $4.0 billion in 2017. In addition to recurring loan sales, the 2018 amount includes sales of loans, primarily non-core, with a carrying value of $9.6 billion and related gains of $731 million recorded in other income in the Consolidated Statement of Income.
Nonperforming Loans and Leases
The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At December 31, 2018 and 2017, $221 million and $330 million of such junior-lien home equity loans were included in nonperforming loans.
The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At December 31, 2018, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $185 million of which $98 million were current on their contractual payments, while $70 million wore 90 days or more past due. Of the contractually current nonperforming loans, 63 percent were discharged in Chapter 7 bankruptcy over 12 months ago, and 55 percent were discharged 24 months or more ago.
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During 2018, tlie Corporation sold nonperforming and PCI consumer real estate loans with a carrying value of $5 3 billion, including $4.4 billion of PCI loans, compared to $1 3 billion, including $803 million of PCI loans, in 2017.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs,
and loans accruing past due 90 days or more at December 31, 2018 and 2017. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Nole 1 - Summary of Significant Accounting Principles
Credit Quality
Nonperforming Loons and Leases
Accruing Past Due 90 Days or More
December 31
fDollars In millions)
Consumer real estate
Core portfolio
Residential mortgage 0)
Home equity Non-core portfolio
Residential mortgage HI
Home equity Credit cord and olher consumer U.S. credit card Direct/Indirect consumer
2018
$ 1.010 $
955
883 938
n/a 56
2017
1,087 $ 1,079
1,369 1,565
n/a 46
274 %
994 38
900 40
Total consumer
Commercial
U.S. commercial Non-U.S. commercial Commercial real estate Commercial lease financing U.S. small business commercial
794 80
156 18 54
814 299 112 24 55
197
4 29 84
144 3 4
19 75
Total commercial
Totol loans end leases
Ii) Residential mortgage loans In the core and non-core portfolios accruing past due no days or moie are lu:ly-:itsured loans At December 31. 2018 ond 2017, residential mortgage includes (1.4 billion and 12.2 billion of loans on which interest has been curtailed by the tllA and therefore are no lengei accruing inteiest, although principal Is still -nsured, and S438 million and $1.0 billion of loans on which interest is still accruing.
n/a - not applicable
Credit Quality Indicators
The Corporation monitors credit quality within its Consumer Real Estate. Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Wore 1 - Summary of Significant Accounting Principles. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using CLTV which measures the carrying value of the Corporation s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of tho value of the properly securing the loan, refreshed quarterly. FICO score measures the creditworthiness o( the borrower based on the financial obligations of the borrower and the borrower's credt history. FICO scores are typically refreshed quarterly or more
frequently. Certain borrowers (e.g borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to those primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
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The following tables present certain credit quality indicators for the Corporation's Consumer Real Estate. Credit Card ond Other Consumer, and Commercial portfolio segments, by class of financing receivables, at December 31. 2018 and 2017.
Consumer Real Estate - Credit Quality Indicators (l)
173.911 2.349 817 16.618
(Dollars in millions)
Refreshed LTV (3)
Less than or equal to 90 percent
193.695
Greater than 90 percent but less than or equal to 100 percent G'eater than 100 percent Fully-insured loans I*)
2.125 4.538 23.841 146,673 16,618 193,695
Total consumer rear estate
Refreshed FICO score Less than 620
Greater than or equal to 620 and less than 680 Greater than or equa' lo 680 and less than 740 Gteater than or equal to 740 Fully-insured loans (4)
Totol consumer real estate
Ul Excludes 1662 million ol loans accounted for under the fair value option. 121 Excludes PCI loans
111 Refreshed LTV percentages for PCI loans arc calculated using the carrying value net ol the related valuation allowance. t«l Credit quality indicators are not reported for fully-insured loans as principal repayment is insured,
Core Home
3.411 193 196
_ _ _Efl!fL,1,i?_ December 31, 2018
710 651 1.201 1,238
$ 39,246 354 410
3,800
1,064 f 2,008 7,008 29,930
40.010
Non-core
Home Home
equity (2) Equity PCI
5,870 603 058
1.326 1,575 1.968 2,563
7,431
Credit Card and Other Consumer - Credit Quality Indicators
U.S. Credit Card
Direct/Indirect Consumer
(Dollars in millions)
Refreshed FICO score Less than 620
Greater than or equal to 620 and less than 680 Greater than or equal to 680 End less than 740 Greater than cr equal lo 740 Other internal credit metrics U. 2)
5,016 12,415 35,781 45.126
December 31, 2018
1.719 3,124 8,921 36.709 40,693
Totol credit card and other consumer
HI Other internal credit metrics moy include delinquency status, geograptry or other lectors.
12) D.'.'ccl/'rridrrecr consume.- rncludes $39 9 rjillion of sectjrrlres-basec 'ending which rs ovcrcol)alera,r;ed and therefore has minimal credit risk
Commercial - Credit Quality Indicators W
U.S. Commercial
Non-U .S. Commercial
Commercial Real Estate
Commercial Lease Financing
U.S. Small Business Commercial 12)
(Collars in mrlrons;
Risk ratings
Pass rated
Reservable criticised Refreshed FICO sccre t3i
Less than 620
Greater than or eq;.al to 620 and ess than CSO Greater Mian or equal to 680 and loss trap 7£0 Greater than cr equa; to 7^0 Otncr inte'rai ceci*. nte'rics -3.«: Total commercial
291.918 $ 7,359
59.910 935
December 31, 2018
97.916 $ 860
98.776 *
22,168 $ 366
389 29
264 684 2.072 ¦ 4.254 6,873 14,565
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in EtcUidss 13.7 bill'an of loans occojw.cd hi under tfie ta r value oplcr
(21 U S. smoll Dullness conur-erc-ol incLjdes $731 ithIHot ef crfrcl/el business ui'd fi^d smc!! bunnsss loans vthinh are evaluated usirf rc'resrietj HCU s:o'e5 o' internal c-'edii mctrirs, including defifiqjer>cy sta'.us.
rather {han risk ratrngs Al Oocenter 31. 2018. 99p«r<;er! of the tiafailccs wnert Inte-naumaa rrejncs ars js*£J was current or less tha-> 3-> days past riiio 13| Refreshed FICO sccre end ctner ¦nteriKji cedit meuics ore applicable only tc itie L- S srnar basnets commprcat pcrHolio <4) Otrtc inter nni credit medics may fricljde dc'i'-uuency ifatJi, tippled :cn scores, gcog'stihy cr cirie?( 'ectors
Bank cf America 2018 HA
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Consumer Real Estate - Credit Quality Indicators W
Cerc-Restdential Mortgage (2;
Non-core Residential Mortgage (2)
153.G69 3.082 1.322 18.545
1.011 5.196 19,192
{Dollars In millions) Refreshed LTV (3) Less then or equal to 90 percent
176.61.8
Greater than 90 percent but Inss man or equal to 300 peinnnt Greater than 100 percent Fully-insured loans '41
2.234 4,531 22.934 128.374 18,545 17G.618
2,390 2,086 3.519 6.001 5.196 19.192
Total consumer real estate
Refreshed FICO score Less lhan 1320
Greater than or equal to 620 and less lhan 680 Greater than or equal to 680 and less than 740 Greater than or equal to 740 Fully-insured loans I4)
Total consumer real estate
111 Excludes J92S million af loans accounted lor under the foil value option, (2) Excludes PCI loans
13) Refreshed LTV percentages fur PCI loans are calculated using tne carrying value net of the related valuation allowance. f4) Credit qualrty Indicators are not reported for fully-insured loans as prmcipal repayment is insured.
Core Heme Equity I?)
December 31. 2017
43,048 549 648
1,941 1,657 2.396 2,007
8,001
1.169 2.371 8.115 32.590
Noncure Home equity (2)
7,944 1,053 1.786
2,098 t 2.393 2,723 3,569
Home Equity PCI
1.781 412 523
2,716
452 466 786 1,012
2718
Credit Card and Other Consumer - Credit Quality Indicators
(Dollars In millions) Refreshed FICO score Less than 620
Greater than or equal to 620 and less than 680 Greater than or equal lo 680 and less than 740 Greater than or equal to 740 Other internal credit metrics u.2"
U.S Credit Card
4,730 12.422 35.656 43,477
Direct/Indirect Consumer
December 31, 2017
2,005 4,064 10,371 36.445 43.457
Total credit card and other consumer
ID Other Internal credit metrics may include delinquency status, geography or other factors.
121 DlrecVindircct consumer includes 142.8 billion of securities-based lending which is cvercollbteralized and theretore has minimal credit risk.
Commercial - Credit Quality Indicators W
(Dollars In millions; Risk ratings
l?ass rated
Reservable criticized Refreshed FICO score 13)
Less than 620
Groaler than o: equal io 620 and less than 6S0 Greater than or equai lo 630 and 'ess than 740 Greater than or equal tc 740 Oilier internal creo I niol'ico 13. 4)
Total commercial
11' Zjcl'jden 14 fi c l r-7r of icjns ar-r>; n:e.f r,„ under me fair i.Vuc «,-i 12 d.G small bjsiress coir.ircrcial re 130s 1 rd mi! 01 cf cr.-ici.-cc iftttiei lha- nsh rali-itfs 4i necen-Lc, 31 20; <\ ne on.ci.i-'. 0' the i
U.S.
Commercial
96,199 1,593
Non-U.S. Commercial
9,'.f92
275.904 8.932
284.636
-.11 siva-l lorii'iCES loans v.r„ch are e.e;u>:ed using re'rest iftrina -.rec-l nir-tnco a-e ijsed *as cu-'en: c ess the." :JC
Commercial Rear Estate
5/,732 566
21.535 581
Decsmbei 31, 2017
322 50
223 625 1,875 3.713 6.841 13,649
.Clues O1 -:tcr-:e! crerli' inefics including delinquency status.
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**) Rel-esbcd FICO scce aid o.rer r-Ternal ciedir merji-js we Explicable .nly io die .J 5. sn-dli OL-smess coinin::!'. al portfolio i4! O'Jier in;cinal oiedT men ICS ma/ mcluJe delinquency slams, applicalion scoies, Eecgiepny Ol otber laetfrs
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Impaired Loans and Troubled Debt Restructurings
A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. For more information, sec Note 1 Summary of Significant Accounting Principles.
Consumer Real Estate
Impaired consumer real estate loans within the Consumer Real Estate portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of consumer real estate loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of consumer real estate loans are done in accordance with government programs or the Corporation's proprietary programs. These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof.
Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.
Consumer real estate loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower of $858 million were included in TDRs at December 31, 2018, of which $185 million were classified as nonperforming and $344 million were loans fully insured by the FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan's original effective interest rate. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses.
Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reached 180 days past due prior to modification had been charged off to their net realizable value, less costs to sell, before they were modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.
At December 31, 2018 and 2017, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were not significant. Consumer real estate foreclosed properties totaled $244 million and $236 million at December 31, 2018 and 2017. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process at December 31, 2018 was $2.5 billion. During 2018 and 2017, the Corporation reclassified $670 million and $815 million of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.
The following table provides the unpaid principal balance, carrying value and related allowance at December 31, 2018 and 2017, and the average carrying value and interest income recognized in 2018, 2017 and 2016 for impaired loans in the Corporation's Consumer Real Estate portfolio segment. Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
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