BANK OF AMERICA CORP DE

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 the financial condition, 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 loans to terms that better align with their current ability to pay. 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 the 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 to 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 type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables 32, 34 and 37 summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio. For more information on our industry concentrations, see Table 34 and Commercial Portfolio Credit Risk Management – Industry Concentrations on page 66.

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 be 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 more information, see Note 12 – Commitments and Contingenciesto the Consolidated Financial Statements.

Commercial Credit Portfolio

Outstanding commercial loans and leases increased $4.4 billion during 2023 due to growth in commercial real estate, primarily in Global Banking, and U.S. small business commercial. During 2023, commercial credit quality deteriorated as nonperforming commercial loans and reservable criticized utilized exposure increased primarily driven by the commercial real estate office property type; however, the commercial net charge-off ratio of 0.12 percent during 2023 remained low.

With the exception of the office property type, which is further discussed in the Commercial Real Estate section herein, credit quality of commercial real estate borrowers has remained relatively stable since December 31, 2022; however, we are closely monitoring emerging trends and borrower performance in the increased rate environment and challenging capital markets. Recent demand for office space has been stagnant, and future demand for office space continues to be uncertain as

companies evaluate space needs with employment models that utilize a mix of remote and conventional office use.

The commercial allowance for loan and lease losses decreased $623 million during 2023 to $4.8 billion, primarily driven by improved macroeconomic conditions. For more information, see Allowance for Credit Losses on page 71.

Total commercial utilized credit exposure decreased $8.6 billion during 2023 to $696.3 billion primarily driven by lower derivative assets. The utilization rate for loans and leases, standby letters of credit (SBLCs) and financial guarantees, and commercial letters of credit, in the aggregate, was 55 percent and 56 percent at December 31, 2023 and 2022.

Table 28 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.

(1)Commercial utilized exposure includes loans of $3.3 billion and $5.4 billion accounted for under the fair value option at December 31, 2023 and 2022.

(2)Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $2.6 billion and $3.0 billion at December 31, 2023 and 2022.

(3)Excludes unused business card lines, which are not legally binding.

(4)Includes the notional amount of unfunded legally binding lending commitments, net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.3 billion and $10.4 billion at December 31, 2023 and 2022.

(5)Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of $29.4 billion and $33.8 billion at December 31, 2023 and 2022. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $56.1 billion and $51.6 billion at December 31, 2023 and 2022, which consists primarily of other marketable securities.

Nonperforming commercial loans increased $1.7 billion during 2023, primarily in commercial real estate. Table 29 presents our commercial loans and leases portfolio and related credit quality information at December 31, 2023 and 2022.

63 Bank of America

(1)Includes card-related products.

(2)Commercial loans accounted for under the fair value option includes U.S. commercial of $2.2 billion and $2.9 billion and non-U.S. commercial of $1.2 billion and $2.5 billion at December 31, 2023 and 2022. For more information on the fair value option, see Note 21 – Fair Value Optionto the Consolidated Financial Statements.

Table 30 presents net charge-offs and related ratios for our commercial loans and leases for 2023 and 2022.

(1)Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases, excluding loans accounted for under the fair value option.

Table 31 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 increased $4.0 billion during 2023

driven by the commercial real estate office property type and U.S. commercial, partially offset by non-U.S. commercial. At December 31, 2023 and 2022, 89 percent and 88 percent of commercial reservable criticized utilized exposure was secured.

(1)Total commercial reservable criticized utilized exposure includes loans and leases of $22.5 billion and $18.5 billion and commercial letters of credit of $795 million and $817 million at December 31, 2023 and 2022.

(2)Percentages are calculated as commercial reservable criticized utilized exposure divided by total commercial reservable utilized exposure for each exposure category.

Commercial and Industrial

Commercial and industrial loans include U.S. commercial and non-U.S. commercial portfolios.

U.S. Commercial

At December 31, 2023, 62 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 22 percent in Global Markets, 14 percent in GWIM

(loans that provide financing for asset purchases, business investments and other liquidity needs for high net worth clients) and the remainder primarily in Consumer Banking. U.S. commercial loans remained largely unchanged during 2023. Reservable criticized utilized exposure increased $1.3 billion, or 12 percent, driven by a broad range of industries.

Non-U.S. Commercial

At December 31, 2023, 62 percent of the non-U.S. commercial loan portfolio was managed in Global Banking and 38 percent in Global Markets. Non-U.S. commercial loans remained largely unchanged during 2023. Reservable criticized utilized exposure decreased $878 million, or 33 percent, due to upgrades and sales of Russian exposure. For information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 68.

Commercial Real Estate

Commercial real estate primarily includes commercial loans secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. Outstanding loans increased $3.1 billion, or four percent, during 2023 to $72.9 billion with increases across multiple property types. The commercial real estate portfolio is primarily managed in Global Banking and consists of loans made primarily to public and private developers, and commercial real estate firms. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at 20 percent and 19 percent of commercial real estate at December 31, 2023 and 2022.

Reservable criticized utilized exposure increased $3.5 billion, or 68 percent, during 2023, primarily driven by office loans.

Office loans represented the largest property type concentration at 25 percent of the commercial real estate portfolio at December 31, 2023, but only represented approximately two percent of total loans for the Corporation. This property type is roughly 75 percent Class A and had an origination loan-to-value of approximately 55 percent. Although we have seen collateral value declines in this property type, the majority of these loans remained adequately secured as of December 31, 2023.

Reservable criticized exposure for the office property type was $5.5 billion at December 31, 2023, and approximately $7.6 billion of office loans are scheduled to mature by the end of 2024.

During 2023 and 2022, we continued to see relatively low default rates. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio, including transfers of deteriorating exposures for 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.

Table 32 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.

65 Bank of America

U.S. Small Business Commercial

The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans primarily managed in Consumer Banking, and included $329 million and $1.0 billion of Paycheck Protection Program (PPP) loans outstanding at December 31, 2023 and 2022. PPP loans decreased $679 million primarily due to repayment of the loans by the Small Business Administration (SBA) under the terms of the program. Excluding PPP, credit card-related products were 54 percent and 53 percent of the U.S. small business commercial portfolio at December 31, 2023 and 2022 and represented 99 percent of the net charge-offs compared to 100 percent for 2022. Accruing past due 90 days or more decreased $171 million in 2023 driven by the repayment of PPP loans, which are fully guaranteed by the SBA.

Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity

Table 33 presents the nonperforming commercial loans, leases and foreclosed properties activity during 2023 and 2022. Nonperforming loans do not include loans accounted for under the fair value option. During 2023, nonperforming commercial loans and leases increased $1.7 billion to $2.8 billion. At December 31, 2023, 96 percent of commercial nonperforming loans, leases and foreclosed properties were secured, and 62 percent were contractually current. Commercial nonperforming loans were carried at 89 percent of their unpaid principal balance, as the carrying value of these loans has been reduced to the estimated collateral value less costs to sell.

(1)Balances do not include nonperforming loans held-for-sale of $161 million and $219 million at December 31, 2023 and 2022.

(2)Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming.

(3)Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, when the loan otherwise becomes well-secured and is in the process of collection, or when a modified loan demonstrates a sustained period of payment performance.

(4)Outstanding commercial loans exclude loans accounted for under the fair value option.

Industry Concentrations

Table 34 presents commercial committed and utilized credit exposure by industry. For information on net notional credit protection purchased to hedge funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, see Commercial Portfolio Credit Risk Management – Risk Mitigation.

Commercial credit exposure is diversified across a broad range of industries. Total commercial committed exposure increased $13.9 billion during 2023 to $1.2 trillion. The increase in commercial committed exposure was concentrated in Capital goods, Finance companies and Asset managers and funds.

Industry limits are used internally to manage industry concentrations and are based on committed exposure that is determined on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring.

Asset managers and funds, our largest industry concentration with committed exposure of $169.3 billion, increased $4.2 billion, primarily driven by exposure to the Capital markets industry group during 2023.

Real estate, our second largest industry concentration with committed exposure of $100.3 billion remained relatively unchanged during 2023. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 65.

Capital goods, our third largest industry concentration with committed exposure of $97.0 billion, increased $9.7 billion, or 11 percent, during 2023. The increase in committed exposure occurred primarily as a result of increases in Trading companies and distributors as well as Machinery, partially offset by a decrease in Industrial conglomerates.

The impact of various macroeconomic challenges, including geopolitical tensions, inflationary pressures and elevated interest rates, may lead to uncertainty in the U.S. and global economies, and may adversely impact a number of industries. We continue to monitor all industries, particularly higher risk industries that are experiencing or could experience a more significant impact to their financial condition.

(1)Includes U.S. small business commercial exposure.

(2)Includes the notional amount of unfunded legally binding lending commitments, net of amounts distributed (i.e., syndicated or participated) to other financial institutions. The distributed amounts were $10.3 billion and $10.4 billion at December 31, 2023 and 2022.

(3)Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the primary business activity of the borrowers or counterparties using operating cash flows and primary source of repayment as key factors.

Risk Mitigation

We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection.

At December 31, 2023 and 2022, 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 $10.9 billion and $9.0 billion. We recorded net losses of $185 million in 2023 compared to net losses of $37 million in 2022. The gains and losses on these instruments were largely 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 41. For more information, see Trading Risk Management on page 74.

Tables 35 and 36 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at December 31, 2023 and 2022.

67 Bank of America

(1)Represents net credit default protection purchased.

(2)Ratings are refreshed on a quarterly basis.

(3)Ratings of BBB- or higher are considered to meet the definition of investment grade.

(4)NR is comprised of index positions held and any names that have not been rated.

In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In 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 applicable, 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 37 presents our 20 largest non-U.S. country exposures at December 31, 2023. These exposures accounted for 89 percent of our total non-U.S. exposure at December 31, 2023 and 2022. Net country exposure for these 20 countries decreased $13.1 billion in 2023 primarily driven by decreases in Germany and Japan.

Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S.

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.

Our largest non-U.S. country exposure at December 31, 2023 was the United Kingdom with net exposure of $55.9 billion, which represents an increase of $590 million from December 31, 2022. The increase was primarily driven by higher corporate exposure. Our second largest non-U.S. country exposure was Germany with net exposure of $35.7 billion at December 31, 2023, a decrease of $10.1 billion from December 31, 2022. The decrease was primarily driven by lower deposits with the central bank.

69 Bank of America