BANK OF AMERICA CORP DE

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 30, 32 and 35 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 32 and Commercial Portfolio Credit Risk Management – Industry Concentrations on page 38.

For more information on our accounting policies regarding delinquencies, nonperforming status, net charge-offs and loan modifications for the commercial portfolio, see Note 1 – Summary of Significant Accounting Principlesto the Consolidated Financial Statements of the Corporation’s 2023 Annual Report on Form 10-K and Note 5 – Outstanding Loans and Leases and Allowance for Credit Losses to the Consolidated Financial Statements.

Commercial Credit Portfolio

Outstanding commercial loans and leases increased $21.8 billion during the nine months ended September 30, 2024 due to growth in U.S. commercial, primarily in Global Banking and Global Markets. During the nine months ended September 30, 2024, commercial credit quality deteriorated as reservable criticized utilized exposure increased across a broad range of industries, and nonperforming commercial loans increased primarily driven by commercial real estate. Commercial net charge-offs increased $363 million and $1.0 billion to $490 million and $1.4 billion during the three and nine months ended September 30, 2024 compared to the same periods in 2023 primarily due to higher losses in the commercial real estate office portfolio and U.S. commercial portfolio.

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, 2023; however, we are closely monitoring emerging trends and borrower performance in a higher interest rate environment. Recent demand for office space continues to be 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 $164 million during the nine months ended September 30, 2024 to $4.7 billion. For more information, see Allowance for Credit Losses on page 41.

Total commercial utilized credit exposure increased $20.7 billion during the nine months ended September 30, 2024 to $717.0 billion primarily driven by increased loans and leases, partially offset 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 at both September 30, 2024 and December 31, 2023.

Table 26 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 $3.9 billion and $3.3 billion accounted for under the fair value option at September 30, 2024 and December 31, 2023.

(2)Commercial unfunded exposure includes commitments accounted for under the fair value option with a notional amount of $2.4 billion and $2.6 billion at September 30, 2024 and December 31, 2023.

(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 at both September 30, 2024 and December 31, 2023.

(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 $26.4 billion and $29.4 billion at September 30, 2024 and December 31, 2023. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of $58.1 billion and $56.1 billion at September 30, 2024 and December 31, 2023, which consists primarily of other marketable securities.

Table 27 presents our commercial loans and leases portfolio and related credit quality information at September 30, 2024 and December 31, 2023.

(1)Includes card-related products.

(2)Commercial loans accounted for under the fair value option includes U.S. commercial of $2.7 billion and $2.2 billion and non-U.S. commercial of $1.3 billion and $1.2 billion at September 30, 2024 and December 31, 2023. For more information on the fair value option, see Note 15 – Fair Value Optionto the Consolidated Financial Statements.

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Table 28 presents net charge-offs and related ratios for our commercial loans and leases for the three and nine months ended September 30, 2024 and 2023.

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

Table 29 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 $4.1 billion during the nine

months ended September 30, 2024 primarily driven by U.S. commercial and commercial real estate. At both September 30, 2024 and December 31, 2023, 89 percent of commercial reservable criticized utilized exposure was secured.

(1)Total commercial reservable criticized utilized exposure includes loans and leases of $26.3 billion and $22.5 billion and commercial letters of credit of $1.1 billion and $795 million at September 30, 2024 and December 31, 2023.

(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 September 30, 2024, 61 percent of the U.S. commercial loan portfolio, excluding small business, was managed in Global Banking, 23 percent in Global Markets, 15 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 increased $20.6 billion, or six percent, during the nine months ended September 30, 2024 primarily driven by Global Banking and Global Markets. Reservable criticized utilized exposure increased $2.3 billion, or 19 percent, driven by a broad range of industries.

Non-U.S. Commercial

At September 30, 2024, 58 percent of the non-U.S. commercial loan portfolio was managed in Global Banking,41 percent in Global Marketsand the remainder primarily in GWIM. Non-U.S. commercial loans increased $3.2 billion, or three percent, during the nine months ended September 30, 2024 primarily

driven by Global Markets. Reservable criticized utilized exposure increased $517 million, or 29 percent. For information on the non-U.S. commercial portfolio, see Non-U.S. Portfolio on page 40.

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 decreased $4.5 billion, or six percent, during the nine months ended September 30, 2024 to $68.4 billion primarily driven by the office property type. 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 of commercial real estate at both September 30, 2024 and December 31, 2023.

Reservable criticized utilized exposure increased $1.1 billion, or 13 percent, during the nine months ended September 30, 2024 primarily driven by industrial/warehouse and multi-family rental loans.

Office loans represented the largest property type concentration at 23 percent of the commercial real estate portfolio at September 30, 2024, and approximately one 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. Reservable criticized exposure for the office property type was $5.1 billion at September 30, 2024, representing a decrease of $397 million, or seven percent, from December 31, 2023, with an aggregate loan-to-value of approximately 80 percent based on property appraisals completed in the last twelve months. Approximately $3.5 billion of office loans are scheduled to mature by the end of 2024.

During the three and nine months ended September 30, 2024, net charge-offs increased $132 million and $617 million to $171 million and $747 million compared to the same periods in 2023 driven by office loans. 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 30 presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.

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. Credit card-related products were 54 percent of the U.S. small business commercial portfolio at both September 30, 2024 and December 31, 2023 and represented 100 percent and 99 percent of net charge-offs for the three and nine months ended September 30, 2024 and 2023. Accruing past due 90 days or more of $183 million remained relatively unchanged.

Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity

Table 31 presents the nonperforming commercial loans, leases and foreclosed properties activity during the three and nine months ended September 30, 2024 and 2023. Nonperforming loans do not include loans accounted for under the fair value option. During the nine months ended September 30, 2024, nonperforming commercial loans and leases increased $179 million to $3.0 billion. At September 30, 2024, 98 percent of commercial nonperforming loans, leases and foreclosed properties were secured, and 33 percent were contractually current. Commercial nonperforming loans were carried at 81 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.

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(1)Balances do not include nonperforming loans held-for-sale of $785 million and $173 million at September 30, 2024 and 2023.

(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 32 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 $49.3 billion during the nine months ended September 30, 2024 to $1.3 trillion. The increase in commercial committed exposure was concentrated in Finance companies, Asset managers and funds and Individuals and trusts.

For information on industry limits, see Commercial Portfolio Credit Risk Management – Risk Mitigation in the MD&A of the Corporation’s 2023 Annual Report on Form 10-K.

Asset managers and funds, our largest industry concentration with committed exposure of $178.6 billion, increased $9.3 billion, or five percent, during the nine months ended September 30, 2024, which was primarily driven by investment-grade exposures.

Finance companies, our second largest industry concentration with committed exposure of $105.7 billion, increased $16.6 billion, or 19 percent, during the nine months ended September 30, 2024. The increase in committed exposure was primarily driven by increases in Consumer finance, Thrifts and mortgage finance and Diversified financials.

Real estate, our third largest industry concentration with committed exposure of $97.9 billion, decreased $2.4 billion, or two percent, during the nine months ended September 30, 2024. For more information on the commercial real estate and related portfolios, see Commercial Portfolio Credit Risk Management – Commercial Real Estate on page 36.

Various macroeconomic challenges, including geopolitical tensions, higher costs associated with inflationary pressures experienced over the past several years and elevated interest rates, have led to uncertainty in the U.S. and global economies and have adversely impacted, and may continue to 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 at both September 30, 2024 and December 31, 2023.

(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 September 30, 2024 and December 31, 2023, 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 $11.1 billion and $10.9 billion. We recorded net losses of $42 million and $58 million for the three and nine months ended September 30, 2024 compared to net losses of $23 million and $134 million for the same periods in 2023. 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 38. For more information, see Trading Risk Management on page 43.

Tables 33 and 34 present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at September 30, 2024 and December 31, 2023.

(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.

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For more information on credit derivatives and counterparty credit risk valuation adjustments, see Note 3 – Derivatives to the Consolidated Financial Statements of the Corporation’s 2023 Annual Report on Form 10-K.

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. For more information on our non-U.S. credit and trading portfolios, see Non-U.S. Portfolio in the MD&A of the Corporation’s 2023 Annual Report on Form 10-K. For more information on risks related to our non-U.S. portfolio, see the Geopolitical section within Item 1A. Risk Factors of the Corporation’s 2023 Annual Report on Form 10-K.

Table 35 presents our 20 largest non-U.S. country exposures at September 30, 2024. These exposures accounted for 89 percent of our total non-U.S. exposure at both September 30, 2024 and December 31, 2023. Net country exposure for these 20 countries increased $21.5 billion in 2024 primarily driven by increases in the United Kingdom, Japan and the Netherlands.

Our largest non-U.S. country exposure at September 30, 2024 was the United Kingdom with net exposure of $62.4 billion, which increased $6.5 billion from December 31, 2023 primarily due to increased deposits with the central bank. Our second largest non-U.S. country exposure was Germany with net exposure of $33.7 billion at September 30, 2024, which decreased $1.9 billion from December 31, 2023 primarily due to lower exposure to sovereign and financial institutions.