Bank of America (BAC) 10-K2021 FY Annual report

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.bankofamerica.com, and the Investor Relations portion of our website is http://investor.bankofamerica.com. 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, including environmental, social and governance (ESG) information, regarding the Corporation on our website. Investors should monitor the Investor Relations portion of our website, in addition to 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 Securities Exchange Act of 1934 (Exchange Act) are available on the Investor Relations portion of our website 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, or otherwise in this Annual Report on Form 10-K, 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: (i) our Code of Conduct; (ii) our Corporate Governance Guidelines; and (iii) the charter of each active committee of our Board of Directors (the Board). Our Code of Conduct constitutes a “code of ethics” and a “code of business conduct and ethics” that applies to the required individuals associated with the Corporation for purposes of the respective rules of the SEC and the New York Stock Exchange. 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 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, Bank of America Corporate Center, 100 North Tryon Street, NC1-007-56-06, Charlotte, North Carolina 28255.

Our practices and policies have resulted in strong representation across the Corporation where our broad employee population mirrors the clients and communities we serve. We have a Board and senior management team that are 50 percent and 55 percent racially, ethnically and gender diverse. As of December 31, 2021, of global employees who self-identified, 50 percent of employees were women, and, among U.S.-based employees who self-identified, 49 percent were people of color, including 13 percent who were Asian, 14 percent who were Black/African American and 19 percent who were Hispanic/Latino. As of December 31, 2021, the Corporation’s top three management levels in relation to the CEO were composed of more than 42 percent women globally and 24 percent people of color in the U.S., including eight percent who were Asian, nine percent who were Black/African American and six percent who were Hispanic/Latino. Additionally, as of December 31, 2021, the Corporation’s managers at all levels were composed of 42 percent women globally and 41 percent people of color in the U.S., including 13 percent who were Asian, 10 percent who were Black/African American and 16 percent who were Hispanic/Latino. These workforce diversity metrics are reported regularly to the senior management team and to the Board.

We invest in our talent by offering a range of development programs and resources that allow employees to develop and progress in their careers. We reinforce our commitment to diversity and inclusion by investing internally in our employee networks and by facilitating enterprise-wide learning and conversations about various diversity and inclusion topics and issues. Further, we partner with various external organizations, which focus on advancing diverse talent. We also have practices in place for attracting and retaining diverse talent, including campus recruitment. For example, in 2021, 46 percent of our global campus hires were women, and, in the U.S., 53 percent were people of color.

Additionally, the Corporation provides a variety of resources to help employees grow in their current roles and build new skills, including resources to help employees find new opportunities, re-skill and seek leadership positions. The learning and development strategy is grounded in the development of horizontal skills delivered throughout the organization. Senior leaders, managers and teammates are onboarded and build horizontal skills, as well as role-specific skills, to drive high performance. This approach also facilitates internal mobility and promotion of talent to build a bench of qualified managers and leaders. In 2021, more than 26,000 employees found new roles within the Corporation and we

For more information about our human capital management, see the Corporation’s website and 2021 Annual Report to shareholders that will be available on the Investor Relations portion of our website in March 2022 (the content of which is not incorporated by reference into this Annual Report on Form 10-K).

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. 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. 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. The Corporation's status as a financial holding company is conditioned upon maintaining certain eligibility requirements for both the Corporation and its U.S. depository institution subsidiaries, including minimum capital ratios, supervisory ratings and, in the case of the depository institutions, at least satisfactory Community Reinvestment Act ratings. Failure to be an eligible financial holding company could result in the Federal Reserve limiting Bank of America's activities, including potential acquisitions.

The scope of the laws and regulations and the intensity of the supervision to which we are subject have increased over the past several years, beginning with the 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 continuing and 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 entities, management and ability to make distributions to shareholders. For instance, our broker-dealer subsidiaries are subject to both U.S. and international regulation, including supervision by the SEC, Financial Industry Regulatory Authority and New York Stock Exchange, among others; our futures commission merchant subsidiaries supporting commodities and derivatives businesses in the U.S. are subject to regulation by and

Our ability to pay dividends and make common stock repurchases depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers and non-capital standards established under the FDICIA. To the extent that the Federal Reserve increases our stress capital buffer (SCB), global systemically important bank (G-SIB) surcharge or countercyclical capital buffer, our returns of capital to shareholders could decrease. As part of its CCAR, 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 impact the level of our SCB. Additionally, the Federal Reserve may impose limitations or prohibitions on taking capital actions such as paying or increasing common stock dividends or repurchasing common stock. For example, as a result of the economic uncertainty resulting from the pandemic, in the second half of 2020 the Federal Reserve introduced certain limitations to capital distributions for all large banks, including the Corporation, which were removed effective July 1, 2021.

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 be an unsafe or unsound practice and to prohibit payment thereof.

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

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 of the 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 1A. Risk Factors – Liquidity on page 10.

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, 2021, our liabilities did not exceed 10 percent of the total liabilities of all financial institutions in the U.S.

The economic impact of the pandemic may continue to adversely affect certain of our businesses and our results of operations, including decreased demand for and use of our products and services; lower fees, including asset management fees; lower sales and trading revenue due to decreased market liquidity resulting from heightened volatility; higher levels of uncollectible reversed charges in our merchant services business; increased noninterest expense, including operational losses; and increased credit losses due to a deterioration in the financial condition of our consumer and commercial borrowers, which could result in their inability to fulfill contractual obligations, may vary by region, sector or industry and could be exacerbated by the expiration of government assistance. Additionally, our liquidity and/or regulatory capital could be adversely impacted by customers’ withdrawal of deposits, inability to repay loans and reduced usage of banking products, volatility and disruptions in the capital and credit markets, changes in the value of securities, derivatives and other financial instruments resulting in increased margin requirements, volatility in foreign exchange rates and customer draws on lines of credit. Adverse macroeconomic conditions could also result in potential downgrades to our credit ratings, negative impacts to regulatory capital and liquidity and reinstated restrictions on dividends and/or common stock repurchases.

We continue to execute business continuity plans in connection with the pandemic. If we become unable to operate

We have a large portfolio of financial instruments, including loans and loan commitments, securities financing agreements, asset-backed secured financings, derivative assets and liabilities, debt securities, marketable equity securities and certain other assets and liabilities that we measure at fair value that are subject to valuation and 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, unless we have effectively hedged our exposures. Increases in interest rates may result in a decrease in residential mortgage loan originations and could impact the origination of corporate debt. In addition, increases in interest rates or changes in spreads may adversely impact the fair value of debt securities and, accordingly, for debt securities classified as available for sale, may adversely affect accumulated other comprehensive income and, thus, capital levels. These market moves also may adversely impact the value of debt securities we hold to meet regulatory liquidity requirements. Decreases in interest rates may increase prepayment speeds of certain assets, and, therefore, may adversely affect net interest income.

Fair values may be impacted by declining values of the underlying assets or the prices at which observable market transactions occur and the continued availability of these transactions or indices. 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 (RWA), which requires us to maintain additional capital and increases our funding costs. Values of AUM also impact revenues in our wealth management and related advisory businesses for asset-based management and performance fees. Declines in values of AUM can result in lower fees earned for managing such assets.

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. We also engage in asset securitization transactions, including with the 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 (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk

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 financial strength, performance, prospects and operations and factors not under our control, such as the macroeconomic and geopolitical environment, including any continued macroeconomic stress caused by the pandemic, or changes the rating agencies may make to the methodologies they use to determine our ratings.

Rating agencies could make adjustments to our credit ratings at any time, and there can be no assurance as to whether or when any downgrades could 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, or bank or broker-dealer subsidiaries, were downgraded by one or more levels, we may experience loss of access to short-term funding sources such as repo financing, and/or incur increased cost of funds and increased collateral requirements. 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.

Bank of America Corporation, as the parent company, is a separate and distinct legal entity from our bank 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 and other payments from our bank 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. Any inability of our subsidiaries to pay dividends or make payments to us may adversely affect our cash flow and financial condition.

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. Deterioration in the financial condition of our consumer and commercial borrowers, counterparties or underlying collateral could adversely affect our financial condition and results of operations.

Our credit portfolios may be impacted by global and U.S. macroeconomic and market conditions, events and disruptions, including declines in GDP, consumer spending or property values, asset price corrections, increasing consumer and corporate leverage, increases in corporate bond spreads, rising or elevated unemployment levels, rising or elevated inflation, fluctuations in foreign exchange or interest rates, as well as widespread health emergencies or pandemics, extreme weather events and the impacts of climate change and domestic and global efforts to transition to a low-carbon economy. Significant economic or market stresses and disruptions typically have a negative impact on the business environment and financial markets, which could impact the underlying credit quality of our borrowers, counterparties and assets. Property value declines or asset price corrections could increase the risk of borrowers or counterparties defaulting or becoming delinquent in their obligations to us, and could decrease the value of the collateral we hold, which could increase credit losses. Credit risk could also be magnified by lending to leveraged borrowers or declining asset prices, including property or collateral values, unrelated to macroeconomic stress. Simultaneous drawdowns on lines of credit and/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. Increased delinquency and default rates could adversely affect our credit portfolios, including consumer credit card, home equity and residential mortgage portfolios through increased charge-offs and provisions for credit losses.

Although macroeconomic conditions have improved during 2021 in comparison to 2020, the pandemic and the related impacts of inflationary conditions, high input costs and supply chain disruptions, unemployment or labor shortages and the expiration of pandemic-related government benefits and programs could negatively impact the ability of consumer and

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, predominantly comprised of broker-dealers, commercial banks, investment banks, insurers, mutual funds, hedge funds, central clearing counterparties and other institutional clients, resulting in significant credit concentration with respect to these industries. Financial services institutions and other counterparties are inter-related because of trading, funding, clearing or other relationships. As a result, defaults by one or more counterparties, or 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 credit 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, which may occur as a result of events that impact the value of the collateral, such as an asset price correction or fraud. 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.

Our commercial portfolios include exposures to certain industries, including asset managers and funds, real estate, finance companies and capital goods. Economic weaknesses, sustained elevated inflation, 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. Additionally, we could experience continued and long-term negative impacts to our commercial credit exposure and an increase in credit losses within those industries that continue to be disproportionately impacted by COVID-19 or are permanently impacted by a change in consumer preferences resulting from COVID-19 (e.g., travel and entertainment, as well as commercial real estate office exposure) or other industry disruptions.

Furthermore, we have concentrations 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. The U.S. has experienced a meaningful increase in property prices over the past year and a decrease in home price valuations or commercial real estate valuations in certain markets where we have large concentrations, as well as more broadly within the U.S. or globally, could result in increased servicing expenses, defaults, delinquencies or credit losses. In particular, the impact of climate change, such as rising average global temperatures and rising sea levels, and the increasing frequency and severity of extreme weather events and natural disasters such as droughts, floods, wildfires and hurricanes could negatively impact collateral, the valuations of home prices or commercial real estate or our customers’ ability and/or willingness to pay fees, outstanding loans or afford new products. This could also cause insurability risk and/or increased insurance costs to customers.

We do business throughout the world, including in emerging markets. Economic or geopolitical stress in one or more countries could have a negative impact regionally or globally, resulting in, among other things, market volatility, reduced market value and economic output. Our liquidity and credit risk could be adversely impacted by and our businesses and revenues derived from non-U.S. jurisdictions are subject to risk of loss from financial, social or judicial instability, changes in government leadership, including as a result of electoral outcomes or otherwise, changes in governmental policies or policies of central banks, expropriation, nationalization and/or confiscation of assets, price controls, high inflation, natural disasters, the emergence or continuation of widespread health emergencies or pandemics, capital controls, currency re-denomination risk from a country exiting the EU or otherwise, currency fluctuations, foreign exchange controls or movements (caused by devaluation or de-pegging), unfavorable political and diplomatic developments, oil price fluctuations and changes in legislation. These risks are especially elevated in emerging markets. Additionally, continued tensions between the U.S. and important trading partners, particularly China, may result in sanctions, further tariff increases or other restrictive actions on cross-border trade, investment, and transfer of information technology that weigh on trade volumes, raise costs for producers, and adversely affect our businesses and revenues, as well as our customers and counterparties.

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 or civil unrest. The ongoing pandemic had a severe negative impact on global GDP, and despite significant progress in 2021, it appears that the global economy faces an uncertain and uneven recovery ahead. While the U.S. and numerous other countries have recovered to pre-pandemic levels of output, many countries and areas within countries are recovering more slowly. Economic weakness may prove persistent in many countries and regions, including certain regions of Europe, Japan and numerous emerging markets. Moreover, economic activity remains vulnerable to ongoing public health uncertainties with respect to the pandemic, and a number of countries are still imposing significant restrictions on residents and businesses. Global supply chain disruptions, labor shortages, wage pressures and elevated inflation in many countries pose further challenges, especially in the form of volatility in financial markets. Additionally, foreign exchange rates against the U.S. dollar are at risk of significant depreciation as the Federal Reserve raises interest rates.

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. 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

The potential for operational risk exposure exists throughout our organization and as a result of our interactions with, and reliance on, third parties (including their downstream service providers) and the financial services industry infrastructure. Our operational and security systems infrastructure, including our computer systems, emerging technologies, data management and internal processes, as well as those of third parties, are integral to our performance. We also rely on our employees and third parties (including downstream service providers) in our day-to-day and ongoing operations, who may, as a result of human error, misconduct (including errors in judgment, malice, fraudulent activity and/or engaging in violations of applicable policies, laws, rules or procedures), malfeasance or a failure or breach of systems or infrastructure cause disruptions to our organization and expose us to operational losses, regulatory risk and reputational harm. The Corporation’s and third parties’ inability to properly introduce, deploy and manage changes to internal financial and governance processes, existing products, services and technology, as well as new product innovations and technology could also result in additional operational and regulatory risk.

Additionally, our financial, accounting, data processing and transmission, storage, backup or other operating or security systems and infrastructure, or those of third parties with whom we interact or upon whom we rely, may be ineffective or 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. We could also experience prolonged computer and network outages resulting in disruptions to our critical business operations and customer services, including abuse or failure of our electronic trading and algorithmic platforms. We may experience sudden increases in customer transaction volume or electrical, telecommunications or other major physical infrastructure outages, newly identified vulnerabilities in key hardware or software, failure of aging infrastructure and technology project implementation challenges, which could result in prolonged operational outages. Climate change is increasing the frequency and severity of natural disasters, such as earthquakes, wildfires, tornadoes, hurricanes and floods, which could result in increased exposure to operational risks, including outages. Additionally, events arising from local or larger scale political or social matters, including civil unrest and terrorist acts, could result in operational disruptions and prolonged operational outages.

We continue to execute our business continuity plans due to the pandemic and will likely continue to be subject to heightened operational risks to the extent that the pandemic persists. We also continue to have greater reliance on remote access tools and technology and employees’ personal systems and increased data utilization and be increasingly dependent upon our information technology infrastructure to operate our

We, our employees, customers, regulators and third parties (including providers of products and services) are regularly the target of an increasing number of cyber threats and attacks and will continue to be. Cyber threats and techniques used in cyberattacks are pervasive, sophisticated, rapidly evolving, difficult to prevent and include computer viruses, malicious or destructive code (such as ransomware), social engineering (including phishing, vishing and smishing), denial of service or information or other security breach tactics that could result in disruptions to our businesses and operations, the loss of funds of the Corporation and/or its clients and the unauthorized release, gathering, monitoring, misuse, loss or destruction or theft of confidential, proprietary and other information, including intellectual property, of ours, our employees, our customers or of third parties. Cybersecurity risks have also significantly increased in recent years in part due to the growing number and increasingly sophisticated activities of malicious cyber actors, including organized crime groups, hackers, terrorist organizations, extremist parties, hostile foreign governments and state-sponsored actors, in some instances acting to promote political ends responding to policies and/or actions of the U.S. government. We are also subject to cyberattacks by disgruntled employees, activists and other third parties, including those involved in corporate espionage.

Our cybersecurity risk and exposure remains heightened because of, among other things, the evolving nature and pervasiveness of cyber threats, our prominent size and scale, our high-profile brand, our geographic footprint and international presence and our role in the financial services industry and the broader economy. The financial services industry, including the Corporation, is particularly at risk because of the use of and reliance on digital banking and other digital services, including mobile banking products, such as mobile payments, and other web- and cloud-based products and applications and the development of additional remote connectivity solutions, which increase cybersecurity risks and exposure. Acceptance and use of such digital banking products and services has substantially increased since the onset of the pandemic. Additionally, the proliferation of third-party financial data aggregators and emerging technologies, including our use of automation, artificial intelligence (AI) and robotics, increase our cybersecurity risks and exposure.

We continue to execute our business continuity plans due to the pandemic. Accordingly, our risk and exposure to cyberattacks and security breaches remain magnified due to our continued reliance on remote access tools and technology, resulting in increased reliance on virtual/digital interactions and a larger number of access points to our networks that must be secured. This increased risk of unauthorized access to our networks results in greater amounts of information being available for access, including from employees’ personal devices over which we do not have the same controls as we do when a larger employee population is working from our offices. Greater demand on our information technology infrastructure and security tools and processes will likely continue as the pandemic persists and may be experienced permanently.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties (including their downstream service providers) and the financial services industry with whom we do business, upon whom we rely to facilitate or enable our business activities or upon whom our customers rely. Other indirect risks relate to providers of products and/or services, financial counterparties,

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, including increasing and complex economic sanctions regimes. 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 our clients. Additionally, we are required to file various financial and non-financial regulatory reports to comply with laws and rules in the jurisdictions in which we operate.

We are and may become subject to the terms of settlements, orders and agreements that we have entered into with government entities and regulatory authorities, which impose, or could 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, orders or agreements to which we are subject, or, more generally, fail to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government authorities, we could be required to enter into further settlements, orders or agreements and pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses.

We continue to face significant legal risks in our business, with a high volume of claims against us and other financial institutions. The amount of damages, penalties and fines that litigants and regulators seek from us and other financial institutions continues to be high. This includes disputes with consumers, customers and other counterparties.

Capital and liquidity requirements are 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 ability to return capital to our shareholders depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers. To the extent that increases occur in our SCB, G-SIB surcharge or countercyclical capital buffer, our returns of capital to shareholders could decrease. For example, our G-SIB surcharge is expected to increase by 50 basis points to 3.0 percent on January 1, 2024.

As part of its CCAR, 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 impact the level of our SCB requiring us to hold additional capital. Additionally, the Federal Reserve could reinstitute limitations or prohibitions on taking capital actions, such as paying or increasing dividends or repurchasing common stock as a result of the economic impact of the ongoing pandemic or otherwise impose such limitations in connection with other economic disruptions or events.

A significant component of regulatory capital ratios is calculating our RWA and our leverage exposure, which may increase. The Basel Committee on Banking Supervision has also revised several key methodologies for measuring RWA that have not yet been implemented in the U.S., including a standardized approach for operational risk, revised market risk requirements 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. Banks have experienced an increase in balance sheets, increasing leverage exposures and causing leverage-based ratios to overtake risk-based capital ratios.

Actions by the financial services industry generally or by certain members or individuals in the industry also can adversely affect our reputation. Also, adverse publicity or negative information posted on social media by employees, the media or otherwise, 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, fair lending activity, UDAAP, electronic funds transfers, know-your-customer requirements, data protection, including the GDPR, CCPA and CPRA, 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 with one another. If personal, confidential or proprietary information of customers or clients in our possession, or in the possession of third parties (including their downstream service providers) or financial data aggregators, is mishandled, misused or mismanaged, or if we do not timely or adequately address such information, we may face regulatory, reputational and operational risks which could adversely affect 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 interest 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 business.

There continues to be a major transition in progress in the global financial markets with respect to the replacement of IBORs, including the London Interbank Offered Rate (LIBOR), and certain other rates or indices that serve as “benchmarks.” Such benchmarks have been used extensively across the global financial markets and in our business. In particular, LIBOR has historically been used in many of our products and contracts, including derivatives, consumer and commercial loans, mortgages, floating-rate notes and other adjustable-rate products and financial instruments. The aggregate notional amount of these products and contracts referencing LIBOR or other IBORs remains material to our business. At the end of 2021, the global financial markets generally transitioned away

We have launched, and expect to continue to develop, launch and support, ARR-based products and services. There is no guarantee that liquidity in ARR-based products will develop, and it is possible that ARR-based products, including products using credit sensitive rates, will perform differently to IBOR Products during times of economic stress, adverse or volatile market conditions and across the credit and economic cycle, which may impact the value, return on and profitability of our ARR-based assets. New financial products linked to ARRs may have additional legal, financial, tax, operational, market, compliance, reputational, competitive or other risks to us, our clients and other market participants. In particular, banking regulators in the U.S. and globally have increased regulatory scrutiny and intensified supervisory focus of financial institution LIBOR transition plans, preparations and readiness, including the Corporation’s use of credit-sensitive rates like the Bloomberg Short-Term Bank Yield Index, which could result in a regulatory action, litigation and/or the need to change the products offered by our businesses.

Failure to meet industry-wide IBOR transition milestones and to cease issuance of IBOR Products by relevant cessation dates may, subject to certain regulatory exceptions, result in supervisory enforcement by applicable regulators, increase our cost of, and access to, capital and other consequences.

We operate in a highly competitive environment and 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, fees, reputation, interest rates on loans and deposits, lending limits, customer convenience and experience and relationships in relevant markets. Additionally, the changing regulatory environment may create competitive disadvantages for us given geography-driven capital and liquidity requirements.

In addition, emerging technologies and advances and the growth of e-commerce have lowered geographic and monetary 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

We use models and strategies extensively to forecast losses, project revenue, measure and assess capital and liquidity requirements for credit, market, operational and strategic risks, assist in capital planning and assess and control our operations and financial condition. Model Risk Management is a dedicated and independent risk function that defines model risk governance, policy and guidelines for the Corporation based on laws, rules and regulations, as well as internal requirements. Under our Enterprise Model Risk Policy, Model Risk Management is required to perform model oversight, including independent validation before initial use, ongoing monitoring reviews through outcomes analysis and benchmarking, and periodic revalidation. Models are subject to inherent limitations due to the use of simplifying assumptions, uncertainty regarding economic and financial outcomes, and emerging risks from the use of applications that rely on AI.

We own or lease approximately 71.8 million square feet in over 20,000 facilities and ATM locations globally, including approximately 66.8 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 5.0 million square feet in approximately 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

For more information on our capital resources and regulatory developments, see Capital Management on page 49.

The future direct and indirect impact of the pandemic on our businesses, results of operations and financial condition remains uncertain. Should current economic conditions deteriorate or if the pandemic worsens due to various factors,

The Corporation launched capabilities and services to support the issuance and trading in products indexed to various alternative reference rates (ARRs) and developed employee training programs as well as other internal and external sources of information on the various challenges and opportunities that the replacement of IBORs has presented and continues to present. The Corporation continues to monitor a variety of market scenarios as part of its transition efforts, including risks associated with insufficient preparation by individual market participants or the overall market ecosystem, ability of market participants to meet regulatory and industry-wide recommended milestones and access and demand by clients and market participants to liquidity in certain products, including LIBOR products.

With respect to the transition of LIBOR products referencing USD LIBOR settings ceasing or becoming non-representative as of June 30, 2023, a significant majority of the Corporation’s notional contractual exposure to such LIBOR currencies, of which the significant majority is derivatives contracts, have been remediated (i.e., updated to include fallback provisions to ARRs based on market driven protocols, regulatory guidance and industry-recommended fallback provisions and related mechanisms) and the Corporation is continuing to remediate the remaining USD LIBOR exposure. The remaining exposure, a majority of which is made up of derivatives and commercial loans and which represents a small minority of outstanding USD LIBOR notional contractual exposure of the Corporation, will require active dialogue with clients to modify the contracts. For any residual exposures after June 2023 that continue to have no fallback provisions, the Corporation is assessing and planning to leverage relevant contractual and statutory solutions, including relevant state legislation and any future federal legislation, to transition such exposure to ARRs.

The Corporation has implemented regulatory, tax and accounting changes and continues to monitor current and potential impacts of the transition, including Internal Revenue Service tax regulations and guidance and Financial Accounting Standards Board guidance. In addition, the Corporation has engaged impacted clients in connection with the transition by providing ARRs education and the timing of transition events. The Corporation is also working actively with global regulators, industry working groups and trade associations. For more information on the expected replacement of LIBOR and other benchmark rates, see Item 1A. Risk Factors – Other on page 21.

Trading Account Assets

Debt Securities

Short-term Borrowings

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 use the federal statutory tax rate of 21 percent 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 on an FTE basis. We believe that presentation of these items on an FTE basis allows for comparison of amounts from