DBRS Morningstar Confirms Bank of America Corporation at AA (low), Stable Trend

DBRS, Inc. (DBRS Morningstar) confirms the credit ratings of Bank of America Corporation (BAC or the Company), including the Company’s Long-Term Issuer Rating of AA (low). At the same time, DBRS Morningstar confirms all the credit ratings of its primary banking subsidiary, Bank of America, N.A. (the Bank). The trend for all credit ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY CREDIT RATING CONSIDERATIONS
BAC’s credit ratings reflect its well-performing fully-scaled and highly diverse franchise. It also recognizes the Company’s strong balance sheet featuring ample levels of liquidity and capital. Furthermore, BAC is well-positioned for ongoing franchise and revenue growth given its leading positioning across its diverse businesses and strong momentum it has shown across its business lines. We view BAC’s earnings as highly diversified and well-balanced between net interest and non-interest income sources, which reduces earnings volatility under various interest rate scenarios.

The credit ratings also incorporate our expectation that credit fundamentals will likely weaken from their current low levels. However, we view BAC as having a strong risk management culture and expect any weakening of asset quality will be modest and within industry standards. Lastly, the credit ratings also consider BAC’s large held to maturity investment securities portfolio which has seen its value diminish with higher interest rates. We expect that over time unrealized losses in this portfolio will be reduced through maturities and given BAC’s very strong funding profile holding these securities to maturity should not be an issue.

CREDIT RATING DRIVERS
Given BAC’s high credit rating levels and risk profile, further positive credit rating actions are unlikely. A sustained deterioration of earnings or a significant weakening of balance sheet fundamentals would lead to a credit ratings downgrade. Additionally, any indications of meaningful franchise impairment due to risk management deficiencies or operational missteps would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: (Very Strong)
The credit ratings are underpinned by the Company’s highly-diverse business mix that includes consumer and wholesale banking services, wealth management and capital markets businesses, which all contribute to BAC’s overall franchise strength. The Company is estimated to have the largest U.S. retail deposit market share, as well as top tier market positions in mortgage lending and servicing, small and middle market business lending, credit cards, and commercial banking. Additionally, BAC maintains strong positioning in investment banking and sales and trading, while operating one of the largest wealth management businesses globally. Furthermore, DBRS Morningstar sees the Company’s scalable business model and full banking capabilities as supportive for continued growth. BAC’s scale, market positions and diversification provide significant versatility, allowing the Company to leverage its strengths in response to changing market opportunities.

Earnings Combined Building Block (BB) Assessment: (Strong/Good)
Earnings are well diversified and resilient with 2023 revenues thus far still benefitting from net interest margin improvement. The Company reported net income of $23.4 billion in 9M23, up from 9M22 earnings reflecting revenue growth partially offset by higher expenses and provision for credit losses. Net income for 9M23 resulted in a solid return on average assets of 1.00% and return on average common shareholders’ equity of 11.63%.

Risk Combined Building Block (BB) Assessment: (Strong)
Asset quality metrics remain sound. Specifically, non-performing assets remain low at 0.46% of total loans and foreclosed properties, slightly worse than the 0.37% of total loans and foreclosed properties reported at YE22. Meanwhile, net-charge-offs remain modest with NCOs for 3Q23 at 0.35%. While asset quality metrics remain at low levels they are likely to weaken in future quarters as the economy weakens and the effect of high interest rates impacts borrowers. However, we view BAC as remaining well positioned to absorb higher levels of losses. While we acknowledge the risks associated with BAC’s sizable capital markets businesses, particularly on a global scale, DBRS Morningstar sees the Company as having effective risk management capabilities that allow it to make appropriate risk/reward decisions and ensuring the capital market balance sheet remains appropriately sized.

Funding and Liquidity Combined Building Block (BB) Assessment: (Very Strong)
BAC’s balance sheet remains strong. The Company’s funding and liquidity profile is underpinned by its $1.9 trillion consolidated deposit base. Due to the Company’s business mix and funding needs, wholesale funding reliance is sizable, but well-managed. Long-term debt is well-laddered by maturity and the Company has the capacity to issue across markets and to a diversified investor base. Secured funding is done shorter-term, presenting some overnight funding risk, though funding for less liquid assets is typically done on a term basis. Global Liquidity Sources, including cash and highly liquid securities, averaged $859 billion in 3Q23, representing a significant 27% of total period-end
assets.

Capitalization Combined Building Block (BB) Assessment: (Strong)
As of September 30, 2023, BAC’s CET1 ratio was 11.9% and its supplementary leverage ratio stood at 6.2%. Both ratios remain well-above regulatory requirements. BAC has historically utilized stock buybacks to manage excess capital levels, relative to its internal targets. While regulatory capital requirements will likely increase with the implementation of pending new capital rules, we view BAC as well positioned to meet these requirements.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/425206/bank-of-america-corporation-intrinsic-assessment-framework.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

Notes:
All figures are in U.S. dollars unless otherwise noted

The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 23, 2023): https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support: (March 28, 2023): https://www.dbrsmorningstar.com/research/411694/dbrs-morningstar-global-criteria-guarantees-and-other-forms-of-support. In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors (July 4, 2023).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar did not have access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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