Dear Shareholders,
To our shareholders,
Our company adopted Responsible Growth in 2014, and fully discussed its core tenets in our Annual Report the following year. These tenets have served as the foundation for our strong performance and progress. We have seen Responsible Growth work in the relative calm of 2015 to 2019, the pandemic tumult of 2020 and 2021, and the inflationary period of 2022. In each of these periods, our company benefited from our long-term consistency and adherence to the tenets of Responsible Growth.
Responsible Growth has served us well under varied conditions
The core tenets of Responsible Growth have served our company and you, our shareholders, well during good times and stress.
Responsible Growth served us well through the period from 2015 to 2019, when the economies of the world settled into normalized growth rates and interest rates rose in the U.S. with the Federal Reserve's tightening cycle.
As the pandemic hit in early 2020, a major economic crisis ensued and your company performed well once again, even as we met our clients' borrowing demands, built reserves, traded through uncertain markets, and helped our employees, clients and our communities deal with the pandemic and its aftermath. Again, Responsible Growth served us well.
During 2022, the U.S. and the world continued to face civil tensions from the pandemic and lockdowns, social and racial conflicts, a war in Europe and energy supply disruptions, and inflation.
Responsible Growth
1. Win in the market, no excuses.
2. Grow with a customer-focused strategy.
3. Grow with the right risk principles.
4. Grow in a sustainable manner: Be the best place to work, share our success with our communities and drive Operational Excellence.
The strength of our balance sheet, risk management, organic growth, and expense management became a catalyst that drove our financial performance.
Let's take a look at highlights of our performance in each of these periods, beginning with 2015 to 2019 as the U.S. economy set a record for one of the longest periods of economic growth. The Federal Reserve started a tightening cycle in 2016, raising interest rates reflecting the strength of the U.S. economy. Here's how we did:
Then came the pandemic, which brought with it 15% U.S. unemployment, a 30% drop in U.S. GDP annualized growth rate, huge fiscal stimuli, supply chain disruptions, and an instantaneous drop to 0% rates. After the recovery was assured by early 2021, a period of inflation set in resulting in the steepest interest rate increase path we have seen in the U.S. in the past 40 years. Here is how the company performed from 2019 to 2022:
As a side note, the total cumulative charge-offs at Bank of America from 2015 to 2022, reflecting Responsible Growth, were less than the charge-offs recorded in the single year 2010 despite a recession, a pandemic, unprecedented monetary policy changes, and war occurring in these years.
8 consecutive years of more than $15B in net income
We are positioned well for the future. In the post-pandemic period we have reestablished our organic growth engine.
For the entirety of the period from 2015 to 2022, we have seen the stock price double; we have produced $185 billion in after-tax earnings; and we have invested heavily in our franchise to better serve our customers and clients. Responsible Growth worked in all those environments and produced strong results on an enormous scale.
A simple way to think about this is only four U.S. companies have earned more than $15 billion in GAAP after-tax income in each of these eight years. Your company is one of them.
More importantly, we are positioned well for the future. In the post-pandemic period we have reestablished our organic growth engine. We have delivered revenue growth, while controlling expense, in a highly volatile environment. You will note increased costs for 2019 to 2022 above. First, we had cost increases for special pandemic programs and to take care of our team. Then, inflation added to costs. But in the end, we have just delivered our sixth straight quarter of operating leverage in the fourth quarter of 2022.
We have strong credit quality, capital ratios in excess of constantly increased regulatory minimums, a highly-respected brand, high employee satisfaction and loyalty, and incredible customers we are honored to serve. We have built and improved upon digital capabilities across every line of business to serve these customers, which embed the most effective capabilities of a fintech into the strength and stability of a well-regulated company.
While we review and learn from the past, we don't live there. What we are excited about is how our proven operating model sets us up for the future. Our team relishes the work ahead to continue to deliver for you. So, as we look forward to the years ahead, we are poised to continue to drive Responsible Growth, no matter what comes at us.
Thank you to our Team and our Directors
Before I share more highlights of our results in 2022, I want to thank my Management Team and our Board of Directors for continuing to represent the needs of our clients, teammates, shareholders, and the communities we serve. You will see more about these leaders on pages 12 and 13.
I especially want to recognize Lead Independent Director Lionel Nowell, who was named as “Independent Director of the Year” by Corporate Board Member magazine. Lionel shares his perspective on our company on page 11.
We welcomed José (Joe) E. Almeida, who joined your Board in September. We also give our appreciation to David Yost, a director since 2012, who is retiring due to age guidelines and will not stand for reelection at our annual shareholders' meeting. We thank Dave for his leadership, oversight, and prudent stewardship.
Thank you as well to my 217,000 teammates who join me every day at our company to fulfill our purpose of making financial lives better. In a year that began with many of us once again working from home, we are pleased to have our teammates back together, collaborating in person to serve our clients and deliver the full breadth of our capabilities, as you'll see highlighted throughout this Annual Report.
A deeper look at 2022
In 2022, we earned $27.5 billion after-tax, a decline from our record-level earnings in 2021, primarily due to increases in credit costs due to the absence of reserve releases. We earned $3.19 per diluted share, on $95 billion in revenue. Our pre-tax, pre-provision income, which adjusts for the provision expense, was up 14%* from 2021, driven by organic growth across our lines of business, higher interest rates, and prudent management of expenses. This helped us achieve operating leverage in 2022.
Total assets declined slightly to $3.05 trillion driven by a decrease in deposits due to withdrawal of monetary accommodation. These deposits remain at a healthy $1.9 trillion level. Deposits in the banking industry are shrinking, the natural and intended outcome of the Federal Reserve's monetary actions to fight inflation.
At the same time, even as the economy weakened during 2022, loan demand increased as loans grew $67 billion to more than $1.04 trillion. Asset quality remained strong as net charge-offs remained near the historically low range experienced in 2021. Overall, our balance sheet continued to be supported by high levels of capital and liquidity, enabling us to continue to grow our business with customers, while meeting additional regulatory requirements, and repurchasing shares.
Rising inflation also took its toll on the equities market. For the year, our stock price decreased 24%, directionally in line with the S&P 500 and the broader bank index.
This followed a strong 2021 performance that saw our stock outperform and increase 47%. Book value per share and tangible book value per share both increased in 2022.
We also addressed increased regulatory changes in our capital requirements. Our common equity tier 1 capital (CET1) grew 5% in 2022 to more than $180 billion, and our CET1 ratio of 11.2% remained well above our new minimum requirements. Even while growing capital, our common dividend per share increased 10% from 2021 and, in the aggregate, in 2022 we returned $13.6 billion in capital to shareholders through dividends and share repurchases.
Our first use of our capital generation is to grow our company by supporting our customers' needs and pay our dividend. But in the end, we end up with more than we need for those purposes. Share repurchases allow long-term holders to own more of our company.
In addition, we continued investments to enhance being a Great Place to Work for teammates. We established a multi-faceted approach to workplace flexibility, provided free lunch for several months to help employees create informal connections and welcome them back fully to work, and continued our competitive pay packages to reward our employees for serving our clients and targeted our efforts at building long careers at Bank of America.
For our communities and the broader needs of society, we also remain attentive to areas where we can direct the talent, innovation, and resources of our company and its role in capitalism. For example, we are working alongside our clients toward a clean energy, sustainable future. This is also why we invest in partners and programs in our local markets: to help create economic opportunity and prosperity in underserved communities where the needs can be greatest.
For all of this and more, Euromoney named Bank of America the World's Best Bank for the second time in five years. In announcing this prestigious ranking, the publication stated: “In an increasingly volatile and uncertain environment, Euromoney recognized Bank of America's performance not only in retail banking, loan growth, capital markets trading and wealth management, but also its behavior as a corporate citizen.”
We're also pleased to be named as America's Most “JUST” Company by JUST Capital. This ranking evaluates how companies invest in employees, communities, and customers, along with other issues JUST Capital has identified as important to Americans today.
Euromoney named Bank of America the World's Best Bank for the second time in five years. We're also pleased to be named America's most “JUST” Company by JUST Capital.
I am proud of all that your company, and our team, achieved in 2022. We once again delivered both profits and purpose—the genius of the AND as we call it—and we did it by delivering on the tenets of Responsible Growth. Throughout this letter, I will share with you examples about how we executed against each.
The rest of this report discusses that work in greater detail, and we also make available a clear set of financial and non-financial disclosures so you can see for yourself how we measure our progress and determine where we have more work to do.
We are capitalists at Bank of America
At the core of the progress is our conviction that capitalism is embedded in how Responsible Growth delivers opportunity for our clients, our teammates, the communities we serve, and for you, our shareholders. I've sometimes been surprised to be asked—including at Congressional hearings—“Are you a capitalist?” Your company is one of the most profitable companies in the world, whose purpose is to help our customers and clients live their financial lives, effectively helping them benefit in the capitalist system. Therefore, you might also find the question unusual. Of course, I answered, “Yes.”
But I understand the thoughts behind the question. I think the questions and the concerns some may have about capitalism are about opportunity. About whether companies are sharing profits or paying people fairly and equitably. At Bank of America, we look at it in this straightforward way: How can we rely on and help the innovation and energy of capitalism to address the priorities of our communities and society AND benefit our shareholders?
Capitalism provides the money, the creativity, and the expertise to solve the needs of society. We enable our customers to drive capitalism. It is what we do.
We once again delivered both profits and purpose—the genius of the AND as we call it—and we did it by delivering on the tenets of Responsible Growth.
Throughout this report we provide details about how we do this: How we help transmit the economy by lending, investing, and working alongside our clients to help them succeed. About all we do to support our teammates and be a Great Place to Work for them. The many ways we partner in local markets to help support community priorities. And, at the same time, How we deliver for you, our shareholders.
All these activities reflect our view that capitalism creates opportunity—for our customers and clients at every stage of their progress; for our teammates to advance their careers at Bank of America and support their families; for those in our local communities who may need help accessing our economic system to achieve their own goals; and for our millions of investors, a chance to share in our success through their ownership.
To do this, we align our day-to-day business activities to the work. We bring our $3 trillion balance sheet to the task. We bring our $273 billion in equity. We bring our capital markets and lending capabilities, raising trillions for our clients. We bring the invested assets of our wealth management clients. Of course, we also bring the nearly $360 million of philanthropy we commit. That is how we think of it: capitalism creates opportunity and prosperity, addressing important societal challenges along the way. And we measure our success. See below for how we measure.
$27.5B net income
$3T balance sheet
$273B equity
~$360M in philanthropy
Delivering Responsible Growth in 2022
Let's look at how we executed against each of the four tenets of Responsible Growth in 2022.
Grow and win in the market, no excuses. In 2022, we acquired new clients and deepened our relationships with existing ones. The strongest underlying evidence of winning in the marketplace is through market share, as illustrated by organic growth activity with our clients.
We drive Responsible Growth through our eight lines of business. Our client teams deliver the unique capabilities and offerings of each business to each client. We also focus in each market on bringing the entire company to every customer or client. We track how well we deliver these integrated capabilities by the number of client referrals between our lines of business in our local markets.
In 2022, we saw more than 7.5 million total referrals among our operating units. I want to thank our 97 market presidents across the U.S. and the nearly 30 country executives around the globe who serve as chief executive for Bank of America in their markets. They lead an integrated team to help us deliver one company for clients, teammates, you, our shareholders, and the broader communities served by your company. In this report on page 32, you will see how that comes to life in just one of these communities through our local leadership.
In 2022, we saw more than 7.5 million total referrals among our operating units.
In 2022, we helped consumer clients to open a record one million net new checking accounts. We also opened 465,000 Consumer Investment accounts through our online investment platform, Merrill Edge, resulting in $28 billion in net client flows. And we added more than a million new consumer credit card accounts in three of the four quarters in 2022.
Preferred Rewards —our flagship loyalty program that recognizes and rewards clients for doing business with us across all products—recorded another strong year of growth, with 10.2 million total clients enrolled. This represents a 9% year-over-year increase, with the program retaining its best-in-class 99% annualized membership retention rate.
Small business owners benefited from Bank of America's products, scale and expertise at our retail financial centers across the U.S. — including Business Advantage specialists in more than 2,600 financial centers, as well as our expansive ATM network, and access to local client professionals available to discuss their business priorities. We also are available to serve our small business clients digitally with the latest videoconferencing, chat and phone technology. Thanks to all of this and more, we continue to maintain our position among the nation's largest small business lenders, ending 2022 with $36 billion in total outstanding loans under $1 million and a 5% increase in Small Business checking accounts. And these small business clients have entrusted us with managing approximately $175 billion of deposits to pay their employees and build their businesses.
Our Merchant Services platform also recorded a strong year supporting financial solutions for merchants, adding new clients and volume while achieving a #1 client experience rating from J.D. Power.
Our wealth management business is comprised of Merrill and The Private Bank, which supported clients through last year's turbulent markets. The business added nearly 28,000 net new relationships as well as more than 800 wealth advisors in the second half of the year. This aided in gathering $87 billion in client flows for wealth management clients. Together, the team helped clients open more than 119,000 new bank accounts in 2022. And we saw average loan and lease growth of 10% year-over-year—the 51st consecutive quarter of growth as we continue to deliver our full suite of products and services in a way that sets us apart from competitors and meets client needs.
In our Global Banking business, serving commercial and corporate clients, we added more than 1,110 clients to the company in 2022 and grew average loans and leases 14% year-over-year to $375 billion. We also delivered $10.4 billion in Global Transaction Services revenue, up 38% over 2021. We moved up to #3 in the investment banking fees market share worldwide.
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Read the whole letter here.
