Our leadership

Hear from our CEO

A letter from Chairman and CEO Brian Moynihan

Dear shareholders,

I am pleased to report to you that by adhering to Responsible Growth, the 200,000-strong team at Bank of America produced record earnings in 2018 of $28.1 billion, or $2.61 per share. We did this by living our purpose, which is to help make our clients’ financial lives better through the power of every connection we can make — both for them and with them. Even as we continue to provide capital to our customers and clients, invest heavily in our company, and deploy capital to address some of the world’s toughest priorities, we were able to return nearly $26 billion in capital to our shareholders, including more than $5 billion in dividends and more than $20 billion in share repurchases. We continue to make progress to undo the dilution from the shares we issued due to the economic crisis of 2008-2009 and subsequent regulatory changes. Our capital, liquidity and capacity to serve clients are at record levels, and we have reduced the total number of fully diluted shares outstanding to below 10 billion. Over a three-year period, total shareholder return increased by more than 50 percent, outpacing the S&P 500 and exceeding the average of our U.S. large cap peers by more than three times.

Our culture of careful expense management has resulted in a $30 billion reduction in our expense base since 2010. We achieved this even as we generated greater customer activity and revenue, addressed industrywide inflation and cost challenges, and invested consistently. Positive operating leverage— meaning the change in revenue outpacing the change in expenses— has resulted in an efficiency ratio of 58.5 percent for 2018, transforming Bank of America into one of the most efficient firms in our industry.

Backdrop for 2019

The U.S. economy remains resilient and is growing. We are proud of our Bank of America Research team, which has been ranked as the best in the world for six of the last eight years. As I write this letter in late February 2019, those experts see the U.S. GDP growing 2.2 percent this year, and the world economy growing 3.4 percent. The U.S. consumer is solid: We observed 9 percent growth in 2018 over 2017 in our U.S. customer spending and money movement through Bank of America channels. Business and consumer confidence also remain solid. We see good opportunities ahead as we deepen our relationships, and add new ones, in each of our businesses.

Driving Responsible Growth

Our commitment to Responsible Growth is resolute. In previous letters, we have discussed this framework. Responsible Growth has four tenets: We have to grow — no excuses. We have to grow by delivering more for our customers and clients. We have to grow by managing risk well. And, our growth must be sustainable. Sustainable means we have to share our success with our communities, we have to be a great place to work for our teammates, and we have to drive operational excellence. This creates the ability to reinvest the savings back into our team, our capabilities, our client experience, and our communities and shareholders.

I’ll review our company’s performance in 2018 by discussing each of these tenets of Responsible Growth in more detail. By following them, we have kept credit costs at decade-lows and have driven positive operating leverage each consecutive quarter for four years running. For the year, we were the world’s third most valuable financial services company (as measured by market capitalization) and among the world’s top 10 most profitable companies. Our fourth-quarter 2018 earnings were the most among all U.S. global banks.

External recognition

Being one of the most profitable and efficient banks makes it possible for us to invest in award-winning capabilities, people and products to serve our customers and clients well. In 2018, we received top recognition as a company, including being named “World’s Best Bank” by Euromoney, an authoritative industry publication. We also were recognized for our employment practices and commitment to being a great place to work, our customer service, our mobile and digital capabilities, and for other products and services in every major category. In February 2019, we were ranked as one of the “100 Best Companies to Work For” by Fortune magazine and the global research and consulting firm Great Place to Work®. Bank of America also was recognized as the only financial services company on Fortune’s inaugural “Best Big Companies to Work For” list, which comprises seven companies with more than 100,000 U.S.-based employees.

What would you like the power to do?

Listening to how customers, our employees and our shareholders answer the question “What would you like the power to do?” is how we learn what matters most to them. By asking, we start a conversation centered on our commitment to serve by bringing our capabilities to help clients be successful.

We ask this question of our customers, in the communities we serve, and of our employees. Responsible Growth guides us in living our purpose to help make financial lives better, and to achieve strong operating results the right way. The three-year company strategy that our board of directors reviews and approves each fall is based on continuing to adhere to this approach.

What are we asking our clients with our straightforward question? It’s your financial life; it’s your decision. We will bring capabilities that are second to none to help you be successful. We will connect our capabilities for clients as no other financial services company can. Simply put: We are here to serve.

In 2018, we refined our company’s brand and logo to better reflect our work and progress over many years. Over time, these will continue to evolve to better visualize the way we run our company today. We’ll continue to serve by deepening our relationships, helping each individual, each business and each investor through the power of every connection we can help them make. That is our purpose, and it is how we want everyone — employees, the communities we serve, clients and investors — to see us.

Grow. No excuses.

The first tenet of Responsible Growth is that we have to grow, no excuses. As you can see in the chart, each of our businesses grew, thereby contributing to our record earnings in 2018.

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Over the last four years, deposits have grown 4 percent and loans across all our business segments have grown 6 percent on average. For 2018, deposit and loan growth within our business segments exceeded the net U.S. GDP rate. That is our core growth goal: to grow somewhat faster than the economy. Throughout 2018, our client base expanded and our market positions continued to improve in most of our businesses.

Rising interest rates helped us deliver earnings growth, but we don’t depend on them. Our growth in client deposits funds our loan growth across all of our businesses and enables us to continue to grow net interest income, even if further interest rate rises fail to materialize.

Our eight lines of business grew as a result of deepening client relationships and developing new relationships.

Growing by focusing on the customer

We are pleased to serve more than one in three U.S. households and more than 9 million business-owner clients. Our Consumer Banking business held $684 billion in average deposits during 2018, representing year-over-year growth of 5 percent. Average loans in that business grew by 7 percent. We have grown consumer checking balances for 40 consecutive quarters, producing an additional $200 billion in core checking deposits in our consumer business alone. In addition, average small business loans in Consumer Banking have grown 13 percent over the last three years.

Through 2018, we also continued to see rapid growth in our digital and mobile channels due to decades of investment. In 2018, our customers registered nearly 6 billion consumer banking app logins, allowing us to maintain regular connectivity with them, and provide unparalleled convenience. We have nearly 37 million digital banking users; nearly 27 million are active mobile banking customers. We now process more deposit transactions through mobile devices than in our financial centers. And 25 percent of our consumer sales, including credit cards and auto loans, were completed through a digital channel in 2018.

While we are seeing digital and mobile growth, we are investing heavily in our facilities and in the teammates who serve there, as well. We have retooled many of our ATMs, our financial centers, and our technology in the branches and call centers. And we have invested in skills for our teammates to have more opportunity in our consumer businesses.

These efforts have led to our strongest customer scores in our history. Our ability to deepen customer and client relationships is driven in part by the investments we are making to provide the best client care in the industry. For example, overall, our company was certified or recognized as having industry-leading capabilities six times by J.D. Power in 2018. Specifically, J.D. Power recognized our Digital Mortgage Experience and Home Loan Navigator for making the homebuying experience simpler than ever, and identified Bank of America as a top performer in several areas. We are the first financial services company to be both mobile app- and online banking-certified by J.D. Power for providing “An Outstanding Customer Experience.” Our auto finance, digital, mobile and credit card banking capabilities all were recognized as best-in-class, as were our small business offerings.

We saw similar growth in our Global Wealth and Investment Management business, where net new household growth was up four times from 2017, and overall client balances exceeded $2.6 trillion. We have added digital capabilities, more advisors and new products.

Our Global Banking business continues to do a great job serving up to the largest multinational companies. We also are deepening relationships with those clients, and adding new clients. As a result of investments we have made in relationship bankers, we have seen a 28 percent and 32 percent increase in net new relationships, respectively, in Business Banking serving smaller companies, and Global Commercial Banking serving middle-market companies. This is accompanied by solid deposit growth in Global Banking overall, up 9 percent at the end of 2018. Our teams earned top awards for providing the best client care in the industry, including Euromoney naming us the best bank in North America for small- and medium-sized enterprises. We received further recognition as the top Transaction Services bank in North America and best brand for cash management.

Our customer-centered growth extends into our institutional investor segment. Through our investments in our Global Markets business, and increased balance sheet commitment to our clients, we have seen an expansion in our prime brokerage business. Over the last several years, we have invested heavily in new systems and expanded products and electronic trading for investor clients. This contributed to record revenues in our equities business and solid fixed income business performance.

Growing within our Risk Framework

Another core tenet of Responsible Growth is that we grow within our Risk Framework, and we had solid results in 2018. Total net charge-offs remained at decade-lows, while the net charge-off ratio declined 3 basis points to 41 basis points. All key asset quality metrics are solid. We are committed to being in a strong position to support clients throughout economic cycles. We have also managed market risk well during the turbulent markets in 2018, and our market risk indicators remain low. Through operational excellence we have also kept operational risk in check.

Delivering sustainable Responsible Growth

As I mentioned earlier, we ensure Responsible Growth is sustainable. This requires relentless progress across three dimensions: sharing our success with our communities; striving to be a great place to work for our employees; and driving operational excellence. We continued to make progress in each area in the past year.

Sharing success with the communities we serve

There are many ways we share our success. Our teammates volunteered 2 million hours supporting local organizations in 2018, and we introduced enhancements to our employee giving and matching gift programs. For 2019, we are increasing total annual philanthropic giving across the company to $250 million from $200 million. Since 2010, we have extended nearly $2 billion in philanthropic giving across the markets we serve in the U.S. and abroad.

Also in 2018, we provided $4.7 billion in loans, tax credit equity investments and real estate development solutions through our Community Development Banking business. We financed affordable housing for seniors, veterans and the formerly homeless, charter schools and economic development. Through our Capital Deployment Group, we have been developing innovative financing approaches to address global challenges outlined in the United Nations Sustainable Development Goals, including affordable housing, clean water and sanitation, education, health care and renewable energy.

In recognition of the attention we pay to addressing these important priorities, I’m pleased that Bank of America was named the top global bank on Fortune magazine’s 2018 “Change the World” list. Fortune recognized our work mobilizing and deploying capital to address global challenges through our core business strategy.

We know if we continue to align our work to serve shareholder interests and address the priorities of our communities at the same time, the progress can be sustainable. I’ll discuss that in further detail below, and you can find an extended review of our work in these areas later in this report, including a letter from Vice Chairman Anne Finucane on page 22.

Being a great place to work

Another tenet of sustainability is ensuring we remain a great place to work for our teammates; the record employee satisfaction scores in our 2018 annual employee survey demonstrate this commitment. Our teammates especially value how we provide for employee health and wellness. Between current U.S.-based employees and their families, and retirees, we are responsible for providing comprehensive health and wellness benefits to nearly 400,000 people. For the ninth consecutive year, we have held the cost of this benefit flat for the lowest-compensated employees, even as we continue to improve the coverage. For all employees, we have managed to keep increases below national averages.

We also continue to make regular adjustments to starting-level compensation at our company. We have been a leader in establishing an internal minimum rate of pay for our U.S. hourly paid employees and have made regular increases over many years. Two years ago, we raised our minimum wage to $15 per hour, and our minimum wage is higher today. Our average rate for all U.S. hourly paid employees is significantly above this level.

Our work in this area also includes employee development and opportunities for growth. We foster our client-centric culture through strategic workforce planning, anticipating the future of work and creating a culture of lifelong learning. In 2018, nearly 40,000 of our Consumer and Small Business employees completed a learning curriculum, giving them more skills for broader success. We hired more than 27,000 new teammates to the company last year (including 3,500 plus from colleges and universities); we helped more than 17,000 employees find new roles in the bank; and 86 percent of eligible managers voluntarily participated in manager development courses to improve their skills. The implications are global; we also moved more than 5,000 jobs from non-U.S. markets to the U.S. over the last four years.

Another area of focus has been sharing the benefits of the 2017 U.S. tax reform. Since the passage of the Tax Cuts and Jobs Act in December 2017, we have extended two special compensation awards, impacting approximately 90 percent (in 2017) and 95 percent (in 2018) of our teammates globally. These awards included cash bonuses and stock, totaling more than $1 billion, and were in addition to the compensation these teammates otherwise received.

Please look for more details in this report, and in our proxy statement, about all we do to be a great place to work, including a letter from Chief Human Resources Officer Sheri Bronstein on page 30.

Driving operational excellence

We also ensure that Responsible Growth is sustainable though our focus on operational excellence — continuous improvement in our internal and external processes to make it easier for our employees to work with each other and to serve clients and customers. By pursuing operational excellence, we are becoming more efficient, so we can continue to invest while providing you good returns. This makes all the other progress that I’ve discussed possible.

Focusing on operational excellence allows us to continue to invest in our capabilities and in our team, even as we maintain expense discipline. While we face the same inflation and cost challenges all employers do (e.g., benefit increases, wage increases, real estate cost increases, more investment), we managed through them. We achieved our expense target of approximately $53 billion. We set that goal in mid-2016, when our annual expense run rate was $57 billion. Managing expenses well has contributed to four straight years of positive operative leverage and allowed us to grow pretax earnings at 18 percent in 2018 — all while investing in the company.

I have mentioned some of the areas in which we are investing: adding relationship managers for our Global Banking clients, continuing to improve on our leading digital and mobile capabilities for all client segments and for our teammates, investing in health and wellness benefits for employees, our philanthropy increase, and the shared success bonuses we paid to 95 percent of our teammates in 2018.

Since 2010, we have invested roughly $25 billion in new technology initiatives. This includes reworking effectively all of our major systems and adding innovative capabilities, while also building an internal cloud and software architecture for maximum efficiency and speed to market.

Technology investments are directed at innovation across our company. Perhaps that is most apparent in the investments we continue to make in our industry-leading online consumer platform and state-of-the-art branch network. Erica™ is one example. Our virtual banking assistant that combines interactive communications and artificial intelligence (AI) to learn and anticipate client needs is unique in the industry. Since we introduced Erica in spring 2018, more than 5 million customers have used the capability and the adoption rate is growing fast.

Another innovation in which we’ve invested is Zelle™, our peer-to-peer transfer capability enabled by our mobile app. Bank of America, along with other large banks, developed Zelle and we have extended full access to the capability to a growing network of participating financial institutions. Customers of virtually any bank of any size can now send money to one another through the safety of their bank account in real time. Zelle transactions by our clients are growing over 100 percent a year, and we had nearly 5 million users at the end of 2018. And we’re just getting started.

Another investment we’ve made is in our digital auto shopping experience, enabling customers to search, select a car, and get underwritten in real time. Customers can use our mobile app to search online for a car with access to thousands of dealers’ inventories, with over 1 million cars available. We have seen a seven-fold jump in financing applications in this area since launch in May 2017.

Our investments in digital and mobile preferences for the customer have resulted in higher customer satisfaction scores and more deposits, while allowing us to reduce our branch count by more than 1,300 since 2012.

And we continue to invest in improving our customer branch experience. Our 4,300 current centers are places where 800,000 customers come each day to talk with a relationship or product specialist for the financial advice, products and services they need.

In 2016, we announced our plans to renovate our financial centers and upgrade our ATMs nationwide to better serve our clients, expand our consumer and small business services into new markets, and grow our presence in existing markets. I provided an update last year, including our intention to expand our financial center presence in nine new markets to offer retail banking, lending, small business and investment services. Today, we cover more than 80 percent of the U.S. population with our retail branch footprint. With the scheduled investments, we will cover more than 90 percent.

We continued to execute this plan in 2018. We expanded our presence in 25 markets, including our newest — Denver, Minneapolis, and Indianapolis. We also entered the Pittsburgh market in 2018, and will be opening our first financial center in Salt Lake City in early 2019. In addition to opening 81 new financial centers last year, we completed renovations on 567 others. We are redesigning more than 2,500 financial centers by 2021 to make it easier for clients to access our banking and investing professionals for advice on their life priorities and financial goals. Adding financial centers also helps drive local employment, as we have added teammates across the new centers.

Look for a more detailed discussion of our high-tech, high-touch capabilities with Dean Athanasia, president of Consumer and Small Business, on page 15 of this report.

While our investments may be most apparent in the Consumer and Small Business segment, we are investing and innovating to better serve all of our clients. We have extended our mobile consumer experience into our commercial banking digital platform, with capabilities that enable treasurers of companies, both large and small, to transact with the same mobile convenience. This innovation benefits the clients whom we assist with markets-related services and activities, such as electronic trading, algorithms, analytical capabilities, systems and data management, and counterparty risk management and underwriting systems. For wealth management and investment clients, we have automated investing tools, enhanced document scanning and client texting.

Across our company, upgraded, integrated systems allow faster execution for customers with our enhanced reporting, robotics and automation. The application of advanced technology, coupled with our focus on client relationship management, creates a competitive advantage. And our universal, enterprisewide platform increases our efficiency and helps us better serve clients and customers. All this, combined with our global reach, creates a tremendous capability for you.

Remember, all this investment is driven by operational excellence — creating efficiency and investment in the future. The investments made in 2018 were extensive but we were able to reduce expenses through operational excellence. For 2019 and 2020, we expect expenses to remain flat even while we are making these investments. That makes our growth sustainable so we won’t have to pull back in times of slower economic growth.

Committed to strong governance

Please read the letter from Jack Bovender, our lead independent director, for a description of how the board of directors supports and oversees our strategy. Jack and our directors continue their practice of systematic investor engagement. In 2018, we met with shareholders holding more than 30 percent of our shares. Jack discusses this in further detail in his letter on the next page.

We were pleased to welcome back to the board last year Dr. Clayton S. Rose, who served as a director of our company from 2013 until 2015. Clayton was named president of Bowdoin College in Brunswick, Maine in 2015. He was able to rejoin our board last year and offers terrific perspective. We benefit from his insight on a range of issues.

Operating at scale to address important societal priorities

Earlier, I referenced challenges related to affordable housing, clean water, education, health care, renewable energy, energy efficiency and other critical areas outlined in the United Nations Sustainable Development Goals (SDGs). The way I think of this is that, in effect, we asked the world through the efforts of the United Nations, “What would you like the power to do?” And the world spoke. Society would like to see timely progress in addressing these priorities.

The issues are, of course, a concern to policymakers and elected officials at every level of government. But they are also a concern to our teammates, our customers and clients, the communities we serve, and our shareholders.

At Bank of America, we realize there is a significant gap between the capital that must be applied to these global challenges and the amount that is currently being spent. Credible estimates of what is needed to address the U.N. SDGs is about $6 trillion per year; the current annual funding gap is as much as half that.

Government alone can’t solve these challenges. The U.S. government, with the largest economy in the world, will spend more than $4 trillion this year. But almost two-thirds of those total expenditures are committed to non-discretionary needs: funding the social safety net, servicing U.S. debt and other commitments. The discretionary elements of the budget include national security, education, health care and other priorities. The same is true for other governments and economies around the world. The government budgets are fully committed, and in many cases in difficult shape, so counting on governments to spend more is not a likely solution.

Charitable giving alone also cannot fill the need. Annual giving from individuals, foundations, and corporations is spread across many worthy causes and, even in the aggregate, falls short. The U.S. is the largest philanthropic giver in the world as a percentage of GDP. Total giving to charitable organizations overall in the world was around $800 billion in 2017 and $410 billion in the U.S., primarily from individuals. Assets by foundations in the world are estimated at about $1.5 trillion; nearly half of that is held by foundations in the U.S. at $890 billion. Again, even if we spent all that money in a single year, it would be insufficient to close the gap.

We operate in nearly 300 cities, towns, and communities, consolidated into 92 distinct markets in the United States, and in three dozen countries around the world. We are part of the fabric of those communities, where our 200,000 teammates live, work, and raise their families.

Public companies that employ and invest at the scale that we and others do are well-positioned to address income inequality, clean energy, health care, and affordable housing through thought leadership, investment, innovation, mobilization of capital and in other ways. Private-sector leadership is necessary because solutions involving capitalism are inherently sustainable, and the returns will bring continued and increasing investment.

But, as the great student of business and author Jim Collins has said, we have to embrace “the genius of the AND.” We have to do our part to achieve strong and timely progress on the sustainable development goals AND we have to deliver strong returns to you, our shareholders, as we do so. This enables us to keep addressing these important priorities. We are doing this, and we are committed to doing more.

How does Bank of America do this?

First, we continue to align our expense base and our balance sheet to find every business opportunity to provide good returns and to make progress toward our goals. We do this by financing new energy sources, by financing affordable housing, and by financing other types of development. These financing opportunities provide a return for investors while making progress on the goals.

Second, we bring thought leadership to the discussion. Our Research team has demonstrated that companies adhering to sound environment, social, and governance (ESG) practices will avoid serious issues. In fact, their research shows that investors could have avoided almost all of the bankruptcies of the last several years by avoiding companies that do not have good metrics on ESG. Increasingly, investors are looking for that kind of adherence in making investment decisions. This is driving more private-sector investment capital from institutional investors toward companies that are addressing these priorities. We also see this in our wealth management businesses, where we are meeting client demands to construct portfolios focused on companies that meet standards consistent with progress toward the sustainable development goals. The practice is growing. By harnessing private capital in this manner, the alignment we create can help fill the gap left by limitations in government and philanthropic spending by bringing more resources, capital, and expense to the task. In addition, we can be a catalyst for others to act. Our expertise, credibility, and ability to assess the opportunities can help others who have the desire but may lack the expertise to deploy capital.

Third, we contribute in the ways we manage our own activities. We are more than halfway through our 10-year, $125 billion Environmental Business Initiative, supporting clients and others who are helping create a sustainable energy future. We also focus on our own sustainable facilities management and improved energy efficiency. For instance, we have set a goal to be carbon neutral by the end of 2020.

We also run your company to provide great opportunities for teammates. We hire from a diverse range of locations and backgrounds, and provide opportunities for teammates to pursue their own path and excel. That kind of opportunity for success allows a teammate to join us, for instance, from a low- or moderate-income neighborhood (as did more than 30 percent of our Consumer and Small Business external hires last year) and move into future openings throughout our company based on their own merit and desire.

Fourth, our own ESG work makes a direct impact. The direct investments we make, the volunteer efforts of our teammates, our philanthropic works — all of this helps address the challenges. While our own ESG work through giving and volunteerism cannot solve the challenges as we have relayed, we are proud of what our teammates directly do to help make progress on these priorities.

Let me give some examples of the different types of activities set forth above:

Bank of America committed more than $50 billion last year in lending, investing and philanthropy to deploy capital toward the SDGs. In fall 2018, we created a special $60 million Blended Finance Catalyst Pool to encourage more companies to participate in addressing those priorities. Our blended finance initiative combines different sources of capital for a targeted objective, in order to accommodate different risk tolerances and rates of return. As this approach expands over time, we can create the capacity to mobilize vast amounts of capital and achieve the scale necessary to fundamentally address global challenges driven by the force of private-sector capital returns.

In one of the first commitments of our catalyst pool, we joined with two other financial services companies in our headquarter city of Charlotte, North Carolina, to extend more than $70 million to fund low-income housing developments. Most of that amount will be low-interest loans to private developers building income-restricted housing.

We believe it is not only possible, but it is the desired outcome for Bank of America as a public company to simultaneously serve our clients, deliver for our shareholders AND address these local, national, and global social priorities. Delivering on both aspects of the “AND” is the way to ensure that we can continue to channel the capital from others and from our company that is needed to fund societal needs. We all have to provide great returns, while delivering on the goals.

Our teammates are called upon in every community where they live and work to lead efforts that promote economic and social development, and I am proud of how they step in to help. We welcome the continued interest of elected officials in these efforts and engage them across the cities, towns and communities we serve. Our commitment is a core element of Responsible Growth.

Thank you for being a shareholder

I hope you find it informative and enjoyable to read more about Bank of America in the following pages, where you’ll see more examples of how we’re helping to make financial lives better through every connection. You can read how we’re connecting with clients every day to help them achieve their goals, simply by asking:

“What would you like the power to do?”

I am proud to work with my 200,000-plus teammates who are listening for your answer.

Thank you for your support and investment in Bank of America.

Brian Moynihan
March 1, 2019
Source: 2018 Annual Report


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