Our leadership

Hear from our CEO

A letter from Chairman and CEO Brian Moynihan

Dear shareholders,

We have committed to you that Bank of America will stay true to our course of responsible growth, and our 2017 financial results reflect that in every dimension. We grew revenue by 4 percent to $87 billion, and we increased earnings per share (EPS) by 5 percent to $1.56. Adjusting for the one-time charge from the U.S. Tax Cuts and Jobs Act (the “Tax Act”), revenue was up 5 percent to $88 billion, EPS increased 23 percent to $1.83.

I will discuss in further detail below the overall impact of the Tax Act and how we view the anticipated long-term benefits.

Responsible growth also delivered for you, our shareholders. In 2017, we returned $15.9 billion in capital through common dividends and net share repurchases — nearly 90 percent of net income — up from $6.6 billion in 2016. Total shareholder return was 35.7 percent for 2017 and, as you can see in the chart on page 32, we outperformed major benchmarks. Our market valuation continues to grow, increasing by $82 billion in 2017 and standing near $330 billion as I write this.

Our financial metrics also improved. Adjusted for the impact of the tax legislation mentioned earlier, return on tangible common equity grew 150 basis points to 11 percent, well above our estimated cost of capital of 9 percent, and our return on assets rose 12 basis points to 0.93 percent. Our efficiency ratio further improved to 63 percent. Tangible book value per share, which measures the value we are creating for you, hit $16.96 at the end of 2017. In 2018, we expect continued improvement on all of these metrics.

I am proud of the countless ways our 209,000 teammates delivered in 2017, but what I want to emphasize for you is that we grew the right way — we drove responsible growth. We stuck with our approach and didn’t reach beyond our customer and risk frameworks for short-term gains. And we continued to invest in our teammates, our communities, and improving our company through operational excellence, so our growth would be sustainable.

We remain committed to returning capital

Before I highlight the results from our customer and client businesses, I want to touch on a point I discussed in some detail in last year’s letter. As I outlined last year, the number of shares outstanding, on a fully diluted basis, peaked at 11.6 billion, driven by the more than 7 billion common shares we issued for acquisitions and shares we issued to stabilize the company during the Great Recession.

We will continue to bring the share count down as we focus on returning excess capital to you. At the end of 2017, we reduced our fully diluted shares to 10.5 billion shares — a decline of more than 1 billion shares from the peak. Continuing on that path is a priority for us, and we plan to proceed with share buybacks and dividend increases based on our continued progress as measured through the annual Federal Reserve Comprehensive Capital Analysis and Review (CCAR) process.

Returning capital to shareholders does not prevent us from making loans as some suggest. We simply have more capital than we need to meet today’s requirements, and we can grow without using more for the foreseeable future. We have plenty of capital to serve our customers and clients’ needs.

Driving economic growth by serving customers and clients

Now, I’d like to highlight how we delivered for our three groups of customers: people, companies, and institutional investors.

In 2017, our Consumer Banking business, which serves one in two U.S. households and millions of small business clients, earned $8.2 billion in after-tax net income on revenue of $35 billion, up 14 percent and 9 percent, respectively, from the prior year. Our growth was broad-based; deposits grew by $54 billion, or 9 percent, to $653 billion, and we grew loans by $20 billion, or 8 percent, to $266 billion. And, even though rising interest rates tempered demand for mortgage refinancing, we originated $68 billion in mortgages in 2017.

After years of investment, Bank of America is the digital banking leader, with 35 million digital customers, including 25 million active mobile banking users. In 2017, our mobile banking app became the first to be certified by J.D. Power. Importantly, these customers logged in to our mobile app more than 1.3 billion times in 2017.

We process millions of transactions daily for our customers and clients. One area of significant growth is person-to-person (P2P) payments. We are a leader in payments via Zelle. While some 60 financial institutions are in the Zelle network, a third of all transactions in 2017 were conducted by Bank of America customers. Our P2P transactions more than doubled in 2017. The Zelle capability is integrated into Bank of America’s mobile app and allows our customers to make payments easily and securely, and even split payments to different recipients. The rapid adoption of Zelle enhances the customer experience and also helps us reduce the costs and risks associated with paper checks and cash transactions.

Let me take a moment to explain why digital technology is so important to our future.

For years, we have focused on redefining retail banking and improving the customer experience, both in our financial centers and through our digital platforms. We call this approach “high-touch, high-tech,” because it describes how we are following customer behavior to combine improvements in our 4,500 financial centers and new digital capabilities to enhance the overall customer experience however customers choose to engage with us. In addition to advances in our digital and mobile capabilities, which have resulted in digital sales comprising 30 percent of total sales, we are investing to refresh those centers and ATMs, and we are opening new financial centers in areas where we are serving customers and clients but have no retail presence, or too few centers.

In the map on page 5, you can see the markets where we have begun adding financial centers, and where we will be doing so in the near future. Last year, we also added more than 800 small business bankers, mortgage specialists, financial advisors, and other experts in our financial centers. Even with these investments, and with customer satisfaction levels at or near all-time highs, the efficiency ratio in our Consumer business — which measures what it costs to generate a dollar in revenue — improved by more than 4 percentage points in 2017 to 52 percent.

Turning to our Global Wealth and Investment Management business, we serve affluent and wealthy investor clients through the two leading brands in wealth management: Merrill Lynch and U.S. Trust. This business delivered $3 billion in after-tax net income on $19 billion in revenue in 2017, generating a 27 percent pretax margin. These results reflect years of investment and attention to serving the needs of our clients.

In 2017, we saw assets under management (AUM) flows of nearly $100 billion as clients continued to trust us to manage their investments. It’s also worth noting that, in the fourth quarter of 2017, loans to clients in this business grew by $11 billion, or 7 percent, over the fourth quarter of 2016, marking the 31st consecutive quarter of loan growth. The value of the integrated capabilities we offer our clients continues to deliver returns for our shareholders. By enhancing the client experience, and bringing to bear all that our enterprise has to offer to help clients achieve their goals, we’re deepening relationships and gaining new ones.

Our Global Banking business serves clients from medium-sized businesses to the largest companies in the world. Global Banking set several records in 2017, including revenue of $20 billion and after-tax net income of $7 billion. Full-year earnings were up 21 percent on strong operating leverage, as revenue rose 8 percent, while expenses rose only 1 percent. That is the kind of operating leverage our operational excellence can deliver.

We are investing in this business as well, including technology to improve the client experience and hiring additional bankers. Over the past few years, we have added more than 400 bankers to our Global Banking team in markets across the United States as we continued to deepen local relationships with our commercial clients. This investment paid off for us in many ways in 2017. For example, overall investment banking fees rose 15 percent in 2017 to $6 billion. We were gratified to see a 30 percent growth in fees from middle-market investment banking.

Global Markets serves our corporate clients and the largest institutional investors in the world. We saw solid, stable performance despite a challenging low volatility trading environment. This business generated $16 billion in revenue and $3.3 billion in after-tax net income.

Let me share a few observations about how we operate this business. We serve clients around the world who want to raise capital and hedge risks. When markets are volatile and clients are trying to manage their business, they turn to us for help. When markets are stable and there is less client activity or volatility, our revenues may be lower, as we saw in 2017.

We have positioned this business to deliver steady and sustainable returns in either scenario, while taking less risk. Over the years, our performance bears that out. In 2017, total sales and trading revenue, excluding debit valuation adjustments, was $13.2 billion, down 3 percent from the prior year. However, across the past five years and with all of the volatility in markets and trading activities during that period, Global Markets has delivered sales and trading revenue within a range of $12.9 billion and $13.6 billion. This relative stability reflects our leadership positions across multiple products and our ability to maintain the appropriate business mix during market shifts. Reflecting that stability and solid risk management, Global Markets made money every single trading day in 2017. Over the last five years, we made money in Global Markets on 98 percent of trading days.

Responsible growth that is sustainable

Looking at our 2017 business results, you can see that we remained true to our responsible growth strategy: We grew by focusing on serving our customers and clients and managing risk well.

We also are focused on achieving growth that is sustainable. Sustainability has three key components: Being the best place to work for our team, sharing our success, and operational excellence. To share success, we focus on our environmental, social, and governance (ESG) activities; responsible corporate governance practices; our $125 billion environmental initiative; our philanthropy; and many other activities.

Our ESG work includes the many ways we share our success by driving growth in the communities we serve. In 2017, we provided $4.5 billion in loans, tax credit equity investments and other real estate development solutions through Community Development Banking. We financed affordable housing, charter schools, health care and economic development across the United States, including 12,000 affordable housing units, nearly 5,000 of which went to seniors, military veterans and the formerly homeless. We deployed capital in many other ways to strengthen our communities, including $200 million in philanthropic giving. Also, our teammates spent 2 million hours supporting and volunteering with local organizations and chapters. It gives me great pride to see what the teams are doing in all our markets.

You can read more about how we are supporting communities throughout this report, including the four-page feature, beginning on page 16.

Sustainability has an element of operational excellence, continuing to improve our company and reinvesting those savings into future capabilities. Through prior initiatives, including our “New BAC” work in 2011 and our ongoing Simplify and Improve (SIM) program, we have simplified our company and made it easier for our teammates to serve customers and clients. We have unlocked savings that we have invested back into the company to innovate and improve our capabilities; an example of this is the addition of specialists in our financial centers, and more commercial and corporate bankers to serve local markets, which I discussed earlier.

As we have continued to invest in operational excellence, we have reduced the amount we spend each year by $26 billion since 2011. In 2016, we set a target of approximately $53 billion in annualized expenses for 2018, which we have reached. At the same time, our customer satisfaction scores are at pre-crisis levels, and improving.

Investing in our team to be a great place to work

Another component of being sustainable is our commitment to be a great place to work. In 2017, we demonstrated that commitment in several ways.

At the beginning of 2017, we reached the $15 per hour starting compensation level after years of regular increases for U.S. teammates. I’m pleased to see that other companies have followed suit more recently, influenced by the passage of the Tax Act in the United States. We will continue to review and adjust our starting wage as part of our commitment to fair and equitable compensation for all of our teammates.

Please look for additional discussion in this report from Sheri Bronstein, Global Human Resources executive, about our compensation and benefits, including career development and learning, and other initiatives to help our teammates see Bank of America as a great place to work. Sheri’s note also describes our industry-leading work on health care and wellness for our team.

Sharing the benefits of U.S. Tax Reform

Earlier, I mentioned that there was a one-time charge to our 2017 earnings from the Tax Act. However, there are many benefits from tax reform that I want to discuss. These benefits impact how we will invest in the future and deliver returns to you.

The backdrop for this discussion is the solid economic growth our experts expect in 2018. As I write this letter, our economists expect about 2.7 percent growth in the U.S. economy, with the unemployment rate hovering at 4 percent or perhaps even lower. The driver continues to be the consumer, and so far in 2018, we see healthy consumer activity, with Bank of America credit and debit card spending up strongly so far this year. Our business clients are showing confidence in a more stable and predictable regulatory environment than in recent years.

When I think about the impact of the Tax Act, it starts with the broader benefits to the U.S. economy. By lowering the corporate rate to 21 percent from 35 percent, and by creating a territorial tax system where corporate earnings are taxed at the rate of the jurisdiction in which they are earned, the Tax Act allows companies to make business decisions less dependent on the tax considerations necessitated by the prior imbalance in rates between the United States and the rest of the world. This levels the playing field for U.S. companies and impacts their decisions.

In discussions with clients who are CEOs of companies headquartered abroad, I’ve been struck by a common theme. The United States is an attractive market for them, with solid consumer demand, highly skilled workers, stable rule of law, plentiful and predictable energy availability, and other factors. Even so, prior to the Tax Act reforms, these clients had no choice but to base investment decisions on the tax effects of different rates around the world. With the U.S. corporate rate better aligned with that of other countries, these CEOs now are considering how to invest in manufacturing and production in the U.S., where the final demand for their products remains so strong because the U.S. consumer economy is so healthy.

We’re seeing other economic benefits from tax reform as well. Hundreds of U.S. companies have provided bonuses, wage increases, and increased matches to retirement savings plans to millions of American workers. At Bank of America, more than 90 percent of employees have received a onetime payment as a direct result of U.S. tax reform, impacting about 180,000 teammates in the U.S. and overseas. In addition, we will continue to invest in our company in a balanced way that focuses on improving our connection with customers, while increasing our competitiveness and sustainability. We are expanding our financial center presence, as I discussed earlier. We are investing in new technology and innovation across all our businesses.

All these investments create jobs, too. We will look to these and other areas as we continue to grow and the benefits of tax reform play out. As these benefits are realized, it is also important that we retain our long-term focus on addressing the federal debt and ensuring the U.S. remains a fiscally strong, competitive global leader.

Committed to strong corporate governance

Let me conclude by discussing how the management team and the Board of Directors work together to advance your investment in Bank of America. Effective corporate governance is a tenet for sustaining responsible growth. You are represented by a strong independent Board. Our Lead Independent Director, Jack Bovender, and the other directors meet regularly with management, regulators, and shareholders to review how we are implementing responsible growth and executing our strategy of serving three groups of clients with our integrated financial services capabilities.

Throughout the year, the Board meets with management to oversee risk management and governance, and carry out other important duties directly and through Board committees that have strong, experienced chairs and members. In addition, the management team and the Board meet to review in detail ongoing results and issues needing deeper discussion. The Board and committees also give regular input to us about topics of interest which require additional conversation. In late fall, we hold an extended session over several days to review the three-year strategic plan and make adjustments based on the operating environment, markets, and other opportunities. See Jack’s note for his discussion about the Board’s role in strategic planning.

We are proud of the work our directors have done to increase diversity on our Board; we are one of only five companies in the S&P 100 to have five or more female board members. Our director recruiting process focuses on diversity of talent and perspective to ensure invigorating discourse among Board members and management. In 2017, we were pleased that Dr. Maria Zuber, the vice president for research at Massachusetts Institute of Technology, joined our Board. Dr. Zuber brings diverse perspectives in several areas, including technology and risk management. In the short time she has been with us, we have already benefited from her unique talents and experience.

I encourage you to read more about our corporate governance activities in our 2018 Proxy Statement.

Living our purpose

In 2017, we saw responsible growth at work for shareholders, customers and clients, the communities we serve, and our teammates. We discuss this in greater detail in the following pages, where you’ll see many examples of how we are living our purpose: to help make financial lives better through the power of every connection.

Thank you for your support and your investment in Bank of America. I look forward to another strong year for our company.

Brian Moynihan
March 12, 2018


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