Our leadership

Hear from our CEO

A letter from CEO Brian Moynihan

Our strategy of responsible growth delivered in 2016, as we earned nearly $18 billion, up 13 percent from a year ago. To put this into perspective, this was the second-most profitable year in our company’s history, exceeded only by the $21 billion we earned in 2006, prior to the economic and financial crisis.

Our strong performance allowed us to return $6.6 billion in capital to shareholders through a higher dividend, and by repurchasing common shares. The latter helped offset significant shareholder dilution that occurred during the financial crisis, which I discuss in more detail below. These results reflect years of work to simplify the company, rebuild and strengthen the balance sheet, and focus on serving our core customers.

In a dynamic operating environment characterized by unexpected events around the world, we saw the benefits of remaining nimble, adapting to change in the near term, while adhering to our long-term strategy to support our customers and clients and deliver for our shareholders.

Through our responsible growth strategy, we grew revenue, reduced expenses, managed risks and continued to invest in our workforce and our capabilities. We also made steady progress relative to our long-term financial goals (return on tangible common equity of 12 percent and a return on assets of 1 percent). Our return on tangible common equity increased to 9.5 percent, while our return on assets improved to 0.82 percent. The efficiency ratio improved from 70 percent to 66 percent. Tangible book value per share, which measures the value we are creating for you, increased 9 percent in 2016 to $16.95. In 2017, we will continue to drive this company further toward our goals.

We drove these results in part through operational excellence, working hard to manage expenses and reinvest in our capabilities. We reduced expenses by $3 billion last year, and while we have more work to do, expenses are down $22 billion, or nearly 30 percent, from their peak of $77 billion in 2011.

It’s important to note that we did this while growing the business. This created the operating leverage we need to invest for the future. We also accomplished this in a slow-growth U.S. and global economy.

However, as U.S. interest rates begin to rise, I am encouraged by what this signifies: an improving U.S. economy marked by low unemployment and increasing consumer and business confidence. It’s our job to nurture this growth and help drive the real economy in the U.S. and around the world.

Committed to Capital Returns

I want to focus on what our results mean for long-term shareholder value, but a little background is necessary. In 2006, we earned the most in our history ($21 billion). We had 4.6 billion shares outstanding, meaning our diluted earnings per share was $4.58. We also paid a common stock dividend of $2.12 per share, or 46 percent of our earnings. Now, compare this to our 2016 results: earnings were $18 billion, but because we had more than twice as many shares outstanding, our EPS was $1.50 per diluted share, and our common stock dividend was $0.25 per share, or 17 percent of earnings.

The biggest difference between the two periods is the increase in common shares and a reduction in the dividend. Both were necessary to stabilize the company after the worst economic crisis since the Great Depression, and now that our company is stronger, we are focused on reducing the dilution and increasing the dividend.

Our shares outstanding, on a fully diluted basis, peaked at 11.6 billion. We issued more than 7 billion common shares during the crisis. We funded acquisitions, strengthened our balance sheet to meet higher capital requirements, and repaid the government’s TARP investment within 13 months. We are working the share count down; at year end, we were at 11 billion shares. The market value of our company remains strong. As I write this letter, our market capitalization on a fully diluted basis is at an all-time high of more than $280 billion.

We are also focused on increasing the dividend. Last June, we increased the quarterly common stock dividend by 50 percent, made possible by all the work we’ve done to simplify the company, strengthen the balance sheet and rebuild capital.

What are the lessons we learned from this?

First, we must grow organically. Acquisitions are not part of our strategy so we don’t have to issue shares.

Second, our businesses generate more than sufficient capital to fund their growth. We have shed non-core businesses and we have everything we need to serve our clients, so we can focus on building stronger relationships with them and optimizing returns.

Third, we need to continue to reduce the number of shares outstanding. This is essential if we want our stock price to exceed the record highs we have achieved in our market capitalization and in our tangible book value per share. And, because our stock is trading at a price that is close to our book value, repurchasing shares now creates long-term value for remaining shareholders when we buy from the selling shareholders at this level.

Finally, by staying focused on these things, and executing our strategy of responsible growth, we can deliver the returns that you expect from us and continue to return excess capital to you through dividends and common stock repurchases.

Responsible Growth Is Working

We will remain on the path that led us to near-record earnings in 2016. Responsible growth means remaining steadfast in delivering on our purpose to help our customers and clients live their financial lives by connecting them to all of our capabilities.

This strategy has four tenets:

  • Grow and win in the market, no excuses.
  • Grow with our customer-focused strategy.
  • Grow within our Risk Framework.
  • Grow in a sustainable manner.

To put it more simply: Not every dollar is a good dollar, unless it comes from activities that satisfy a customer need and fit our risk parameters. We are here to serve our customers and clients and to nurture those relationships and drive growth with the leading capabilities we have across our company. Ours is a relationship business, and in this report, you will read about the relationships we’ve built with several client companies and how we’ve helped them achieve their financial goals.

Advancing the Goals of People, Companies, and Institutional Investors

I’ll begin with the people we serve. We serve 46 million households, and every week, we interact with customers more than 130 million times. In the time it takes you to read this letter, we will have had more than 100,000 contacts with customers.

Last year, our Consumer and Wealth Management segments grew deposits by $57 billion, or 7 percent, and increased loans by $29 billion, or 8 percent. We originated $79 billion in residential mortgages, up 13 percent, helping more than 260,000 families buy or refinance a home.

We continue to see strong enrollment in our preferred rewards program, up more than 40 percent from 2015, and we’re seeing a 99 percent retention rate in this program. We have more than 33 million online customers, and nearly 22 million mobile banking users. You can learn more about how we are redefining the retail financial services experience in the comments from Dean Athanasia and Thong Nguyen, the co-heads of our Consumer Banking business, on pages 10–11 in our 2016 Annual Report.

In Merrill Lynch and U.S. Trust, we have two of the best brands in the wealth management business, as well as the No. 1 market position across assets, deposits and loans. As Merrill Lynch Private Wealth Advisor Raj Sharma explains on page 10, these businesses continue to integrate the broad capabilities of our company to meet client needs.

Turning to the companies we serve, our Global Banking business works with virtually every one of the S&P 500 firms. In addition to a range of lending and other solutions, we have one of the world’s top-tier investment banks, ranked No. 3 globally in investment banking fees last year. We also are one of the largest lenders to mid-sized companies and to small businesses. As you will see from the stories of our great clients Cisco, WeWork, and Yoobi in this report, we bring the broadest array of capabilities to our clients — cash management, trade financing, lending in local currencies, and more — to support businesses that are driving the real economy here in the U.S. and around the world.

Finally, through our Global Markets business, we serve many of the world’s largest institutional investors, who are managing savings and investments through pension and retirement funds. This is a balanced business, narrower in its scope of activities than before the financial crisis, and focused on clients needing to raise capital and investors seeking the best opportunities to put their capital to work.

Because of our balanced approach, Global Markets can weather market volatility and make money in a wide range of economic scenarios. Our sales and trading business was profitable on all but three days last year, despite the volatility caused by macroeconomic events, including the United Kingdom vote to leave the European Union and the U.S. elections.

A differentiator for us is our Global Research team. For the sixth year in a row, our team was ranked No. 1 in the world by Institutional Investor magazine. Our research capabilities help drive our entire company, providing valuable insights to our markets business, corporate banking, and our wealth management clients.

Managing Risk Well Is Central to Everything We Do

In addition to keeping a clear focus on customers and clients, our responsible growth strategy includes growing within a clear Risk Framework so that we can maintain our balanced, stable and financially strong platform. This means understanding the risk and reward in everything we do and empowering our teammates to share their opinions and ideas so we make better decisions.

In the last quarter of 2016, we had the lowest charge-off ratio in our company’s history. For all of 2016, we grew core loan balances by 6 percent, yet charge-offs declined by 12 percent, which demonstrates our focus on growing the right way. In this report, Chief Risk Officer Geoff Greener discusses how we continue to strengthen our risk management so that every employee understands his or her role.

Ensuring Our Growth Is Sustainable

The final tenet of responsible growth is that we must grow in a sustainable manner. That means we must adhere to rigorous standards of corporate governance; we must invest in our communities; and we must strive to be the best place to work by helping our 200,000 teammates achieve their goals and aspirations.

Our environmental, social, and governance (ESG) practices are central to growing in a sustainable manner. A special ESG supplement enclosed in our Annual Report mailing this year provides additional details. There is also an extended discussion of our ESG practices in the proxy statement. Let me highlight a few key elements.

We are committed to best practices in corporate governance, including a strong, independent Board of Directors and other measures. The Board oversees our responsible growth strategy to deliver long-term value for you, our shareholders. Also, the Board has empowered a lead independent director whose duties and responsibilities meet or exceed corporate best practices. You can learn more about how the Board discharges its responsibilities in the Q&A with Lead Independent Director Jack Bovender in this report, and in the 2017 proxy statement. We also view the nearly $200 million in philanthropic investments we make in communities around the world, and the nearly 2 million volunteer hours our teammates commit to the causes they care about, as critical to creating the conditions for long-term, sustainable growth.

Also critical to fostering sustainable growth is the way we invest in our workforce and create an environment where they can thrive. As of early 2017, we’ve increased our minimum wage so that all employees earn more than $15 an hour. We will continue to adjust that, as we have regularly for several years now. In 2016, we also increased our fully paid parental leave from 12 to 16 weeks for all new parents. We create sustainable results through our Simplify and Improve (SIM) program, as well. Driven by thousands of ideas generated by our own teammates, SIM is our ongoing process of simplifying our company, eliminating or streamlining our internal and external processes, and reducing costs so we can reinvest in future growth.

It’s the hard work of our team that makes everything we are sharing with you on these pages possible. And, it’s our duty to create an environment that reflects and honors the diversity they represent, promotes inclusiveness and the sharing of different viewpoints, and provides benefits and career development opportunities so they can continue to grow and thrive.

Helping to Drive the Economy

To continue the strong performance we saw in 2016, we remain focused on executing our responsible growth strategy. There will be external impacts from changes in the markets, driven by political and economic factors that we cannot predict. We may see changes to banking laws, or to how regulations are implemented, in the United States and in other jurisdictions where we operate. Reasonable regulation is important for the safety and soundness of our financial system, and we support a review by policymakers and elected officials to ensure they strike the right balance to drive responsible economic growth.

As always, we must be agile and adaptive, but what will not change are the principles upon which we run our company. In both the near term and for the long term, given the current regulatory environment and because of the way we rebuilt our balance sheet and how we are executing our responsible growth strategy, we will have excess capital to put to work driving the economy. We are lending, and we will continue returning capital to shareholders through dividends and stock repurchases. There is a discussion in some quarters about perceived trade-offs between those important objectives, but we can do both while growing the company. We will continue investing in our business, our people, and our communities because we understand that when our customers, communities and employees succeed, we all succeed.

Thank you for investing in Bank of America.

Brian Moynihan
March 3, 2017

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