Bank of America Corporation — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter filing. Bank of America is a diversified U.S. bank holding company operating through Consumer Banking, Global Wealth & Investment Management, Global Banking and Global Markets, with remaining activity in All Other. The filing was signed February 22, 2022.
Financial and operating results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue, net of interest expense | $89.1 billion | $85.5 billion |
| Net interest income | $42.9 billion | $43.4 billion |
| Provision for credit losses | Benefit of $4.6 billion | Expense of $11.3 billion |
| Noninterest expense | $59.7 billion | $55.2 billion |
| Net income | $32.0 billion | $17.9 billion |
| Diluted earnings per share | $3.57 | $1.87 |
| Return on average assets | 1.05% | 0.67% |
| Efficiency ratio | 67.03% | 64.55% |
Revenue growth reflected stronger noninterest income, especially investment and brokerage services and investment banking fees. Net interest income fell as lower interest rates and average loan balances more than offset higher average securities balances. The credit-loss benefit reflected reserve releases as the economic outlook and credit quality improved. Expense growth was driven principally by compensation, transaction-card claims processing, charitable contributions and real-estate rationalization. The 2021 effective tax rate was 5.9%, unusually low primarily because of tax credits and approximately $2.0 billion of favorable U.K. deferred-tax-asset adjustments; management estimated the rate would have been about 25% excluding tax credits, U.K. tax-law effects and other discrete items.
Fourth-quarter 2021 snapshot
Revenue was $22.1 billion, net income was $7.0 billion, and diluted EPS was $0.82. The provision for credit losses was a benefit of $489 million, and noninterest expense was $14.7 billion. These are quarterly results, distinct from the full-year figures above.
Balance sheet, liquidity and capital
- At year-end, total assets were $3.17 trillion, loans and leases were $979.1 billion, deposits were $2.06 trillion and total shareholders’ equity was $270.1 billion.
- Deposits grew 15% year over year; debt securities increased 43% to $982.6 billion, largely as deposit inflows were invested. Long-term debt rose 7% to $280.1 billion.
- Cash and cash equivalents were $348.2 billion, down $32.2 billion. Average fourth-quarter Global Liquidity Sources were $1.158 trillion; average consolidated liquidity coverage ratio was 115%, versus 122% a year earlier. Management stated available cash, operating cash flows and debt-market access were sufficient for operating liquidity needs.
- Estimated uninsured deposits were $813.3 billion, including $701.4 billion in the U.S. and $111.9 billion outside the U.S.; deposit stability and funding access remain important risks.
- Standardized CET1 capital ratio was 10.6%, down from 11.9%; supplementary leverage ratio was 5.5%, down from 7.2%. The Corporation reported that it remained well capitalized and above applicable minimums. The decline in capital ratios reflected, among other factors, capital returns, higher risk-weighted assets and expiration of temporary leverage-ratio relief.
- Net charge-offs declined to $2.2 billion from $4.1 billion; allowance for credit losses fell to $13.8 billion from $20.7 billion. Nonperforming loans and leases were $4.7 billion, down from $5.1 billion.
Operating cash flow was negative $7.2 billion, investing cash flow was negative $313.3 billion and financing cash flow was positive $291.7 billion. These large movements reflected banking balance-sheet activity, including securities purchases and deposit growth; cash and cash equivalents declined by $32.2 billion over the year.
Material changes and segment performance
- Global Banking net income increased to $9.8 billion from $3.5 billion, substantially reflecting a credit-loss provision benefit, alongside higher investment-banking and other revenue.
- Consumer Banking net income rose to $11.9 billion from $6.5 billion, primarily due to credit reserve releases and higher revenue. Consumer Lending benefited from improved card credit performance and activity.
- GWIM net income increased to $4.3 billion from $3.1 billion, supported by higher market valuations and positive client flows; year-end client balances reached $3.84 trillion.
- Global Markets net income declined to $4.6 billion from $5.3 billion. Higher revenue was more than offset by higher expenses; Equities improved while FICC revenue weakened.
- Common-stock repurchases totaled $25.1 billion in 2021, compared with $7.0 billion in 2020. Common dividends paid were $0.78 per share for the year. The Board authorized up to $25 billion of repurchases in October 2021, subject to capital, market and regulatory considerations.
Outlook, management commentary, risks and unusual items
- Outlook: The filing provides no formal numerical earnings or revenue guidance. Management described continued uncertainty around the pandemic, inflation, supply-chain disruption, labor shortages, interest rates and the pace of economic recovery. The bank was asset-sensitive in its interest-rate analysis: an instantaneous parallel 100-basis-point increase was estimated to add $6.5 billion to pretax net interest income over 12 months, versus $10.5 billion in the prior-year estimate. This is a modeled sensitivity, not guidance, and assumes no response to the rate shock or change in deposit size or mix.
- Consumer fees: In January 2022, the Corporation announced it would eliminate consumer and small-business NSF fees beginning in February and reduce overdraft fees from $35 to $10 beginning in May. Overdraft-service fees were about $1 billion in 2021; management expected a significant reduction in these fees in 2022.
- Pandemic and credit: Risks include renewed disruption, expiring government assistance and deterioration in borrower conditions. Travel and entertainment and commercial office real estate were identified as areas of concern. Management’s downside-scenario sensitivity indicated a hypothetical allowance increase of about $5 billion relative to the baseline, not a forecast.
- Legal and contingencies: The filing reports a combined estimated range of possible loss of $0 to $1.0 billion in excess of accrued liabilities for specified reasonably possible litigation, regulatory and representation-and-warranty matters. The range is uncertain and is not the maximum exposure. Unresolved mortgage repurchase claims totaled $8.4 billion in notional amount; the associated reserve was $1.2 billion. Management did not expect these matters to materially affect consolidated financial condition or liquidity, but acknowledged an adverse outcome could materially affect a particular period’s results or reputation.
- Other notable exposures: The filing emphasizes cyber and operational disruption, market and interest-rate risk, concentrated credit exposures, regulatory and capital requirements, climate-related risks, and the transition from LIBOR to alternative reference rates. Certain U.S. dollar LIBOR settings were scheduled to cease or become non-representative after June 30, 2023; remaining contracts required continued remediation.
- Unusual tax item: Favorable U.K. tax-law-related deferred-tax-asset adjustments contributed to the low reported effective tax rate. These benefits should not be assumed to recur at the same level.
Most important facts for an investor to verify
- How much 2021 earnings depended on credit-reserve releases, tax credits and U.K. deferred-tax adjustments, and what earnings look like without those items.
- Whether deposit growth remains stable and how deposit repricing, uninsured deposits and customer behavior affect net interest income and liquidity.
- Whether the allowance for credit losses remains adequate if inflation, unemployment, commercial real estate or other borrower conditions worsen.
- How capital ratios evolve as repurchases continue, risk-weighted assets grow and regulatory buffers or requirements change.
- The actual revenue and earnings impact of the 2022 overdraft-fee changes, and progress and residual exposure in the LIBOR transition.
- Developments in material litigation and mortgage repurchase claims, including whether losses exceed recorded reserves.