Alastair Borthwick
Chief Financial Officer at Bank of America
Thank you, Brian. And I'll start with the summary income statement on slide 7, where you can see our comparisons illustrating 3% year-over-year operating leverage produced by growing revenue and managing our cost now. That was nearly enough to overcome the change in provision expense driven by the $2.7 billion reserve release in the year ago period compared to $400 million release this quarter.
On asset quality more broadly, we continue to see very strong metrics. Net charge-offs remained low. And in fact, they've done more than 50% in just the past year. Consumer early and late stage delinquencies are still below 2019 levels and reservable criticized moved lower again in Q1. Looking ahead, we continue to feel good about the asset quality results of our consumer and commercial businesses near term given our customer's high liquidity, low unemployment and rising wages.
We produced good returns again this quarter with an ROTCE of nearly 16% and we delivered $4.4 billion of capital back to shareholders, driving average shares lower by 6% year-over-year. Looking forward, and with continued expectations at growing NII combined with strong expense control, we expect to drive operating leverage and see our efficiency ratio work back towards 60%.
So let's turn to slide 8 and the balance and you can see during the quarter, our balance sheet grew $69 billion to a little more than $3.2 trillion. This reflected $14 billion of growth in loans and the growth of our global markets balance sheet as customer's increase their activity with us. A decline in cash this quarter was associated with that growth in global markets.
Our liquidity portfolio was stable compared to year end and at $1.1 trillion it represents roughly a third of the balance sheet. Shareholders' equity declined $3.4 billion from Q4 with a few different components I would note. Shareholder's equity benefited from net income after preferred dividends of $6.6 billion as well as the issuance of $2.4 billion in preferred stock, so that's $9 billion that flowed into equity in Q1 and we paid out $4.4 billion in common dividends and share repurchases.
AOCI declined as a result of the spike in loan rates that Brian referenced and we saw the impact in two ways. First, we had a reduction from a change in the value of our AFS debt securities that was $3.4 billion. That's the piece that impact CET1 as Brian noted. And second, rates also drove a $5.2 billion decline in AOCI from derivatives that does not impact CET1 that reflects cash flow hedges against our variable-rate loans, which provide some NII growth and protected CET1 at the same time.
With regard to regulatory capital since Brian already talked about CET1, I'd simply note that our supplemental leverage ratio was stable at 5.4% versus the minimum requirement of 5% and still leaves us plenty of capacity for balance sheet growth and our TLAC ratio remains comfortably above our requirements.
Turning to slide 9, we included the schedule on average loan balances and in the interest of time, the only thing I would add to Brian's earlier comments and for your perspective, it's simply a reminder that PPP loans are down $19 billion year-over-year. There's just a few billion of those left and excluding PPP, our total loans grew $89 billion or 10% compared to last year.
Moving to deposits on slide 10. First, let's look at year-over-year growth and across the past 12 months, we saw solid growth across the client base as we deepened relationships and added net new accounts. Our year-over-year average deposits are up $240 billion or 13%. Retail deposits with our consumer and wealth management businesses grew $190 billion and our retail deposits have now grown to more than $1.4 trillion where we lead all competitors.
Looking at linked quarter growth from Q4 and combining consumer and Wealth Management customer balances, our retail deposits grew $53 billion in just the past 90 days. With our commercial clients, they are up nicely year-over-year and we simply note that Q1 declined which is entirely consistent with previous year's seasonal trends.
Turning to slide 11 and net interest income. On a GAAP non-FTE basis NII in Q1 was $11.6 billion and the FTE NII number was $11.7 billion, so I'll focus on FTE, where net interest income has now increased $1.4 billion from the first quarter last year. As Brian noted that's 13% increase driven by deposits growth and our related investment of liquidity. NII was up $200 million versus the fourth quarter as the benefits of lower premium amortization and loans growth more than offset the headwinds of two less days of interest accruals and lower PPP fees.
So let's pause for a moment to discuss our asset sensitivity, because I want to make a couple of points as we begin what the Fed has signaled to be a significant rate hike period. Remember asset sensitivity is how we measure out NII for the next 12 months above an expected baseline of NII, given changes in interest rates and other assumptions. In an environment of sharply rising rates each quarter, the baseline of NII -- actual NII increases and therefore the future sensitivity declines, now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates above the forward curve. And on that basis, asset sensitivity at March 31 was $5.4 billion of expected NII over the next 12 months and 90% of that sensitivity is driven by short rates. That $5.4 billion is down from $6.5 billion at year end, largely because higher rates are now factored into and running through our actual or baseline NII.
Now you asked the question last quarter about the same sensitivity on a spot basis relative to our current curve and given that the yield curve is projecting 125 basis points of rate hikes over the next [Indecipherable], we thought it was appropriate to provide that disclosure. So in a 100 basis point shock to the current curve using spot rates, our sensitivity to that kind of move would be $6.8 billion or $1.4 billion higher than on a forward basis.
So assuming rising rates as reflected in today's forward curve and if we see continued loans growth, I would just reiterate what we said last quarter that we expect to see robust and NII growth in 2022 compared to 2021. We're not going to provide numerical guidance for the full year because the changes in interest rates have proven quite volatile in just the last 90 days, let alone a year. We do provide that asset sensitivity so that you can use it as guardrails to think about changes as you modify your own assumptions. I do, however, want to provide a nearer term expectation and say that if loans grow and rates in the forward curve materialize, we would expect to see NII in Q2 increase by more than $650 million over the Q1 level and then grow again significantly on a sequential basis in each of the following two quarters.
Okay, let's turn to expenses and we will use slide 12 for that discussion. Our Q1 expenses were $15.3 billion down a couple of $100 million from the year ago period. I'll focus my remarks on the more recent comparison versus Q4, where we're up $600 million and as expected and we conveyed to you last quarter, the Q1 increase was driven mostly by seasonality of payroll tax expense or roughly $400 million. We also experienced modestly higher wage and benefit costs. As we look forward, we continue to invest heavily in technology, people and marketing across our lines of business and we've continued to add new financial centers in expansion and growth markets.
We modestly increased our full year new tech initiative budget for the year to $3.6 billion and that's on top of more than $35 billion that we put to work over the past 12 years to help us build powerful more secure and scalable technology platforms. This -- the investment that's allowed us to maintain a leadership position in patents among our peers. We had 512 of them granted in 2021 and we are maintaining a similar pace this year. We think this is one of the things that's helping us to protect our moat around leadership positions in places that matter most to customers.
In addition to modestly higher marketing costs this year, our investments also include adding up to 100 new financial centers and we also plan to renovate more than 800 more during the year. We will also continue our upward march on minimum early wage toward $25 by 2025. Now how do we pay for all that? Through continued work on operational excellence and digital engagement.
And as we look to Q2, we expect our expenses to be down modestly from Q1 as much of the seasonal payroll tax expense abates and is somewhat offset by investment timing, inflation and the cost of opening up more fully for travel and client entertainment because it feels like we've got a lot of pent-up demand for face to face meetings by our clients and our people.
So let's turn to asset quality on slide 13. And as you can see, asset quality of our customer's remains very healthy. Net charge-offs this quarter were better than our expectations once again and remained below $400 million down 52% compared to Q1 2021. Provision expense was $13 million in Q1 as reserve release of $362 million closely matched net charge-offs in the quarter and that reserve release was primarily in our consumer portfolios.
On slide 14, we highlight the credit quality metrics for both our consumer and commercial portfolios and I'm happy to answer any questions later, but a couple of things are worth repeating. Consumer delinquencies remain well below pre-pandemic levels and despite reporting our commercial Russian lending exposure in reservable criticized, those levels still declined $1.7 billion from Q4.
NPL saw a modest increase. And that simply reflects a small amount of consumer real estate deferrals expiring with the expiration of the CARES Act. Turning to the business segments, one thing we'd ask you just keep in mind for each of the businesses is Q1 expense includes the seasonal payroll tax expense which has negatively impacted efficiency ratios or profit margins in Q1. Also and as usual, Q1 of every year includes segment capital level evaluation and you'll note, we put additional capital against each of the businesses due to their growth. And as usual, we've tried to include business trends and digital stats for each segment. So let's start with Consumer Banking on slide 15, where you can see the consumer bank are nearly $3 billion that's 11% up over Q1, 2021 as revenue growth more than offset the larger prior period reserve release.
It's probably most easily identified by looking at pre-tax pre-provision earnings, which grew 32% year-over-year. Revenue grew 9% on NII improvement and expense declined 4%, creating 13% operating leverage and the fourth consecutive quarter of operating leverage for our Consumer team.
Notable customer activity highlights included our 228,000 net new checking accounts opened in Q1, which represents our 13th consecutive quarter of net new consumer checking account growth. Now this occurred as we began to implement our previously announced insufficient funds and overdraft policy changes, which lowered our service charges above $80 million. So during this time, we saw accounts grow and we saw expenses decline. We also grew investment account 7% and we saw those balances grow 10% from Q1 '21 to $350 billion and that included $20 billion of client flows. And once again, we opened nearly a million credit cards in the quarter and grew average active card accounts and so growth in combined credit and debit spend of 15%.
Our continued investment in digital capabilities drove liquidity with our customers as we crossed 50% in digital sales this quarter and we continued investment in our financial centers, opening another eight n the quarter. It's also worth noting that small business saw continued growth in loans, in deposits and in spending. Small business card spend was up 28% year-over-year. It gives you an idea of how small businesses are reopening for business.
I'd also draw your attention to slide 22 in the appendix. We've shared this with you previously and it simply highlights the origination strength and quality of our consumer underwriting. Throughout everything, our underwriting standards have remained consistent.
Moving to slide 16, Wealth Management produced strong results earning $1.1 billion and that represented 28% year-over-year growth driven by strong revenue improvement, good expense management and low credit costs. Bank of America continues to deliver Wealth Management at scale across a full range of our client segments and with the best advisors in the industry according to balance rankings. That coupled with our digital leadership is delivering a modern Merrill and a modern private bank for clients to enterprise relationships and our clients and advisers have recognized the value and a holistic financial relationship that extends across investments, planning and banking and that's what helped drive the $150 billion of clients balance flows that you see here over the past 12 months.
Not only did we see strong investment flows of more than $70 billion but deposits grew $59 billion up 18% and we added $22 billion in loans over the same period, marking our 48th consecutive quarter of average loans growth in the business just consistent and sustained performance from the team.
Revenues grew 10% to a new record and were led by 25% growth in NII on the back of those solid deposit and loans increases as well as a 9% improvement in asset management fees. Expenses increased 4% driven by higher revenue related costs and resulted in over 600 basis points of operating leverage and we generated nearly 7000 net new households in Merrill and more than 800 in the private bank this quarter.
Moving to Global Banking on slide 17. The business momentum with our commercial clients remain strong in the first quarter. The business earned $1.7 billion in Q1, down $450 million year-over-year driven by the absence of a large prior period reserve release and lower investment banking revenue.
Revenue improvement of 12% year-over-year reflect higher leasing related revenue and NII growth, partially offset by those lower investment banking fees. Net interest income grew on the back of strong loans and deposits growth. And the leasing revenue improvement included more ESG related investments particularly in solar, as well as the absence of weather-related losses recorded last year.
While the Company's overall investment banking fees of $1.5 billion declined 35% year-over-year, we gain market share in some important areas and recorded a number 3 ranking in overall fees and importantly, our investment banking pipeline remains quite healthy. Provision expense reflected a reserve build of $177 million compared to a $1.2 billion release in the year ago period and this quarter's provision includes results taken for Russia exposure and other considerations for loans growth offset by continued improvement in asset quality metrics.
Finally, we saw expense decline by 4% driving strong operating leverage. Switching to Global Markets on slide 18 and as we usually do, I will talk about the segment results excluding DVA. Q1 net income of $1.5 billion reflects a solid quarter of sales and trading revenue and it includes a new record for equities. The business generated a 15% return in Q1 even with a 12% increase in capital allocated to the business.
Our investments in this business saw good results since our financing clients continue to increase their activities with our Company. Focusing on year-over-year sales and trading contributed $4.7 billion to revenue versus Q4 that was a 58% improvement, a little higher than typical seasonality and versus Q1 '21, we saw a decline of 8% as the prior year included higher commodities results due to weather related events. FICC declined 19% while equities improved 9%.
That FICC decline reflects the higher prior period commodities and a weaker credit trading environment and it was partially offset by improved performance across our macro products, especially rates and foreign exchange. The strength in equities was driven by strong performance in derivatives. And year-over-year expense declined reflecting the absence of costs associated with the realignment of a liquidating business activity to the all other unit, as well as some Q1 '21 accelerated cost for incentive changes. Absent those impacts, expenses were up modestly.
Finally on slide 19, we show all other, which reported a loss of $364 million declining $620 million from the year ago period. Revenue declined as a result of higher volume of deals particularly solar and therefore higher partnership losses on ESG investments and this is partially offset by the tax impact in this reporting unit.
Expense increased as a result of costs now recorded here in this segment following the Q4 realignment of that liquidating business out of Global Markets. And as a reminder for the financial statement presentation in this release, the business segments are all taxed on a standard fully taxable equivalent basis. So in all other, we incorporate the impact of our ESG tax credits and any other unusual items.
For the quarter, for the Company our effective tax rate was 10% benefiting from ESG investment tax credits and excluding the tax credits, the tax rate would have been roughly 24%. We expect our effective tax rate in 2022 to be between 10% to 12%, absent any tax law changes or any unusual items.
And with that, let's open it up please for Q&A.
