Alastair Borthwick
Chief Financial Officer at Bank of America
Thank you, Brian and good morning, everyone. I'm going to take us to our fourth quarter results on slide 7, focusing on comparisons against the prior year quarter. And I'll also talk through the high-level commentary on slide 8. As Brian noted, we produced $7 billion in net income, which grew 28% from fourth quarter '20, while earnings per share of $0.82 improved at a faster 39% pace due to our share repurchases. Looking at our topline improvement on a year-over-year basis, revenue rose 10%. The improvement was driven by a $1.2 billion increase in NII and a little more than $800 million increase in non-interest income. Each business segment produced strong non-interest income results. And as you look at significant components of revenue, it was pretty consistent through the quarters in 2021.
One important aspect of responsible growth has been to grow consistently and sustainably. And I think we executed on that in 2021 with investment banking over $2 billion each quarter, sales and training -- trading near or above $3 billion each quarter, investment and brokerage services revenue over $4 billion each quarter.
With regard to expenses, our revenue-related costs increased, and we continue to make investments in our people and our capabilities to grow the franchise. At the same time, lower COVID costs and further digital engagement have helped to offset some of those increases. In the fourth quarter, revenue growth outpaced expense growth on a year-over-year basis, which produced operating leverage of 400 basis points and a 19% year-over-year improvement in pretax pre-provision income to $7.3 billion. With regard to returns, our ROTCE was 15%, ROA was 88 basis points, both of which improved nicely over the year.
Moving to slide 9. During the quarter, the balance sheet grew $85 billion to a little less than $3.2 trillion, and this reflected the $100 billion of growth in deposits. These deposits funded $51 billion of loans growth. And we also added $14 billion in securities, and so our cash increased by $68 billion. Partially offsetting these increases were typical year-end moves in our Global Markets balance sheet. Our liquidity portfolio grew to $1.2 trillion or a little more than a third of our balance sheet and shareholders' equity declined $2.4 billion from Q3, driven by the $8.9 billion of capital distributions, which once again outpaced earnings in the fourth quarter as it did in Q3.
With regard to our regulatory ratios, CET1 under the standardized approach was 10.6% and remains well above our 9.5% minimum requirement. The CET1 ratio declined 50 basis points from Q3, driven by excess capital reduction as well as an increase in our RWA due to the strong loans growth. And we're happy to see that capital usage increasingly needed to support customers and to fuel their growth, while still producing plenty of capital to return to our shareholders.
Earnings alone in the most recent quarter contributed 45 basis points to our CET1 ratio before the other capital impacts of share repurchase. Given our deposit growth, our supplemental leverage ratio declined to 5.5% versus a minimum requirement of 5%, which still leaves plenty of capacity for balance sheet growth. And our TLAC ratio remained comfortably above our requirements.
Turning to slide 10. We included the schedule on average loan balances, but in the interest of time, I don't have anything to add beyond what Brian noted earlier.
Moving to deposits on slide 11. We continue to see significant growth across the client base as we deepened relationships and added net new accounts across our deposit-taking businesses. Combining both consumer and wealth management customer balances, I would highlight that retail deposits grew $48 billion from Q3. Our retail deposits have now grown to nearly $1.4 trillion, and we lead our competitors. We also saw continued strong growth with our commercial clients. And remember, the deposits we're focused on and are gathering are the operational deposits of our customers in both consumer and wholesale.
Turning to slide 12 and net interest income. On a GAAP non-FTE basis, NII in Q3 was $11.4 billion. But I know, as investors, you tend to focus on the FTE NII number, which was $11.5 billion. So, focusing on the change on an FTE basis, net interest income increased $1.2 billion from Q4 '20 or 11%, driven by deposit growth and related investing of liquidity. NII versus Q3 of '21 was up $319 million, driven by deposit growth and then higher securities levels as well as loans growth. Premium amortization declined roughly $100 million to $1.3 billion in Q4, and the positive NII impact of lower premium amortization offset lower PPP fees.
Given continued deposit growth and low rates, our asset sensitivity to rising rates remains significant. It's modestly lower quarter-over-quarter as long-end rates moved higher, and we recognized some of that sensitivity in our now higher reported level of NII. So, I'd like to give you a couple of thoughts on NII expectations for 2022. First, I want to start by reiterating Paul's comment last quarter that we expect to see robust NII growth in 2022 compared to 2021. That assumes we see continued loans growth and the rising rate expectations embedded in the forward curve.
And in the first quarter specifically, we expect two headwinds. First, there are two less interest accrual days in the quarter. And as a reminder, we picked those back up in the subsequent two quarters. Second, we expect less PPP fee benefits. Combined, those two headwinds add to about $250 million. Despite those headwinds, we would still expect Q1 to be up about a couple of $100 million from Q4 and should grow nicely each subsequent quarter in 2022. Again, that's of course dependent upon the realization of the forward curve and some loans growth.
Lastly, as we see the forward curve now expecting a new rate hiking cycle to begin, we added slide 13, as we thought it might be helpful from a historical context to see the trend of NII across the years since the last rate hike cycle. And when I draw your attention to is the stark difference in the size of our balance sheet today. And because of that balance sheet differential, today's NII is already at the NII level we saw when we were well into the middle of the last rate cycle. And importantly, our short-end asset sensitivity today is twice what it was in the third quarter of 2015 as that cycle began.
Okay. Let's turn to costs, and we'll use slide 14 for that discussion. Our Q4 expenses were $14.7 billion, an increase of $291 million from Q3. Higher revenue-related costs, and to a lesser degree, seasonally higher marketing costs drove the increase. As Brian noted at the mid-quarter conference, our Q4 expenses were a bit higher than we anticipated when we ended the last quarter. Revenue continued to hold up well, and the Company had a good year, both resulting then in higher incentive costs. Compared to the year-ago period, expense growth was driven by incentive costs associated with all of our markets-related improvements.
As we look forward, we continue to invest in technology and people at a high rate across our businesses, and we continue to add new financial centers in expansion and growth markets. So, let me say two things about 2022 expenses. First, relative to Q4 expense, we expect Q1 to include two elements of seasonality. We typically experience seasonally higher payroll tax expense, and that was about $400 million in 2021. Also, Q1 is typically our best period of sales and trading revenue which results in modestly higher associated costs.
Second, with regard to full year 2022, our best expectation currently is we can hold expenses flat compared to 2021, which finished just below $60 billion. This guidance incorporates our expected continuing investments, strong revenue performance and the inflationary costs we experienced in the second half of 2021. It also relies upon our continued expense discipline, operational excellence improvements and the benefits of digital transformation to deliver the operating leverage we seek.
Turning to asset quality on slide 15. The asset quality of our customers remains very healthy and net charge-offs this quarter fell to a historical low of $362 million or 15 basis points of average loans. They continued a steady decline through the quarters of 2021, with Q4 down $100 million from Q3 and down more than $500 million from Q4 last year.
Our credit card loss rate was 1.42%, and that's less than half of the pre-pandemic rate. It improved each quarter during the year. Several other loan product categories have been in recovery positions throughout the year. Provision was a $489 million net benefit in Q4, driven primarily by asset quality, and macroeconomic improvement, and was partially offset by loans growth. This included a reserve release of $850 million, primarily in our commercial portfolio. And on slide 16, we highlight the credit quality metrics for both our consumer and commercial portfolios.
Turning to the business segments. Let's start with Consumer Banking on slide 17. I'll start by acknowledging what a strong year the Consumer Bank has had as they generated nearly $12 billion of earnings, which is 37% of record year results for the Company. Consumer opened over 900,000 net new checking accounts. And in fact, this quarter represents their 12th consecutive quarter of net new consumer checking account growth.
And in turn, consumers grew deposits by more than $140 billion. They opened 3.6 million credit cards and grew card accounts in 2021 by more than any of the past four years. This helped card balances grow in Q4, despite payments remaining high. They also opened 525,000 new consumer investment accounts. And that helped us to reach a new record for investment balances of $369 billion growing 20% year-over-year as customers continue to recognize the value of our online offering. Yes, market valuations grew balances, and we also saw $23 billion of client flows since Q4 '20.
So, Q4 was a strong finish to these results. And in the quarter, the business produced $3.1 billion of earnings off $8.9 billion of revenue and manage costs well. Our 8% revenue growth was led by NII improvement as we continue to recognize more of the value of our deposit book. And while revenue grew, expense declined by 1% year-over-year, generating over 900 basis points of operating leverage. Lower COVID costs and increased digital adoption by clients more than offset our continued investments in people and our franchise. This expense discipline has now driven our cost of deposits to an industry-leading 111 basis points.
Net charge-offs declined and we had $380 million of reserve release in the quarter. And as you can see, and as I already noted, deposits continued to grow strongly both year-over-year as well as linked quarter. Importantly, our rate paid remained low and stable.
Turning to the wealth management business. Bank of America continued to deliver Wealth Management at scale across a full range of client segments. The continued economic progress, strong market conditions and the efforts of our advisors contributed to strong client flows and net new household growth. This allowed wealth management to generate more than $4 billion in earnings in 2021, up more than 40% from 2020.
In Q4, this powerful combination of Merrill Lynch and our Private Bank produced records for revenue, earnings, investment balances and asset management fees as well as record levels of loans and deposits. In fact, with regard to loans, this is the 47th consecutive quarter of average loans growth in the business. It's consistent and it's sustained. Q4 net income was $1.2 billion, improving 47% year-over-year and driven by strong revenue growth, good expense controls and lower credit costs. Revenue growth of 16% was led by strong improvements in both, AUM and brokerage fees as well as higher NII on the back of solid loan and deposit increases.
Expenses increased 8% in alignment with the higher revenue and resulted in 800 basis points of operating leverage. Client balances of $3.8 trillion rose $491 billion, up 15% year-over-year, driven by higher market levels as well as very strong net client flows of $149 billion. Within these flows, deposits grew $68 billion year-over-year to $390 billion, and loans grew $21 billion year-over-year to $212 billion. And that loan and deposit growth is further evidence that more and more Merrill and Private Bank clients are using the bank's products broadly.
Net new household generation is getting closer to pre-pandemic levels as advisors are meeting in person more with clients and are building their pipelines back following the shutdown during the pandemic. This quarter, Merrill Lynch net new households of 6,700 and Private Banking relationships net new of 500 were both up more than 30% from the year-ago period. The clients of this business continue to lead our franchise in digital adoption, utilizing digital tools to access their investments and also for other banking needs like mobile check deposits and lending. The evolution is forming a modern Merrill, which is advisor-led and powered by digital.
Moving to Global Banking on slide 19. The business momentum through the back half of the year was strong. Net interest income grew on the back of accelerating loans growth. Investment banking fees reached record levels and deposits continue to grow as clients navigated the pandemic. We also saw strong demand from our clients around ESG investments driving improvements in bottom line results. Net income for the full year was a record $9.8 billion or 31% of the company's overall net income.
The business earned $2.7 billion in Q4, improving nearly $1 billion year-over-year, driven by higher revenue and lower provision costs, partially offset by higher expenses. Revenue improvement of 24% year-over-year reflected more than 30% growth in investment banking fees in this segment, and net interest income increased 18%. This investment banking performance allowed us to gain market share and record number 3 ranking in overall fees in what was a very strong Q4 market. We ranked number 1 in investment grade and number 2 in leverage finance with market share improvement compared to the year-ago period. And we also saw another record M&A period. And most importantly, our investment banking pipeline remains quite healthy.
Provision expense reflected a reserve release of $435 million, compared to a $266 million release in the year-ago period. And what I draw your attention to here is the reduction in net charge-offs year-over-year from $314 million in Q4 of '20 to small recoveries in Q4 '21. That year-ago period included some losses from clients in those industries that were heavily impacted by COVID. Finally, given the strength of revenue we saw expenses increase by 12%, which is still only half of our increase in revenue.
Switching to Global Markets on slide 20. Full year net income of $4.6 billion reflects another solid year of sales and trading revenue. This included a record year for equities, up 19% versus 2020. Investments made in this part of the business are seeing good results as our financing clients are doing more business with our company.
As we usually do, I'll talk about the segment results, excluding DVA, even though net DVA was negligible in both Q4 '21 and Q4 '20. In Q4, Global Markets produced $667 million in earnings, $167 million lower than the year-ago quarter. Focusing on year-over-year, revenue was modestly down, driven by sales and trading. Sales and trading contributed $2.9 billion to revenue, a decline of 4% year-over-year. FICC, down 10%, while equities improved 3%. FICC results reflect a weaker credit trading environment in Q4 '20, and the strength in equities was driven by growth in client financing activities and the multiplier effect. Year-over-year expense move was driven by investments in revenue-related sales and trading costs, partially offset by the absence of costs associated with the realignment of liquidating business activity to all other units in Q4.
Finally, on slide 21, we show All Other, which reported a loss of $673 million, which declined a little more than $250 million from the year-ago period. Revenue declined as a result of higher volume of deals, particularly solar, and partnership losses on ESG investments. That's offset by the tax impact in this reporting unit.
Expense increased as a result of costs now recorded here after the fourth quarter realignment out of Global Markets, which was partially offset by a decrease in various other expenses in the segment. That realignment obviously had no bottom line impact on our company, overall. As a reminder, for the financial statement presentation in this release, the business segments are all taxed on the standard fully taxable equivalent basis. And in All Other, we incorporate the impact of our ESG tax credits and any other unusual items.
For the full year, the effective tax rate was 6%. And excluding the second quarter '21 positive tax adjustment triggered by the UK tax law change and other discrete items, the tax rate would have been 14%. Further adjusting for ESG tax credits, our tax rate would have been 25%. And looking forward, we would expect our effective tax rate in 2022 to be between 10% and 12%, absent any tax law changes or unusual items.
And with that, I think I'll stop, and we'll open it up for Q&A.
