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In 2005, your company demonstrated its ability to grow in a number of ways.
We accelerated growth by attracting, retaining and deepening more customer relationships in the markets we serve. We launched a number of initiatives that will create value by integrating our capabilities across the company. We completed our FleetBoston Financial merger transition in the Northeast, exceeding what we promised in almost every category. We became the first U.S. bank to invest directly in a major Chinese bank. And, our acquisition of MBNA Corp. closed on Jan. 1, 2006, making Bank of America the top provider of debit and credit cards in the United States.
Our view is that there are many paths to growth, and the best companies pursue multiple strategies as market conditions change and opportunities arise. I will discuss our most important paths to growth in this letter. I invite you to read more about the work we’re doing for customers and shareholders in the articles that follow.
First, a review of our key 2005 financial accomplishments.
Strong financial performance. In 2005, we again set new records for revenue on a fully taxable-equivalent basis, $56.9 billion, and net income, $16.5 billion, representing growth of 15 percent and 18 percent, respectively, over last year. Diluted earnings per share increased to $4.04, an 11 percent rise over 2004. Return on average common shareholders’ equity rose to 16.51 percent from 16.47 percent.
Our greatest financial challenge in 2005 was the continuing flattening of the yield curve, which is the difference between long- and short-term interest rates. As that difference shrank, banks, which tend to price deposits based on short-term rates, were adversely affected. In essence, profit margins were compressed. We expect the yield curve to remain relatively flat in 2006, providing an opportunity for well-managed banks to differentiate themselves.
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KENNETH D. LEWIS
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Our strong performance has enabled us to continue our record of returning capital to shareholders. 2005 was our 28th consecutive year of raising our quarterly dividend, which increased by 11 percent to $0.50. Over that time, our dividend has increased at a compound annual growth rate of 13 percent.
As I have always said, the bottom line on our performance is our stock price. While our total shareholder returns, which include our dividend, were in line with our peers, our stock price fell slightly this year as other stocks in our industry remained flat. I believe the two factors that weighed most heavily on our stock were the impact of the yield curve, which affects all banks, and our acquisition strategy, which has created uncertainty for some investors.
On the first point, the yield curve is cyclical. It will steepen again, and net interest yields will rise accordingly. In the meantime, we have one of the best teams in the business at managing interest rate risk, and I believe we will continue to perform well relative to our peers regardless of the interest rate environment.
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