Chief Financial Officer at Bank of America
Okay. Thanks, Brian. And let me start with the balance sheet, and I'll use Slide 13 for this. During the quarter, our balance sheet declined $23 billion to $3.05 trillion driven by modestly lower Global Markets balances. Our average liquidity portfolio declined in the quarter, reflecting the decrease in deposits and securities levels. And that $868 billion, it still remains $300 billion above our pre-pandemic levels.
Shareholders' equity increased $3.7 billion from the third quarter as earnings were only partially offset by capital we distributed to shareholders and roughly $700 million in redemption of some preferred securities. We paid out $1.8 in common dividends. And we bought back 1 billion of shares, which was 600 million above those issued for employees in the quarter.
AOCI was little changed in the quarter as a small benefit from lower mortgage rates was more than offset by a change in our annual pension revaluation. With regard to regulatory capital, our supplementary leverage ratio increased to 5.9% versus our minimum requirement of 5%. And that obviously leaves capacity for balance sheet growth and our TLAC ratio remains comfortably above our requirements.
Okay. Let's turn to Slide 14, and talk about CET1, where, as you can see our capital remains strong as our CET1 level improved to $180 billion, and our CET1 ratio improved 25 basis points to 11.2%. That means in the past two quarters, we've improved our CET1 ratio by 74 basis points as we've added to our management buffer on top of both our current and 2024 requirements.
So we can walk through the drivers of the CET1 ratio this quarter, and you can see earnings net of preferred dividends generated 43 basis points, common dividends used 11 basis points, and gross share repurchases usage 6 basis points. And while the balance sheet was down, loan growth drove a modest increase in RWA using 3 basis points of CET1. So we were able to support our loan growth and return capital and add to our capital buffer in the same quarter.
Let's spend a minute on the loan growth by focusing on average loans on Slide 15. And here, you can see average loans grew 10% year-over-year, driven by credit card and commercial loan improvement. On a more near-term linked-quarter basis, loans grew at a slower 2% annualized pace just driven by credit card. The credit card growth reflects increased marketing, enhanced offers and reopening of our financial centers, delivering higher levels of account openings.
Mortgage balances were up modestly year-over-year and linked quarter were driven by slower prepayments. Commercial growth reflects a good balance of Global Markets lending as well as commercial real estate and to a lesser degree, custom lending in our Private Bank and Merrill businesses.
Turning to Slide 16 and net interest income. On a GAAP non-FTE basis, NII in Q4 was $14.7 billion, and the FTE NII number was $14.8 billion. Focusing on FTE, net interest income increased $3.3 billion from Q4 of '21 or 29% driven by a few notable components. First, nearly $3.6 billion of the year-over-year improvement in NII was driven by interest rates. Year-over-year, the average Fed funds rates has increased 359 basis points driving up the interest earned on our variable rate assets.
Relative to that Fed funds move, the rate paid on our total deposits increased 59 basis points to 62 basis points. And focusing just on interest-bearing deposit rates paid, the increase is 91 basis points. So even while Fed funds rates have increased 140 basis points more than the last cycle. At this point, our cumulative pass-through percentage rates still remain lower in this cycle. That includes an increase in the pass-through rates in the past 90 days due to the unprecedented period of rate hikes.
Included in the rate benefit was $1 billion improvement in the quarterly securities premium amortization. Long-term interest rates on mortgages have increased 345 basis points from the fourth quarter of '21, which has driven down refinancing of mortgage assets and therefore, slowed the recognition of premium amortization expense recognized in our securities portfolio.
The second contributor is loan growth. Net of securities paydowns, and that's added nearly $400 million to the year-over-year improvement. And lastly, partially offsetting the banking book NII growth just described was higher funding costs for our global markets inventory. Now that is passed on to clients through our non-interest market-making line, so it's revenue neutral to both sales and trading and to total revenue. And as you can see in our material, Global Markets NII is down $660 million year-over-year.
Okay. Turning to a linked quarter discussion. NII is up $933 million from the third quarter, driven largely by interest rates. That $933 million increase included a $372 million decline in our global markets, NII. The net interest yield was 2.2%, and that improved 55 basis points from the fourth quarter of '21. Nearly 30% of that improvement occurred in the most recent quarter with the primary driver being the benefit from higher interest rates, which includes a 13 basis point benefit from lower premium amortization. As you will note, excluding Global Markets, our net interest yield was up 89 basis points to 2.81%.
Looking forward, I would make a couple of comments. As I do every quarter, let me provide the important caveats regarding our NII guidance. Our caveats include assumptions that interest rates in the forward curve materialize, and we anticipate card loans will decline seasonally from holiday spend paydowns. And otherwise, we expect modest loan growth. We expect a seasonal decline in global banking deposits and that the other deposit mix shifts experienced in Q4 may continue into the first quarter in the face of more rate hikes.
We also expect the funding cost for Global Markets to continue to increase based on higher rates. And as noted, the impact of that is recognized and offset in non-interest income, so it's revenue neutral. So starting with the fourth quarter NII of $14.8 billion, and assuming a decline of roughly $300 million of Global Markets NII in Q1, which would be similar to the fourth quarter decline. That would get us to a Q1 number around $14.5 billion. In addition, we have to factor in two less days of interest, which is about $250 million. So that would lower our starting point to $14.25 billion.
We believe the core banking book will continue to show the benefit of rates and other elements and can offset most of the day count. So we're expecting Q1 NII to be somewhere around $14.4 billion. Beyond Q1, with increases in rates slowing and if balances continue their recent stabilization trends expect less variability in NII for the balance of 2023.
Okay. Let's turn to expense, and we'll use Slide 17 for the discussion. Q4 expenses were $15.5 billion, and they were up $240 million from Q3, driven by an increase in our people and technology costs. In addition, we also saw higher costs from our continued return to work and travel and cost of client engagement. We've seen pent-up demand for our teams gathering back together in person to drive collaboration and to spend more time with our clients.
Inflationary pressures continued but our operational excellence improvements as well as the benefits of a more digitized customer base helped offset those pressures. Our headcount this quarter increased by 3,600 from Q3. And as we faced increased attrition in 2022, our teams were quite successful in their hiring efforts to continue to support customers. As the attrition slowed in the fall, our accelerated pace of hiring outpaced attrition, leaving us with growth in our headcount.
As we look forward to next quarter, I would just remind everyone that Q1 typically includes $400 million to $500 million in seasonally elevated payroll taxes. And Q1 will also be the first quarter to include the costs of the late October announcement by regulators of higher FDIC insurance costs. And as a result of holding the leadership share in US retail deposits, that will add $125 million to each of our quarterly costs or a total of $500 million for the year. We expect these things will put expenses around $16 billion in the first quarter before expectations that they should trend back down again over the course of 2023.
On asset quality, we highlight credit quality metrics on Slide 18 for both our consumer and commercial portfolios. And since Brian already covered much of the topics on asset quality, I'm going to move to a discussion of our line of business results, starting with consumer on Slide 19. Brian noted the earlier organic growth across checking accounts, card accounts and investments were strong again this quarter, and that's as a result of many years of retooling and continuous investments in the business.
So let me offer some highlights. At this point, we have the leading retail deposit market share. We have leadership positions among the most important products for consumers, and we're the leading digital bank with convenient capabilities for consumer and small business clients. We also have a leading online consumer investment platform, and a great small business platform offering for our clients. And importantly, when you combine all these capabilities with improved service, at this point, customer satisfaction is now at all-time highs.
And we produced another strong quarter of results in Consumer Banking that resulted in $12.5 billion in net income in 2022. For the quarter, Consumer Banking earned $3.6 billion on good organic growth and delivered its seventh consecutive quarter of operating leverage, while we continue to invest for the future. Note that our top line grew 21%, while expense grew 8%. The earnings impact of 21% year-over-year revenue growth was partially offset by an increase in provision expense, and that provision increase reflects reserve builds this period compared to a reserve release in the fourth quarter of 2021.
Net charge-offs increased as a result of the card charge-offs that Brian noted earlier. While this quarter's reported earnings were up 15% year-over-year, pretax pre-provision income grew an even stronger 36% year-over-year. So that highlights the earnings improvement without the impact of the reserve actions. Revenue improvement reflects the fuller value of our deposit base as well as deepening with our deposit relationships. I'd note the growth also includes a decline in service charges of $335 million year-over-year as our insufficient funds and overdraft policy changes were in full effect by the end of Q2 of this year.
And as a result of those policy changes, we continue to benefit from the better overall customer satisfaction and the corresponding lower attrition and the lower costs associated with fewer customer complaint calls obviously, as a result of fewer fees. The 8% increase in expenses reflects business investments for growth, including people and technology, along with costs related to reopening the business to fuller capacity. And remember, much of the company's minimum wage hikes and quarter two increased salary and wage moves impacts consumer banking the most of our lines of business and therefore, impacts most the year-over-year comparisons.
We also continued our investment in financial centers. For the year, we opened 58 and we renovated 784 more. And against all of that, both digital banking and operational excellence helped us to pay for investments and that allowed us to improve the efficiency ratio to 47%, an impressive 600 basis point improvement over the year ago period. Before moving away from consumer banking, I want to note some differences to highlight just how much more effectively and efficiently this business is running since even just before the pandemic. It's easy to lose sight of how well this business is operating from an already strong position in 2019.
And you can see some of the stats on Slide 17 in the appendix. We can best summarize by noting we've got $318 billion more in deposits, 10% more checking customers, 92% of whom are primary, 28% more investment accounts, and absent the card divestitures, we've increased the amount of new card accounts by 4%, and our payment volumes are 36% higher. We're servicing those customers with 387 fewer financial centers because of our digital capabilities, and it's allowed us to need 10% fewer people to run the business. Our combined credit and debit spend was up 35%. Digital sales increased 77%, and we sent and received three times the number of Zelle transactions. All of this allowed us to run the business with fewer employees and lower our cost of deposits ratio below 120 basis points.
Moving to Slide 20. Wealth Management produced strong results, earning $1.2 billion on good revenue and 29% profit margin. This led to full year records for both revenue and net income of $21.7 billion and $4.7 billion, respectively. This was an especially good result given the nearly unprecedented negative returns of both the equity and the bond markets at the same time this year. The volatility and generally lower market levels put pressure on certain revenues in this business again in Q4, but what helps differentiate Merrill and the Private Bank is a strong banking business at scale with $324 billion of deposits and $224 billion of loans. So despite a 14% decline in asset under management and brokerage fees year-over-year, we saw revenues hold flat with the fourth quarter of '21.
Our talented group of wealth advisers, coupled with powerful digital capabilities, generated 8,500 net new households in Merrill in the fourth quarter, while the Private Bank gained an impressive 550 net new high net worth relationships in the quarter, both were up nicely from net household generation in 2021. We added $20 billion of loans in this business since Q4 of '21, growing 10% and marking the 51st consecutive quarter of average loan growth in the business despite securities-based lending reductions related to the current market environment. That's consistent and sustained performance by the teams. Our expenses declined 1%, driven by lower revenue-related incentives, partially offset by investments in our business.
Moving to Global Banking on Slide 21. And you can see the business earned $2.5 billion in the fourth quarter on record revenues of $6.4 billion, pretty remarkable given the decline in investment banking fees during this year. Lower investment banking fees, higher credit costs and a modest increase in expenses were mostly offset by stronger NII and other fees. So overall, revenue grew 9% reflecting the value of our Global Transaction Service business to our clients and our associated revenue growth, while investment banking fees declined a little more than 50%.
The company's overall investment banking fees were $1.1 billion in Q4, declining $1.3 billion year-over-year in a continued tough market. Still, we increased our ranking in overall fees for the full year 2022 to number three as we've continued to invest in the business. The $612 million increase in provision expense reflected a modest reserve build of $37 million in the fourth quarter compared to a $435 million release in the year ago period and pretax pre-provision income grew 13% year-over-year. Expense increased 4% year-over-year, and that was driven by strategic investments in the business. including hiring and technology.
Switching to Global Markets on Slide 22. And as we usually do, I'll talk about the segment results, excluding DVA. You can see our fourth quarter record results were a very strong finish to a good year. The continued themes of inflation, geopolitical tensions and central banks changing monetary policies around the globe continue to drive volatility in both bond and equity markets and repositioning from our clients. And as a result, it was another quarter that favored macro trading, while our credit trading businesses improved also spreads fared better than the prior year.
Our fourth quarter net income of $650 million reflects a good quarter of sales and trading revenue, partially offset by lower shares of investment banking revenue. And it's worth noting that this net income excludes $193 million of DVA losses this quarter as a result of our own credit spread movements. Reported net income was $504 million.
Focusing on year-over-year, sales and trading contributed $3.7 billion to revenue, and that improved 27%. That's a new fourth quarter record for this business, vesting the previous one by 21%. And at $16.5 billion in sales and trading for the year, it marked the best in more than a decade. FICC improved 49%, while equities was up 1% compared to the quarter a year ago. And the FICC improvement was primarily driven by growth in our macro products, while credit products also improved from a weaker Q4 '21 environment. We've been investing continuously over the past year in our macro businesses. We've identified those as opportunities for us. And again, we've been rewarded for that this quarter. Year-over-year expense increased about 10%, primarily driven by investments in the business.
Finally, on Slide 23, we show all other, which reported a loss of $689 million, and that was consistent with the year ago period. For the quarter, the effective tax rate was approximately 10%, benefiting from ESG investment tax credits and certain discrete tax benefits. Excluding those discrete items, our tax rate would have been 12.5%. And further adjusting for the tax credits, it would have been 25%. Our full year GAAP tax rate was 11%, and we would not expect 2023 to be a lot different.
So with that, we'll stop here, and we'll open it up, please, for Q&A.