Okay, we're ready to get going. Thanks, everyone. We're very happy to have Bank of America back today, CEO Brian Moynihan. Brian, thanks so much for coming back.
John, it's been many times. Good to see you again.
Great. Well, I think we'll start off like we always do with your macro view. It's been almost a year since the last Fed hike. Unemployment's good, but inflation, a little sticky. You know, what's your recent Bank of America data telling you about the health of consumer?
A couple of things I think would be of interest to your colleagues here. Number one, if you look at what we talk about a lot is the spending, the money moving through the consumers' accounts, which is $4 trillion plus a year, which is money moving out in the economy, cash out of the ATMs, checks written, cell payments, debit and credit cards. And if you look year to date, that's grown about 3.5%. So that number doesn't mean a lot unless it has a context.
If you looked at it May 2023 versus May 2022, it'd probably been like high single digits, maybe even double digits. So it, it slowed down coming through the summer of last year and sits at a level which is about where it would be in a very low growth, low inflation environment, economy, sort of where it was in 2016, 2017, 2018. It's actually a little bit under that. That'd be more of four. So that's one. It's aggregate level. The growth rate has slowed.
It is still growing, but it has slowed. It's consistent where it was when we had more of a normalized environment around us. And the way people are spending money is consistent with what you read about, which is, you know, it's on experiences. It still is being driven at the margin by travel, entertainment, and things like that. And other things have moderated, except for insurance payments, which we can see people paying their insurance. And so it's good. And so that's good news.
But it has slowed down, and I think it sets up the question. We got to keep the consumer in the game in the U.S. economy because it's such a big part of it. You know, they're getting a little more tentative, and that is due to everything going on around them. Goods are more expensive. They're shaping the spending. They're going to three grocery stores instead of two is one of the stats we see. Interesting part as it relates to inflation is the rental payments by our checking, the checks for rental payments. They're now tipping over, and the growth rate is slowing, which if you listen to the inflation experts, they'll say they had to see that tip over to feel inflation was really on a downward path. So that's where we're seeing our consumer.
Our general estimates are that the inflation takes till the end of next year to get under control of the economy. It basically bounces around a 2% growth rate. So it's a trend, there's no, you know, the soft landing, a hard landing, a trend, and bounces around 1.5%-2% all the way through next year. It doesn't reaccelerate. It takes cuts, you know, four cuts next year, two cuts a year after, and one this year is kind of what the core economics team has. But overall, you see the consumer activity is okay.
Okay. How about the commercial side? Yeah, and how about on the commercial side? What do you How are the clients adjusting to this environment?
I mean, they're... You know, the cost of borrowing has gone up, so they're careful, and so the line usage has moved up a hair, but it's sort of sitting there. So if you think about the path we've been on pre-pandemic, small businesses and middle-market companies were using lines in the low 40s% as an average amount of usage of the 100% they could borrow. It fell to 30, it's back up 35, 36, but it's not really going up anymore. And so when you talk to our commercial customers, they're basically saying: "You know, I'm making money, I'm fine. I'm worried about every possibility you can lay out, the wars, you know, the China trade war, you know, elections." They can say it, "But everything's okay.
But I'm therefore, because it costs me more money to borrow, I'm being a little less aggressive." And so, again, they're okay, too. So I think in some ways, the war on inflation is, you know, is has been being won and hasn't over yet. And both of our customer bases have a lot to do with how the American economy forms. They're both saying: "You know what? I'm being careful, slowing things down, still growing, still feel good about my overall business, but I'm, you know, but I'm not hiring as much, I'm not buying equipment as fast, I'm not making a commitment to software purchases as fast. All that's slow, you know, sort of moderated. And then, on the other hand, I'm not laying off a lot of people.
I'm not-- You know, I'm trying to manage this, this business carefully." I, I think, you know, they're good managers, and that's what they're doing. But by the way, when you think about that in terms of our bank balance sheet, the credit risk then is in good shape. So you're not seeing any vagaries in credit risk across the portfolios, broadly speaking. We can talk more about that. You know, so that's where you'd start to see evidence of stress, and we don't see it in the consumer side for sure, and we don't see it in the commercial side either.
Okay, so let's leave the macro for a little bit. This is called Strategic Decisions Conference. Okay. You know, for years that you've been coming here . You've talked about the organic engine - yes - of strong account customer growth. So let's just talk about a little bit about how you strategize for compounding that customer growth across all your different businesses. Maybe we'll start with the consumer bank. You've had 21 straight quarters of new checking account growth, and this quarter alone, a lot of good new checking accounts, credit cards. What are the key drivers of this, and what's your differentiated kind of proposition to consumers that helps that?
So I think, you know, so if you think about Bank of America, we have general consumers, wealthy consumers, small, medium, large businesses, and the Markets business.
And, you know, what makes us a bit unique is these continuums, which link the businesses together from a person who opens their first account to becoming, you know, John McDonald, making tons of money and investing and things like that.
I always only wish.
Yeah. So, you know, and, and so the idea is that continuum is a value add. So as you think about running the business, you're thinking about short term, got to grow, you have this, that, and the other, organic growth. In the long term, how do I knit it together? So in the consumer business, you know, in the end of the day, in the mass market retail business, which is, you know, 60%-70% of the activity, about 20% of the deposits and profit, that is about managing costs and the great customer experience, and team's done a great job.
And basically being very fair to the customer. So, you know, no overdraft checking, low balance accounts, short-term loans for $5 that they can borrow a couple times a year and pay back over 90 days. So things like that. And that's gone on, and you can see that, and that's very stable. But they provide the start of that continuum because that's, that's, you know, our children open their first bank account to then go to college and become successful.
That's the college student, open their first bank account on their own type of thing. And so that goes in. In the preferred business, which is the upper part of that, completely different revenue model, acquire the accounts, grow them, Merrill Edge becomes important, and that's going. So if you look at it more broadly, what's the thing? Optimize the cost, especially around the mass market movement, by pushing people to see the wonders of digitization. So whether it's Erica or whether it's Zelle or whether it's, you know, the ATM network or whether it's all the other things in the mobile app, which is now, you know, the dominant way people interface, whether it's 1 billion-plus digital interactions a quarter by our consumers, to give you a sense.
So it's a big thing. You keep pushing that to keep the cost, and then you invest the benefits of that into the customer experience, and then you grow the upper part of that customer base, and there's your million net new checking accounts every year in 25 years of it. And you know, underneath that, you're optimizing everything you can.
How about the importance of branches? You know, we've heard from yourself, from Aron Levine, Dean about your financial center strategy, and you've been on offense in terms of growing. How important are branches still to driving organic growth?
So half the sales are digital, which means the other half are not digital, so you need both, and that's the magic of having. But the configuration of branches in 2007, you know, after the LaSalle transaction, we ended up with a peak number of branches, 6,000. We're down to about 4,300 or so now. In that dynamic, there's a second dynamic, which is the branch size went from probably an average colleague size of, you know, five to 10. And then what the people did went from service to sales and relationship management. And so even though it looks like, well, you're down 2,000 branches and this, there's a massive change underneath that. And so that's what the team's been optimizing, and that allows us to invest in the future. So what are we doing?
If you look down the top 100 markets, and we plan to get to, you know, a top position in all those markets, and that's a lot of work ahead of us. The first thing we had to do is go to markets we weren't in, and that started about eight-10 years ago now, where we built out in, you know, Minneapolis and Denver and places like that. Then you had to keep that going. First, the top 30 markets you weren't in, and then the top 50, and then beyond, and we're completing that task. And then at the same time, you had to densify where you weren't dense enough to get the mark, the branch part of it. And then you had to undensify where you were too dense.
You mean, get rid of branches where they're too close together and didn't provide the capability, and you couldn't get ahead of the customer. And so in that period, 6,000, 4,000 branches, 100,000 people, plus to 60,000 people, probably 25,000 service-oriented teammates and branches to, like, 10,000. You have sales-oriented teammates from 5,000 up to 10 or 15,000. You put that all together, and what you have is a business which is three-four times bigger, transaction-wise, balance-wise, et cetera. And the efficiency of it has gone from 300 basis points of cost deposits. In other words, all cost of operating all the retails, you know, consumer business over the deposit base to about 140 or whatever it is today.
The customer score has gone from 60% to 90%—60% to 85%. So you've seen the top two box score list. That, that's an attrition go down, and that's, that's the magic the team's done a great job with. But branches are critical to that because at the end of the day, half the transactions, where we open those 1 million checking accounts, are going to the branch because of whatever personal proclivity they have. The idea is we don't want to make them decide. Is it more efficient one way or the other way? Sure, but not for everybody if they can't get it done, so you want to do it.
Yep. One of the debates this week has been whether banks have kind of cracked the code on pairing wealth management with mass affluent and consumer. It, it feels like BofA has done that. The growth in Merrill Edge suggests good progress. What's kind of the report card there, and what's the longer-term opportunity for you there?
Well, the you know, the distinct advantage we have is when, you know, historically, pre-Merrill transaction in 2009, you had a wealth management business that had sort of a bank-level brokerage business, and then you had the private bank, and you had a hole in the middle. So Merrill obviously fills that hole. 600 offices, you're in all the cities, you financial advisors second to none, et cetera, et cetera. But you had to also not be unmindful that there's a hole that can also exist, which is the investor starting before they get interesting to the financial advisors or private banker. That's what Merrill Edge does. It's now at $450 billion-$500 billion in assets. It started a, you know, we all talked about robo-advisor time. Its product's called MGI.
It's up to $20-odd billion or something like that there from scratch a few years ago. You know, digitally oriented, investor-oriented, average account size coming on at $60,000, so this is not, you know, geared to people- this is geared to people who are serious about their financial planning. But if you look down that list of 3.5 million or whatever, our customers it is, it's growing 10% a year. Those customers are the G1 customer of the future. Again, that continuum, so we can see it, and we can do it. We can also use it to service. So like for us, we give stock to, as part of our annual awards to all our employees, you know, so they all have Merrill Edge accounts.
We do that with other employers, so they all have Merrill Edge accounts, and therefore, you're starting them off, and then you work them over time, and so it, it makes some money. It, it does a great job. It has, you know, you know, a significant amount of deposits attached to the customers of that business, that came to that business. But at the end of the day, it's that continuum filling, and so it's, it's it continues to grow. It you know, so it's out of the $4 trillion customer assets we have in Wealth Management, about, about 10% of it's in there.
So that graduation strategy is, is working?
It does. Then it happens more than through the Merrill Edge, it happens through the whole franchise. One of the things that we work hard on is the entrepreneur who's in the Merrill to do business with his company with us, vice versa, in the private bank. So there's a lot of referrals that we count in goal in the market, and celebrate their success, and talk to all those market presidents who help that local team outlocal the local banks while they have these global resources. Merrill Edge fits into that, but it's also the people side of that, too. The financial advisors, private bankers, middle-market bankers, business bankers, in all those market consumer teammates.
There's literally hundreds of thousands of leads that go from that consumer business to Merrill to figure out if they can do it. Right now, if you put it all together, that happens about 9 million times a year with about 40% success rate, you know, which, you know, people just don't move their accounts for kicks. You have to bring them something, and so it's pretty good right now.
So Bank of America is a global company. I'm not sure investors fully appreciate that, you know, roughly 15% of your revenues come from international sources. So can you give us some perspective on your international businesses and where you're investing for growth there?
So if you think about businesses that are international are really obviously the markets business, because it's a global business to support the investors and bring insights around the world, and the research platform supporting that, and the execution capability supporting that in all the major markets in the world. So that's, you know, kind of an obvious thing. You can't be a local capital markets player at that scale size. So we're, you know, third, fourth in the business there. Go to Global Corporate Investment Banking, same drill. These are multinational companies.
They operate around the world. They're trying to buy companies in all these different jurisdictions. You're trying to help them do that. They have cash needs across the globe. So we do that, and that's, you know, corporate banking, investment banking, and transaction services, GTS, as we call it. Even in middle-market, we do a fair amount, but it's much, much more directed. So obviously, in the North American set, in Canada and Mexico, integrating middle-market franchises there, they're in the supply chains.
We just- we're doing it more in Europe now, the stability of the economies, the integration of the world's supply chains, the ability to understand the auto suppliers, all over the world that supply into, that might be family-owned businesses, wonderful businesses that we support. So we do that. And then for the private equity firms and our buyouts, the ones we do business with, which are a lot, but we also are trying to help them when they- when they're buying a $500 million company or a $1 billion company, as opposed to the biggest deals. And so we got a lot of room to grow on that.
Then the cash management, it's all together. You know, we're making hundreds of millions of dollars a year, investments in cash management, generally, to have that digital capability and CashPro and everything. But on top of that, you know, we're driving the international piece of that heavily because the enablement for real-time payments in India, the enablement for, you know, we do some stuff we already do most of, like the Banknotes program to all around the world. It's something we do that's market share is very high. But other stuff, we have a lot of room to grow for corporates and moving money, and so we're building out that cash management. So it's 15% of our revenues. It's growing. It's in the GCIB space and larger corporate space.
It is, you know, $100 billion in outstanding loans, so it's not a- it's a big business now, and we'll keep investing in it. Matthew Koder and Bernie Mensah runs International . Matthew runs GCIB, and Jim DeMare runs markets. Jim DeMare runs markets. They've done a great job, but we're very precise on where we're going and why, and which clients, so we can make sure we keep the risk where we want it as we drive the business.
Any thoughts someday of taking the consumer show on the road internationally and-
We looked at that a decade ago on an online basis, and we decided that if we worked our tail off with a reasonable market share in the jurisdictions that matter, we could get $60 billion-$80 billion of deposits. It's like a bad quarter if we—a bad year-over-year performance in consumer in the normal times. I mean, now we got deposits all over the place. You run around in circles. But if you looked at it, you say, "So why would I waste my time doing that when I'm not in Cleveland, Columbus, and Cincinnati, and Indianapolis, and Minneapolis, and Denver? You know, why wouldn't I fill out the franchise and spend my efforts there?" Because our market share and consumer, you know, is we got $950 billion in deposits or whatever it is. We're still only about 13%-14%.
So there's a lot to take, and the efficiency that is incrementally extreme. So we looked at it. We always will keep looking at it, but it's not something... We don't really add value on a branch-based business in country X. I don't know what, you know, because it's so local and so I don't know what we'd really bring to it. On digital, we have great digital capacity. The question is, can you make it meaningful enough to make a difference? And instead of investing that money, theoretically, one set of rules, one set of regulations, one language, in Spanish, too, but you can then get lots of leverage.
Yeah, and, and you mentioned the U.S. retail share being in the low teens, and JPMorgan talked about that yesterday, and they have aspirations to get to mid-teens maybe 20 over time. Is that something fully in the possibility for you a s you think about your share aspirations?
I think we've moved up over the last, you know, decade or so, probably 2-3 percentage points. And there's multiple ways to play against that, right? One is, you know, just being a good competitor in the places you're already pretty sizable. But there's a lot of markets where, you know, literally we have a lot of room to go. So if you look in some of these markets, we've gone from literally not being in there in the retail business. We may have had a Merrill team teammates there. We may have had private banking or commercial teammates there. Take Pittsburgh, we bring in the branches, and suddenly we move up in deposits, and we move ourselves up the chain, and the idea is not to stop, it's to keep going up.
So going back to why we focus on that is there's lots of room, and I, you know, there's a lot of companies that deal with the mass American consumer base that have a lot higher market share in their line of business than, you know, their products and services than we do. It just takes good organic attitude and growth, and then so we're sitting at a, you know, 14% share, that's usually measured by deposit balance. Our reach to customers is actually much higher than that, and sort of filling in all that is part of the challenge.
So, we talked a little bit about digital, but j ust if we look at that, you've got a lead position, clearly. You made a lot of progress in retail and digital. How much runway is there still, and, and what are the, you know, runways for financial benefits from digitization across consumer and commercial from here still?
I think it's still high because go back half, all the way, ten years ago, the sales of the products weren't enabled. Now they're enabled. Now we're at half, half. The other half, you know, and you're saying if half the people can do, why aren't the other half doing? So what's the change? What's gonna cause them to change? Some, it's personal preference. That's gonna be a while. Other people, it's just not knowledge, you know, not knowing it exists, and they can do all that stuff. So there's just a lot of room to go.
And so you take, you know, retail wire sending, and now you can go on and send out a wire. That, you know, remember, the process to do that was a time-consuming for the person, costs money. It costs money for them, and we charge them a fee, and now they can kinda do it a lot faster on their own. [audio distortion] But it's simple now. You just go in [audio distortion] it's easier.
And so, you know, so as we think about, there's just a lot of room to go from efficiency, from a sales, and then information flow, and we are supplying lots of information. So that 1 billion digital interactions a quarter plus, and growing at, you know, 10, 15% a year, is just, you know, a lot of information where we can have an intimacy with the customers and offer offers with Bank of America, deals that very few people, you know, exist, but it's a major, it keeps growing and growing, and we can offer that to our clients, the commercial clients, to provide benefits, the types of deals we can do that we just did with Starbucks and else. You know, where we use our brand, their brand, to generate activity.
You know, but it's all digital now, but you can't do that, you know, it's not a branch-based. So it's just a lot ahead of us. And then you bring it into, you know, even wealth management, even though 80%+, I think 85% of the customers digitally interact with us, it's probably the 15% of their interactions. And so the question is, what else can you do? So signing documents, critical. Got that done. You know, delivery of performance review, all the stuff you can do, you can keep adding that on. And so, even something as mundane as depositing a check, you know, right now, 10%-15% of the checks are still deposited physically at the branch, 85% aren't.
Of that 85%, round numbers, split it, you know, half, you know, through the mobile app and half through the ATM. And you're saying: Wait a second, can't we get all those ATMs to go to the mobile app? And checks, you know, continue to decline, which is good because the other payments are more efficient, more effective, more secure. The question is, you know, what's the holdup? So we spend a lot of time saying, what's gonna get John McDonald to change his personal behavior, and how do we serve him the advice that would help them do that when they're ready and do it? We don't ever try to force it, but we basically make educate people.
Erica, you know, I've written—you probably got 14 other sessions talking about AI going on at any given moment now. You know, Erica is a natural language processing, algorithm-driven model based on questions, and it, it now is, you know, 18-20 million customers using it, growing 25% usage five years in. Every one of those would have been a phone call or text or something. And so there's just ways that we can continue to drive the digitization. Even though you'd look at it and say, "Well, that's pretty mature," it's, it's not. It's mature, but it's not mature across every possible segment, and then the new offerings are not, not even found yet.
What are some of the other use cases for AI, for banks in general, across consumer and commercial? And where are we on kind of that adoption and realizing some of the benefits that AI can offer in terms of efficiencies and revenue growth?
We're early on because what's as I look at the providers of this, what the realization they've come to, which is the right one for people like us, is you think about how AI will be delivered in our franchise. A lot of them are saying: I will, I will take a model which is more tailored and put it on your premises, on your data, that will get the benefits of all this education and learning we have, but doesn't have you susceptible to proving which data helped you make the decision, i.e., not your data or some other input, which has a benefit of not being so over-inclusive. You know, you run out of power trying to have it operate, and we can train it and make it specific to you.
Effectively, that's what we did with Erica, but these would be much more sophisticated models. So that's coming out. So that's the standalone, and we think there's high value in that because it stops the issues of data exfiltration and where's model and how's decision, and, you know, things that you can do by doing that. We know that because we've seen that in Erica. It's just that most of the really avant-garde people are pushing out, saying: No, I'll just give you a license, and your teammates can use it. So that's going on. The second thing is the major software providers are embedding in their software.
So all the major companies are sitting there saying: I could bring AI embedded in my software, so we're gonna get the benefits of that. That might be, you know, Salesforce and the Salesforce client relationship management process. It might be Workday and the other process. It might be the general ledger and the... You know, so there's information flow and, and stuff, so that's gonna come.
That's all early still?
Yeah, that's all early. Just coming at us, like, literally as we speak. And then the third element would be sort of the standalone public models and how you use them, which really is probably further out there. And then the fourth element is using the coding-type platforms, which are part of that publicly available. We already do that. I think we have 1,000-1,500 people coding on it every day, and we're building that literally as we speak. And they're finding efficiencies and effectiveness. They're also finding difficulties with it because, you know, how efficient is it? The people's personalities, they have to write code. We're working through that. So we're using it, obviously, Erica, obviously, code. We already use, you know, a lot of—all our credit decisions are, and consumer, made automatically.
It's not with one of those models, but a model we developed over years and years. But we think there's high hope ahead of us for internal efficiency, software development, and then these models like the, you know, the thousands and thousands of filings we make, you know, just checking them so we don't have to redo work. It's all about eliminating work and not having to redo it, and being able to check at a pace and find things and help do things that will make a human more efficient. And you still would have a human touch in front of it.
On a lot of this stuff. We can't file a piece of paper and say, "Oh, the model got it wrong for some regulatory report." So you need an interface, but you can save a lot of work before that, and that's what we're trying to do. So laws, rules, and regulations, pulling them together, there's new models there, which would be interesting, to help you more quickly take all that stuff that goes on, all the jurisdictions we deal with, and put it in a way that people can read it and understand it. And they're gonna be experienced people, so they're gonna know if it's out of whack. But you're not necessarily saying, "I'm gonna make the decision to do something," that you're gonna help. And so I think very early stages, we've seen it work.
I mean, we've seen it work, too, you know, we're at 2.2 billion interactions on Erica, and a billion—it took four years to get the first billion and about, you know, five quarters to get the second billion, and it's growing 20%-25%, yeah, a year. It just—the customers like it, we like it. And that's a very constrained, narrow case. If you start to get broader, you'll see it.
Yeah. So as you get more comfortable with that, the way that digitization has created efficiency, the way Erica has, AI more broadly should continue to do that.
Yeah. And ultimately... Remember, we started when, you know, when the management team was put together in 2010, we had 295,000 people. We went up to 305,000 people. We have 211,800 people as of last Friday. Company's bigger. Yeah, the amount of activity is bigger. The complexity of the market-facing business is higher, the amount of loans. You pick your thing up. You know, almost 100,000 plus people. You know, it's pretty interesting, you know. And that's just with old technologies coming through. Wait till some of this stuff comes through.
Right. Okay, let's go back to old school stuff. Talk a little bit about deposits. How are deposit balances in a mix and pricing performing so far in the second quarter? Things kind of playing out as you'd expect? And, you know, what are we seeing in terms of deposit growth and- It wouldn't be you, John, if we didn't get into deposits flow. You know it's gonna lead to an NII question, of course.
You know what's going. So in the grand scheme of things, if you look at the H.8 data and look at industry data, we're performing in line with the industry on loans and deposits, and there's interesting stories in that. The other interesting thing is, if you think year-over-year, right now, we're running 1.9 and change on deposits. First quarter, second quarter is always a quarter where we have a lot of clients pay a lot of taxes, and that goes out, then it builds, starts building back up. And so there's always a seasonal decline. But if you look last year, second quarter to where we are this quarter here, 1.875 or so, up to 1.9 and change. So, deposits have actually grown off the trough.
Loans are up, like, $5 billion on a base of $1.05 trillion, I think of that. So they're growing a little slower, and that goes back to this question of line usage- Mm-hmm ... and stuff going on. So we feel good about where we are. We're growing with the industry. That's—from our standpoint, that's not good enough, but we are growing the industry. But the quality of the deposit base and the quality of loan base also, especially when you have, you know, the sizable, high-end commercial customers and capital markets, took away a lot of balances.
So the good middle, you know, middle market, small business, growing in a, you know, low single digit, mid single digits type of numbers year-over-year and stuff, that, that's good stuff. In the commercial, consumer business, mortgage is not going anywhere. You have cards kind of up a chunk and then performing. They come down this quarter and then build back up, but that's usual. The rest, in autos are kind of in and out, but they're fine at $50-odd billion. So the loan demand is solid but not robust because the borrowing costs went up a lot. But in the end of day, it seems to hold their own and doing well.
But that's . You know, we push for more than, more than market. Our, our long-term strategy is to, is to price our deposit base and deliver our execution across all the businesses, the banking deposit base, the wealth management deposit base, consumer deposit base, to basically outgrow the economy by 1%-2% on that. And that then, when you have, you know, $1.9 trillion plus this stuff, you know, that's a big c- you're capitalizing a big ass- a big amount. We've held on to... We're $1.75 billion during the pandemic or something like that. We're $1.9 billion and change, and, you know, $1.9 trillion. I'm saying billions, trillions on all those counts, but $1.9 trillion and change, and that, you know, that means we- we're 30% bigger, and we've, you know, we've held our own an d now it's time to grow again.
In terms of kind of the yield-seeking behavior h ave we gone through most of that transition, does it feel like?
Yeah, I think... So that's where you have to sort out the customer base very carefully. So we have, you know, corporates, you know, that are, you know, as rates have stayed up higher, they've actually continued to fine-tune their, yeah, movement because the earnings credit rate, which is the rate we give people for deposit balance, of which they pay for services, you have stays up a little higher, so they can lower the balances on that side and put it more in the, you know, sort of at the market pricing side. Wealth management customers, same thing. As the rates have stayed a little higher, you know, the, now the, you know, cash allocations are pushing harder into the thing 'cause it looks like it's gonna stay here for, you know, a while.
It's gonna go up and come down, and they are like, you know, sort of tightening up. But in the core consumer base, you know, it's very stable. And so, and we raised, you know, some CDs are coming in because people want a little duration. So you see the, you know, 4% and change for seven months and stuff. And all that's good stuff because you're just keeping the cash involved in the system. But the real, the only real pressure is always the high-end consumer, the wealth management customer in particular, and the, and the high, you know, the higher-end corporates, because that's their business. And the financial advisors and private bankers, their business is to optimize for the customer.
Interesting fact, which has something to do with balances in the aggregate, but not as much, goes back to your macro question. If you look at the deposit balances of the customers who were here at the beginning of the pandemic and are still here, and look at their balances, the dynamic analysis is acute that demonstrates this. For the people, customers of ours that had balances, say below 10, 12, 10-15 thousand dollars in their account, they're up still a lot. The, where the deposits ran off is that people that had a half million, a million dollars in their accounts and a quarter million, because they could tidy up their money, and they did. So they're down 20% from pre-pandemic. The aggregate number in consumer is up from 700 to 900 and seven something to 900 and 50.
But it's a very different thing because the top end went down, and the top, with people 25,000 and more, is like 75% or 80% of the aggregate balances. So a big chunk of that moved. By the way, it's been dead flat for a while, kind of bouncing around. But going to the health of consumer, the large numbers, 80% of the consumers with lower balances, their balances are still up dramatically and not going anywhere. And that's this idea they spent down hasn't happened yet, but I'm more worried that they're starting to you know, as the duration of, of price increases, letting it happen. So that's different than the deposit dynamics . But it shows you how that dynamics actually plays out with real customers you can look at across time.
Yeah. So when you put the HE data together. You know, on the loans and whatnot, how does that affect the net interest income outlook? I think for the second quarter, you were kind of looking at $14 billion or so down a little bit from the first, and then some growth in the back half.
Yeah. So the context was we always knew this would be the trough quarter. And as we moved along last year, you know, think about the wild swing and rate and the cuts. You know, it was seven, it was four, then seven, then three, and I think we made the estimate at three. So if you think about that, this was a trough quarter. We've gone from where this trough is gonna be like 13.4, 13.5, up to 14. Looks now it's gonna be about 1% less than that, sort of. And the reason why is that, frankly, the markets business is bigger this quarter, and actually, we can talk about it, is actually having higher performance than traditional.
Usually, it has a step down in balance sheet because of all your customers out there, you've done a lot of activity in the first quarter. It stayed higher. That, that gets paid through the fee line for the prime brokerage business and the market elevation. And then secondly, I think at the highest end, some of the deposit pricing, 'cause the rates structure staying higher, people are tidying up that money that came in from things. And so... so we, we feel pretty good at that. What happens then on is, what we said is this would be the trough and you grow, and the dynamics of that growth are still very strong. And so as you think about the second half of the year, it grows off of there.
You think about next year. It comes out as a run rate and just go - it keeps going from there. And that's with modest, you know, single digit deposit - low single digit deposit and loan growth. It's just really the dynamics of the fixed assets repricing. It's the dynamics of the stabilization, the change in deposit rates. And, you know, and we feel very good about it. And you think about that, in the aggregate, you basically look at the years 2023 and 2024, you know. We ought to exit, but basically the highest level for the two-year period, not 2022, because the record quarter in 2022 and then you go off from there.
That's what we feel good about. You know, these estimates are always very fine-tuned by what's going on. But we feel very good because the trough, you know, as we look at the trough, the trough ended up higher than we thought, and it came when we thought, even though the rate movements moved all around in the last, you know, six months. And, you know, and we're building balances . That's the key.
So maybe, I mean, still dropping maybe a little bit below the 14, 13.9 or something like that and then, going up from there.
Yeah, and then starts moving up, and you know... And then, you know, there's, you know, we'll have to see what happens with rates in 2025, you know, 2026 and the end of 2025 and 2026. But based on, you know, the, what the forward curve, we'd see it really taking off from there. So, you know, year over year, 2023, 2024 sort of bouncing around. You know, different how it got there, down and up, but kind of ends up flattish and then kicks in high gear from there.
I think you've talked a little bit about, like, your net interest margin is kind of around 2% today. Historically, it's been a bit higher. Where can you see that normalizing out over the next few years?
I think it normalizes out to 2.30-2.40 from where it is now. If you go back and look at different times, and that's kind of what it was in 2016, 2017 when you got to and that would that's assuming the economy, you know, grows at 2% and the rate structure, the, the Fed funds rate, you know, 3%, 3.5%, 4%. It's not 0% again, because that's where it gets squeezed. But, but a lot of that comes from, you know, the, the repricing of assets, of which there's offsets too, because we got other assets that, you know, our interest rate position really hasn't changed in the last three years.
It's plus or minus 100 basis points around $3 billion-ish, and that's through all these different machinations. So we've got to be careful because people look at one piece and say, "Well, that's gonna go that way." And you say, "Well, there's other pieces." But overall, there's no—with a big markets balance sheet, 230, 240 is doable. You know, is there scenarios in transition you get higher than that? Yeah, but I think you'd be careful because remember, the Markets balance sheet is now $900 billion of the balance sheet. It used to be $700 billion. So it... And it has a naturally less yield to it. It has a profitability to it but naturally less balance sheet yield to it, so that keeps that overall number a little bit more in check.
Okay.
Yeah.
Maybe you could just kind of give us a little update in terms of what you're seeing. You mentioned markets, the Sales and Trading for the quarter and how things are shaping up there.
So, you know, Jimmy and the team have done a great job. They've gained share. We've kind of moved up a notch or two over the last three or four years in market share. If you look at it, last year, second quarter, this year, second quarter, we should be up, you know, low single digits, tick, flattish, and equities performing better, going back to why that balance sheet's bigger and up, you know, double-digit %, and then you mix the two together. So that's good. That seems to be what we hear from other people.
Now, we'll see, as we finish up the last month of the quarter. It'll be down linked quarter, just because that's the way the markets work, but not down as much as we would have thought. So we feel good. Low single digits up, and equities performing well, which is where we had the most ground to gain, obviously. Because, you know, Jimmy and the team have basically had, you know, multiple, you know, I think eight quarters of year-over-year growth, you know, looking at last quarter, last year. And what he's been able to do is step up the, for lack of a better... It's not, it's a great business, which you take a lot of risk and benefit your clients and make some money on it. But on the other hand, it has an annuity stream aspect to it.
And you're seeing that, that sort of. He drove the -- they drove the cost down and drove the sort of recurring stream up, and that then opens up a profit that sort of holds there, and then you get the active quarters on top of it. They've just done a good job doing it.
Your relative performance has been good, and ... and your volatility as well. I think it's been more-
We made money every last. I think we made money every quarter, last quarter. I think in the last four years has been at most, you know, one handful or less of losses, the trading days, and they've done a good job. So it's a, it's a moving business and a service business, and a financing business, and all that, that's one of the reasons why they're elevating. It's like quarters more or less coming in, that's why Equities total revenue from all that activity is up.
On the IB front, obviously, we're seeing a rebound year-over-year. You had a big quarter in the first quarter, I think, what? $1.5 million, $1.6 million. Maybe just any perspective on how things are shaping up there?
Well, as we look at the fee data, which is out there, I think it's, what, 10-15% up. We should be right in that, you know, 10%-15%, you know, plus or minus. You got these things are evolved towards the end of the quarter, whether close or not, but up year-over-year—that's year-over-year, quarter-to-quarter. And so we feel pretty good about that. Matthew, again, is the teams run, they've kind of fundamentally keep moving up. You know, the good news is when the financing markets are driving it, you know, we, we have great financing business. And so, yeah, so I, I think we think it's up, you know, about 10%-15% from last year. This year, maybe at the upper end of that range.
Okay. And then just kind of rounding things out, you've had a great track record of delivering on positive operating leverage. You gave us a perspective of how much the company's grown and how much the headcount has shrunk. How are you managing kind of that dynamic of you know, net interest income is a little tougher to grow this year, obviously. You know, kind of balancing that goal of operating leverage with the longer term investments you want to make?
Well, and I think if you looked at it more longer term, the dynamics that the inflation that everybody talks about, you know, hit Bank of America, there was little we could do about it. So our employee, you know, costs are up, you know, 25% or 30% from 2019 to 2023. Talent teammates get paid more, not a lot more people, maybe 5,000 to 7,000 to 6,000, of which we brought down 4,000 from that. So, you know, but it's just, you know, we have our attrition rate is half what it was pre-pandemic, to give you a sense, and, and that's very good because that stability means you spend a lot less on replacing people, and people can bump more expertise. So we feel good about that.
So, you know, we expenses last quarter $16.5 billion without the FDIC or something like that. We'll pick up $200 million because of the FICA and all that stuff. So we're on this run rate that, you know, basically keeps bouncing along that level. When you look at that on an annual basis, that's what we ran the company on in 2016 or something like that, 2015. So it's across almost a decade, you've had no nominal growth in expenses, even inflation investments. So what do we do? We keep running operational excellence and engineering out cost. You know, there's elevated, you know, as my colleagues would tell you, you know, elevated, you know, regulatory costs and things like that. We've had to give up revenue streams, and, you know, overdrafts and other things.
The team's done a good job there. So, you know, right now we're saying that, you know, we've got the headcount settled in. We brought it down 4,000 people, I think, first quarter last year, this year. Yeah, we'll hire 2,500 summer interns here next week and 2,000 full-time employees. So we're out hiring, we're managing it well. You get it by driving operational excellence and taking out work, and this is where the digitization and AI has helped continue will be helpful more on the second and Oreo. And then you invest that in the front end. So, you know, we've gone from $3 billion, probably-ish, in 2019 in technology investments per year, sort of the coding, the initiatives, as we call it, to $3.8 billion this year.
We've gone from, you know, yep, the branch system has been fine-tuned, but we've invested $3 billion in the branches, branch architecture over the last five to six years to build these new branches and upgrade the current branches and refit them. And we'll still invest that going forward because what I have said to myself and the team has said to ourselves, and is, we cannot let deferred maintenance come in, so you have to keep doing that. So, you know, meanwhile, while we're running this thing sort of bouncing around on expense levels that flatten back out once you've got the inflation, you know, the answer is you're doing it. You're paying more people, you have less of them. You're fine-tuning the management levels. We're down 10,000 managers over the last decade, you know, in the company.
You're using attrition to be your friend, so you don't have to make layoffs. We try not to—you try to take jobs, divide them up, give opportunity to other teammates, but you're making massive investments in effectiveness. You're making massive investments in simplification, and at the same time, you're making massive investments in new stuff, which makes the place less simple. And then you got to simplify it once you get it going. And the team's done a great job here. So we feel good that the expense will come down along the lines we talked about, and then sort of think of bump along here. And then as the NII kicks in, you'll get the operating leverage back as you get the back half this year.
And then—and that's when we had the 20, you know, some quarters of it, is when NII was—we could even if—in a stable rate environment, we can grow loans, deposit, and grow NII. But when, when what's going on, it takes a lot to get underneath it to come out the other side.
Okay. And on credit, you, you mentioned that credit generally is in a good place, for you and the industry. Any diverging trends between commercial and consumer, to point out?
So, you know, the concern was, are you normalizing, and will it stop on the consumer side in terms of delinquencies and charge-offs and that? And so if you look. You know, and that was going on everywhere. You'd see the trust data, all the stuff that you guys look at, plus the quarterly reports, and you saw it come up. And what we're seeing is the five and 30-day delinquencies have tipped back, flattened out.
And so we're pretty comfortable that with our customer base and the cards, which, you know, in the day, the cards drive the whole provision line now because just the dynamics of it. So, you know, it's 2/3 of the quarterly provision is card charge-offs, and because you're paying as you go, even though you have these, you know, 6%-7% reserve level. And so we feel good about that because you've seen that tip. And so the latter stages of the, you know m oving back up or bubbling through, and so that ought to stabilize.
Then you look at auto, you know, you had this, like, some COVID changes and stuff like that, but that's all through the system, and used car prices have stabilized. It went up massively, so nobody's losing money on the repo, and we don't have many repos, but, yeah, that impacts it. Then if you look at the commercial side, general commercial credit, you know, very good. We have great ratings, integrity, and company. Bruce Thompson leads the, you know, this area force across all the businesses. You know, he's been at this a long time, so we feel very good about that. Then the real estate, you're seeing the, you know, it went up and it started to tip down.
And that's, we're pretty aggressive on re-rating, and that causes reappraisals, and that causes, you know, at the current market, reappraisals. And so even you see, after reappraisal, the charge-off we're taking, as you watch the dispositions, we feel very good about where we have the things marked to. If anything gets rated a certain level and down, has to go through that process, and then we apply to the rest of the company for reserves, the rest of the portfolio.
But we have a modest portfolio and, you know, in office, and so it's. But it's, you know, it's really just getting through this a little bit dimension. But we feel good about credit overall, including commercial real estate credit, obviously and w e're seeing capital come back in and, you know, we're trying to help the customers have capital to do some interesting things now.
Yeah. So well reserved on the CRE side nothing much on the C&I side, and consumer kind of starting to see the signs of that. And, and-
You add that all up, and at 50 basis points or whatever it is, you know, it's basically where it was, and my team, which, you know, 2019 was at 42 or something like that, you know, I think fortyish basis points. That was a 50-year low. So, you know, so you sort of look at it, it's normalized to level. Now, so we feel very good about it. Now, it—believe me, there's a lot of intensity in our company and outside our company, into our company and every other bank right now about credit quality and everything.
Because that's, you know, between the, you know, the banking regulators and stuff, and so we're beating the crap. We feel very good about it. But that's many years of responsible growth, and you can see the stress test comparisons and the things that you see. You know, we built the portfolio this way so that we could, you know, be able to be there as a source of strength when other people may be shaken by it.
Right. Right. That's a good point. It's normalized, but, too, historically, very strong levels.
I remember, somewhere in 2019 when we hit, like, 30-odd basis points or something for a quarter, you know, I said to Mick Ankrom, who you know, I said, "Mick, go find..." And I could hear him in the background pulling old annual reports off the shelf because you couldn't even get electronic data, you had to go back far enough to find that type of charge-off rate, that low of a charge-off rate. And by the way, he had a lot bigger card book in some of those years. So we feel good about it. But underlying consumer delinquency stuff, basically stable, you know, stabilizing and ticking back down. And that was the key to say, this is normalizing, not a trend, and you saw that happen.
But quite frankly, in a 4.4% unemployment rate, 3.9% or whatever it is, you know, you shouldn't expect this. And if you look at the way we set our reserves, I think we're still 7%-high 4s or 5% unemployment rate this year, you know, so there's a fair conservatism built in that.
Okay. So just on capital then, just under 12% CET1, you've got a healthy excess on your current rules. You've got enough to absorb even the harshest version of Basel III on capital. You know, what are you looking for in terms of more clarity, you know, to ramp up some of the distributions? You've done some buybacks. I think it was $2.5 billion last quarter, but it just feels like you're in a good capital position. You have excess. Do you need more clarity, or can you start ramping up a bit here?
So we'll push a little harder, but yeah, what we need to do is you never wanna do a bunch and then have to wait and put it back on, so you wanna have more of an even plane. And so we think the stock's, you know, the place that we should be buying it. It's you know, we think of this not as a price determination, more as, I got capital. I want the organic growth, and we will put all the capital organic growth, because everything we do, hurdles and all the happy stuff, so we drive that. That usage is not that dramatic, honestly. Except when we move markets up by chunk, and we absorb that. They're running at a level, and it'll move up incrementally, but we moved them from-
You've already made that move.
$200 billion, you know, that moved up a lot on the GSIB calculation stuff. So if we'll have to, you know, stock price being up blows us through a GSIB, we'll have to deal with that, but that's, you know, 50 basis points, and we'll deal with it. But, and we'll let markets run up a little higher to use it, utilize it, and the new rules might have more gradation to it, but that's not the rule. So we feel good about that. So organic growth, then basically pay the dividend, which is a $2 billion carry a quarter at, at the current nominal levels, and then use the rest of it and give back to the shareholders.
And so that dynamic was going on as we moved through, you know, sort of the normalization earnings and all the crap behind us in 2017, 2018, 2019, 2020. Then the pandemic hits, and, you know, we all have to freeze to figure out where this goes. And then, you know, then the 2021 CCAR hit, and everybody's like: What the heck happened here? Got by that. Then, you know, and then, so it's been sort of things, but we've been buying through that, and now you sort of look at it and say: What could go... You know, you got CCAR, we got to get the answer on that. It shouldn't be any different than past years, frankly, but we'll see.
And then you've got the new rules, which at $195 billion-$197 billion of CET1, you know, we have—if, you know, the calculation we make is our RWA goes under advance, we go from 16% and change up to 19% and change, and that, you know, do 10% of 19, and that's $190 billion. So we're sitting with the capital. If that goes anywhere less than that, then we have a lot more excess capital, and it would just, we'll just push up the buyback a bit a fter that. Those are two clarity points. And you read everything and you talk to people, too. You know, they're trying to figure out a way to make this make more sense. When they do, we'll go get on with it.
But, you know, at this point, we feel very good about the capital base of the company and how we got there, too, which has just been organic retention of capital while we're buying back stock. And, you know, common equity continues to grow, but we don't really, quote, "need it" in the sense that you and I are talking about.
Yeah.
Yeah.
So you, you talked about, you wrap it all together, you talked about being a quality compounder- Yeah ... compounding tangible book value growth. Do you think a mid-teens ROTCE is the right target for the company?
We're sitting at that, and we should pick up. The NII, you know, floats to the bottom line pretty quickly and so, you know, the fees have more of attachment to it, and that's one of the pressure on expenses. It has nothing to do with anything you don't want it to have something to do with, too. As wealth management revenues are up, and markets revenues up, and investment banking revenues up, those attach more quickly to expense lines. But, you know, the NII is there. So we think mid-teens ROTCE, efficiency ratio moving down from where it is as NII picks up, and operating leverage, and that dynamic. But never, never forget, we have to invest heavily in our brand. We have to invest heavily in our physical plant.
We have to invest heavily in our headcount increases on the client coverage side where we're taking it out. We look at the 100 markets we have and say: Do we have enough small business bankers in Savannah, Georgia, to hit the market and move to the market share? And we do a pairwise comparison of all our markets. What's our market share by every business unit? And say: Why can't we be in that market where we are, and that market looks like them? And that's usually personnel and adding more talent, so we manage that out. You know, that were 5,000 people over five years, it'd be a lot, obviously.
It's modest as long as I'm getting that efficiency on the back end. So that gets you the ROTCE in the mid-single digits, and the efficiency ratio keeps working down. The leverage comes.
Great. It's great talking to you. Thanks, Brian.
Thanks. Thank you.
Appreciate it.
Thanks.