Bank of America Corporation (BAC) Earnings Call Transcript & Summary

Thank you, everybody, for joining us. We'll have a fireside chat with Bank of America. Really, they don't need much of an introduction since we all know they're the second largest bank in the country with over $3 trillion of assets. Market cap is almost $400 billion. The company has over 4,000 branches and spread across 37 states. The company has put up some strong profitability in the third quarter with an ROTC of almost 16% and an ROA of about 100 basis points, and the stock trades at about 1.6x book value. With us today from Bank of America is Aron Levine, President of Preferred Banking.

Thank you.

Aron is responsible for the Preferred Banking business as one of the 8 lines of business for the Bank of America, providing obviously, lending investment solutions to the mass affluent customers at the company. Aron joined the bank in 1993 from Fleet and he was -- he used to set the pathway for Fleet selling out to Bank of America when they were Fleet Boston about 10 years after that.

I'm not involved in that deal. [indiscernible]

There you go. But thank you very much for joining us. And everybody knows Lee McEntire is here as well. So Lee, thank you for joining us as well. And like we did with the earlier fireside chats, please, questions from the audience are encouraged. So I have a bunch of questions, which I'll start off with, but then again, please fire away.

Maybe, Aron, we can start with a quick update in client activity trends, particularly the payments activity across your lines of businesses and as well as what you're seeing in deposits, loans, investments across this customer base.

Okay. Great. Again, thanks for having me. It's great to be here. Good to see a lot of faces. It's been a long time. So I start with payments. Obviously, some very good news coming out of payments. I mean on year-to-date, it's up 20% over 2020, I think we're at $2.9 trillion in total payments, I think it's about 21% over 2019. If you look October, so for the month of October, it's about $300 billion for us in total payments. So again, seeing good growth. I think that's 25% above 2019 numbers. If you take just checking -- sorry, credit and debit, we actually have already hit this year, $650 billion, which is more than all of last year. So we're seeing good growth on the checking -- on the credit and debit side, again, already exceeding all of last year. And you're seeing it across the board on -- obviously, retail is up significantly, grocery is now up. Probably some of that is prices, but a lot of it is actual transactions going up. You're seeing in some of the ticket areas, right, the venues, people getting back out there, StubHub and Ticketmaster and some of those kind of classic entertainment type models, travel, gasoline. So it's pretty across the board, but we're seeing good growth in the payment side. On deposits, again, we had a pretty strong year. Third quarter, we announced we were up $140 billion year-over-year in deposits, 16%. We crossed the $1 trillion in consumer deposits for the first time, which was a certainly a nice milestone for us. And again, strong growth on that front. Over 34 million checking accounts now. Again, you're seeing this continued pattern of strong account growth. Strong net growth, we're really focused on not only the how many clients we're bringing in, but the attrition and what goes out. And I think we've put a huge amount of emphasis on client care and driving longer-term relationships. The average account size for our checking accounts is now 10,600, up another 20%. I think it was roughly 7,000 to 8,000, so if you go back a few years. So really material, some of that obviously spiked with COVID, but it's maintaining. So we're still at the 10,600. I think we had announced that last year as well. So strong growth on deposit side, investing you mentioned, again, our consumer investments business. So this is just focused on the piece that's within consumer, not the Merrill Lynch piece that Andy would talk about more. But just for consumer investments, grew another almost $90 billion in assets, 32% growth. So when you think about it, $140 billion in deposits, almost $90 billion in investments, that's over $0.25 trillion of asset growth in 1 year. Very strong. We now have $353 billion in assets in our consumer investment business and 3.2 million accounts. So grow about 100,000 accounts a quarter. And these are all strong accounts. Again, point to the average size of a consumer investment account, it's 110,000 in average. So -- and that was about 60,000 5 years ago. So the focus that we have on our preferred client base and delivering across deposits and investments and, of course, lending, I think everyone cares about, seeing some good quarter-over-quarter growth. So we're starting to get that pick up, certainly on the origination side. Across card for the first time since the pandemic, we're back to 1 million card -- new cards sold in a quarter. So that was great. That was kind of pre-pandemic levels. Mortgage is up, auto. So we're seeing across the board, some good quarter-over-quarter growth. The challenge is always is balances, especially as pay rates are still elevated from where they were. So I think all in all, it's a great story of growth, both on the account side and the balance side.

Many of us know based on conversations with you and your peers that customers that have multiple products tend to be the most profitable. When you look at your customer base, you've given us all these different growth data on the dividend segments, what percentage of the customer base has all those products? Or how do you thought about that?

Yes, I mean we look at it a couple of ways. One of the things that we look at is our Preferred Rewards program that we rolled out in 2014, which I think, hopefully, many of you are hopefully taking advantage of. But it's a -- key is we have 8 million now, 7.8 million roughly of our 26 million preferred clients that have activated that program. And those are usually the clients to obviously take advantage of everything because that is where our program rewards them across the board, which is unique. You can get rewarded for all of the different solutions. The retention rates are 99% in that offering. And certainly, those are our most valued clients. If you really were to look at that and even say, go one step further, clients that have an investment account with us as well is usually clients that generate the most revenue. We have the most total amount of offerings with them.

On the investment side, what percentage would you say -- is it all of the preferred customers that have activated or investment customers or?

No. I wish. That would be nice. So we're probably about 15% penetrated. And so again, if you look at the history of our investments, we launched our consumer investments model, which is branded Merrill Edge, self-directed back in 2011. It had about $40 billion to $50 billion total assets under management. That was what was brought post Merrill Lynch merger, right? You had the old Bank of America, they had some stuff, they had Merrill Lynch. So we launched that brand had got $45 billion, $50 billion AUM. And as I said, we now say that $360 billion in assets under management. And there's 2 pieces to it. There's a self-directed, which is certainly a great acquisition tool and growing. And then what we launched in 2017 and then have enhanced it is our Merrill Guided Investing, which you could call it a robo, a digital advice. We don't like to use robo because we use our Chief Investment Officer to do all the actual portfolio management. But that offering has grown. I think we actually have grown faster than most of the fintechs in the same space. We're up to about $25 billion in assets that are just in that managed model. So that's been very effective for us. So we have by way of huge upside, it's 12% to 13% of the -- the preferred client base grows every year. The good news is we've been outpacing that growth. So our penetration rates are actually exceeding the growth rates, but that's what we got to keep doing, just keep driving that out.

We hear from a lot of banks that they want to expand into wealth management, and you guys are already there as you just described. How challenging is it to win in that business since you've been working in it for a number of years now?

Yes. I mean I think you see it with the challenge that some of the players have had are kind of restarting a couple of different times. We had a really clear vision of what we wanted to do. And the vision always was to think about our clients from a consumer preferred perspective, and those clients need banking, lending and investing solutions. And then the question was, what do they need? So obviously, the self-directed platform where clients, in our case, we never focused that business on active trading. We have a small percentage of our clients that actively trade. What the vast majority of ours are preferred clients who want to invest long term, mutual funds, ETFs, those kinds of things. And so that model, we've been going at it since starting in 2011, investing every year, improving it. Barron's ranked us 2 stars back then. I think we got the 4 stars by 2015. And every year, we've just gotten -- you see more accolades, more industry recognition. But always leaning in on a couple of key parts. One is the integration, bank and investments. And I think that's really a critical part of our success is the model was meant for someone who has all of us, not just someone who wants to necessarily trade a stock and move on. So that combination. And then when we realize that more and more clients want that managed solution, it was really important for us to launch that offering in 2017. And the last thing I'll mention that I think has differentiated ourselves is we also didn't just rely on the technology. As you guys have all heard me say and Dean and Brian, high tech, high touch. We created a role called the Financial Solution Advisor, which 10 years ago was somewhat innovative in that it was an adviser, was base salary and bonus, sitting in a financial center, part of the ecosystem of the financial center. Those -- now we have -- so we have about 150 to 200 of those advisers back then. We now have 2,800 moving -- we'll get to 3,000 next year. And so these are completely integrated into the ecosystem of consumer. They help clients with life planning, with banking, lending and of course, the investing. But that model, of course, allows us to give access to an advice model at a much lower sort of investment rate than, obviously, clients who have more wealth, more complexity, we refer those to Merrill Lynch and the Private Bank. So the other big piece of our model is that we have this wealth continuum and clients from any wealth level we can serve them: self-direct, managed digital, full-service managed, full team, private bank. And I think that's been a really powerful model for us.

And kind of digging into that, again, when you look at the growth that you guys have seen, what's been the competitive edge that given the...

[indiscernible]. I'd point to 3 things, 3 buckets, if you would. First and foremost, it is that integration. We have talked high-tech, high touch for a long time, digital and physical. That was a big part of the model. So that integration component, I think, was an edge. Second, obviously, the investment made in digital, right? When you look at Zelle and Erica, right, Erica now has 22 million users, having 500 million interactions since we launched Erica. The digitization of all of our offerings, so that really intense focus starting way back in '10, 2011, 2012 on digital. So that would be second. And then third, I do think this combination of this unique rewards program plus our focus on client care. If you looked at us back in 2013, 2014, we would measure our clients' top 2 box, who gives us a 9 or 10 walking out of a financial center or using one of our call centers. In the financial center channel, back then, 68% of the time, we got a 9 or 10, right? And that was absolutely one of the things we said and Brian made sure I understood that we were going to change. We got to 90% by I think it was 2018, our first time when we crossed over. So 90% of the time a client is giving us a 9 or 10. And we do this digital survey. So it's real time, clients respond, very accurate and so 90% plus. And we've been able to sustain that. So we're at all-time sort of client SAT scores. And we measure that -- measure the digital channel, we measure our call center channel, our financial center channel, our ATM channel. And so when you go across the whole board, it's like 85% top 2 box, which is our highest ever. But financial center specifically, to get 91%, 92% is, I think, something we're really proud of.

During the financial crisis, you guys have been able to open up a number of financial centers in these expansion markets. And can you share with us the success you've been having with the [ genovo ] efforts and how it might differ from some of your peers?

Yes. So we've actually -- will have opened 71 centers total here in 2021. And of those 70, I'd say about 37, 38 are in the 9 markets that we would call expansion markets. See if I can run through them: Denver, Minneapolis, 3 markets in Ohio, Cleveland, Cincinnati and Columbus, Salt Lake City, Pittsburgh, Indianapolis and most recently, and Kentucky. I think I got all 9. So 37 centers there. A couple of things. When we go to these new markets, we look at the companies, one, are they in the top 30 or at the very least top 50 markets in the country, we wanted to fill that gap. We have a 1, 2 or 3 market position in 25 of the 30 top markets. We're #1 in 16 out of the 30, which I think is more than double than any competitor. But so those markets, we had a gap, and we said, where do we have a Merrill Lynch presence and/or a commercial banking presence already in the market. So we weren't new to the market. We would be new from a retail perspective, and we knew the retail side would not only help reinforce and support the value prop for those businesses, but obviously give us a headstart. Not to mention, we did a lot of, if you would, premarketing of our digital capabilities, right? So clients in Pittsburgh and other areas would start to see our digital stuff. So we feel great. We've exceeded expectations on the growth of those markets. If you look at FDIC reporting, we've moved up in almost every one of those markets taking share. And so in some -- in a few cases, we're now in the top 10, and so it's been a strong strategy for us.

Great. Let's start with questions interacting. Walt, if you bring the microphone over here, please.

Well, thanks for joining us. Mike Mayo with Wells Fargo Securities. It used to be you'd kind of open as many checking accounts as you close. So it seems like the key is retention. So can you compare retention for all of retail, with Preferred Rewards and how that has trended? And I have a follow-up.

Yes. Yes. I mean with checking accounts, there's lots of -- the ability to retain is critical to us in that we're at an all-time low attrition rates. Remember, some of that sometimes accounts close because you're consolidating and so you got to pull around some. So when you look at like just purely core attrition, we're probably down to like 4%, 5% in total of accounts. And again, that reflects in those higher average balances. We're now on our 11th straight quarter of net checking growth, to your point. So meaning we look at what comes in and then the whole portfolio, what goes out, and so we kind of calculate that because that's really important to your point, Mike, it's not just how many accounts you bring in, it's how long they stay and the quality of them. So for 11 straight quarters, we've had net growth. We should end up over 1 million accounts net this year. When you ask about Preferred Rewards in particular, the retention rate for those -- and that's again about 8 million active is 99 -- and I got the decimal point for it, 99.1% of those clients' retention. So if you think about the clients that are some of our biggest, best clients now, we're retaining at that -- those levels. So that's something that you kind of keep focused on. We continue to think about ways to look at who isn't staying and why. But again, some of those are people just opened up accounts. They have life events, you get married, you get divorced. So we sort of pull all that out and then look at truly core and what are the things that would cause the client to close. Most of the closures are smaller retail customers, quite frankly, so the attrition rates on the Preferred side are -- they might not be 99.1%, but they're probably pretty close the call it, 97%, 98%.

The 4% to 5% core attrition, how does that compare to historical? And then separately, since your retention is so much better for Preferred Rewards, how do you get that -- them to move into that bucket? How do you get them to click on yes? If you only have one out of 3 of your Preferred customers in there, I'm sure you want to move that and that's a challenge and an opportunity.

Yes. I mean I think if you go back 6, 7, 8 years, attrition was probably in the 8% to 10%, if not higher, at some point range. So it's come way down. Yes, look, for us, the whole question of awareness, the ability to market that program, have people, even our own clients become aware. I think for us, this is where digitization becomes so important. The ability to take our data, personalize the messaging that goes out to all these clients that work with us through our digital channels and get that message much more targeted to those clients that are a, are eligible and they simply haven't. Because there's really no process for the client to take. It's clicking the button and just clients don't necessarily understand that they're losing rewards. There's benefits because there's not even a requirement. If you already meet the criteria, you have a DDA account, checking account, plus it starts at 20,000 is the first level, you automatically get it. So it's an awareness. It's just constant making aware clients who come into our financial centers, right, we can do a great job of telling about the program and we got a very high hit rate. Of course, they're going to sign up for it. It's obviously the larger group of clients that don't necessarily interact with us that way. We just got to do more on the marketing front and tailored digital marketing as a way to get to them. Do well some outbound calling, quite frankly, we've been aggressive on calling clients more to say, hello, welcome did you know? And so we're doing more of that as well.

Aron, over -- if you look back a few years, BofA had a huge number, 6,500 branches or something like that. That's come down quite a lot. You've had the emergence of digital, which you've articulated well. Could you talk a little bit about what the implications are to the economics of the branch? Brian used to talk occasionally about the cost as a percentage of deposits and so forth. Could you guys give us a feel for what this has meant to the economics?

Yes. Well, we're -- I think we're -- last quarterly right, we reported, I think it's down to 110 basis points in terms of the cost of deposits. So it's all-time lows. We have 6,100 financial centers back in 2009. And I think my memory serves, our deposits at the time, $400 billion to $500 billion range. And so we're now sitting at around 4,200 total and $1 trillion in deposits. So we have been incredibly efficient at gathering deposits on a per financial center basis, right? So we certainly -- I think ours is now the third largest footprint in the country, but obviously, #1 market share. So I think all of the things I talked about has been helping drive that growth. But -- so there's 2 parts to the economic question. One is the number of centers, and that's kind of coming down. We'll continue to optimize and we'll continue to reduce on a net basis. So we do open some. We're putting a lot of investment to renovating and making the centers look the way we want them across the board. But then there's a staffing question. So we have been aggressively looking at staffing. So for example, if you went back 4 years ago, we would have 10,000 to 11,000 traditional tellers, right? Client service reps, we call them, but most people know them as tellers. We have, over these last 4 years, redefined the role into what we call a relationship banker. Because of the technology in iPad, almost everything you can do outside, we can now bring them from behind the line, put them in the lobby, engage with clients. And it kind of commensurate with a now $21 minimum wage, the type of talent we can bring in and start creating a career. So that CSR role has gone from, I think, 11,000 down to 4,000 and then the RV role, which is a great first career. And I think -- so you're seeing -- and then same thing with our relationship managers, we've been upskilling. So we used to have a big pool of a generalist, if you would, bankers sitting in the center that would sort of be a little bit of jack of all trades. We've been really moving them to saying, either you have a small business kind of training or lending mortgages or becoming a financial adviser. And now we don't necessarily need both, right? So we can start to reduce the number of staff but still serve a huge number of clients. So I think it's a combination now of optimizing the footprint and the real estate. So again, down to 4,200, you can see that continue to trend down. But then the staffing within the centers is actually going to be lower than it was 3, 4, 5 years ago. So it's a double hit.

Chris?

Yes. Well, actually, you started answering the question, I was just going to ask. But the other attrition question I have is about staff turnover and so on because, I mean, historically, bank branch staff had, I think, like a 25%, 30% annual turnover. And I'm wondering, has that gotten worse during all these labor shortages and what's the impact of all that?

Thanks. Great question. So we really had an amazing trend. I think in 2013, '14, our CSRs are as high as 40%, 50%. And we got that down pre pandemic. And again, as we move this role, now our attrition rates are sort of sub-20% on those roles. Some of our more specialized roles, our financial advisers, our small business bankers, you're now looking sort 10% or less, which for a financial center channel is pretty remarkable. So I think this idea of the combination of this career path that we've created, plus the better compensation has really helped us, and that was going into the pandemic. Obviously, during the pandemic, there was almost no turnover. And of course, we had a big commitment to our associates, how the way we paid them, what we -- how we took care of them. And there was a great response. What we're seeing in 2021 is certainly an uptick. Those attrition rates have gone up, but not back to those old levels. They've certainly uptick from where they were. And so those are -- so we have to deal with that. But we're hiring and sort of making sure we have the right staffing. So some of it balanced out. We closed -- we kept closed a lot of centers from the pandemic. So we didn't reopen them. And so some of that attrition helped us balance the staffing without having to actually remove any jobs. So we've used that to our advantage, a little bit higher attrition. And now what we're focused on, again, with the higher minimum wage, we think we have a pretty good model that we won't have high attrition.

Actually, Aron, what's -- because your wages are probably amongst the highest of your peers, if not the highest.

The highest, yes.

What's causing the attrition to tick up do you think?

Well, I think there's all these sort of macro trends, right? People just want to -- don't want to work in a financial center anymore. They're just -- they want to stay home. They want to -- there's definitely a lot of people who are sort of reevaluating. I think we've got clients, some say, we want to be in a call center. So some of the -- we keep some and we can move them to other jobs, but I think others have gone to other places. It's been a tough 2 years. I mean you can imagine many of us work from home and then all of us in this room are working from home. Sitting at a financial center for the last 18 months, I think, was a lot of fatigue. So I think that's part of it.

Got it. Okay. Yes. Sure.

So one of the things that something is as we're talking about the financial centers is not only do we have $1 trillion in consumer deposits, but will be served in all the financial centers is another $350 billion of more management deposits, let alone all the other $3.7 trillion of client assets in wealth management business and that our commercial customers are also using financial service and we've got another [indiscernible] is the same franchise that's being served.

Yes. And we track client experience for -- specifically for those higher GWIM clients, too and, quite frankly, [ trust ]. I think they're slightly lower, maybe 90%, if not 91%. So it's something we keep a close eye on. Yes.

Many banks have been turning to technologies like RPA in order to figure out how to maybe deal with the employee equation. Do you have more opportunities in that area as well, too? Or could you pretty much have...

Yes. I'm not familiar with RPAs.

Robotic process automation.

Yes. I think we've gone to Workday, and I think our -- I think for Sherry Brownstein, these our human resources has got have done a lot of work around improving the technology for us. For us, in terms of we do have technology, I don't know the name, but we've used it for helping staffing and helping manage because that's been a pretty interesting challenge for COVID is how to staff centers with all the different moving parts. So I think we've gotten pretty efficient and I know technology has played a role, I just don't know specifically which one.

Yes, over here. Betsy.

Can hear you me?

Yes.

Betsy Graseck, Morgan Stanley. Aron, so we've talked a little bit about drivers of revenue growth and drivers of expenses and expense management. And I think all of us here heard very clearly on the last conference call that operating leverage is coming back. And I wanted to get a sense from you as to where you think you can drive that in your organization? I mean pre-COVID, when rates were higher, I think consumer overall was sub-50%. We're running at about 58% on the expense ratio side right now today. But if we don't get rates back, maybe you can help us understand where you think you can take that?

Yes. Well, if you kind of have seen the last 3 or 4 years in consumer, all this asset growth that I talked about, our expenses have been relatively flat through that time. In fact, COVID, obviously, there's a lot of COVID expense that came into the model, came into the business in 2019, 2020. I think if you look over the next few years, I believe we can continue to grow the accounts and assets the way we have been, and expenses could stay roughly flat. I think. But within that, there's all that investment that we're talking about, extra marketing, extra technology. So we're doing a lot of initiatives we call our operational excellence in which we are digitizing end-to-end processes, obviously improving, so we get less phone calls in our centers. So there are a lot of spots. We go paperless, where we have costs that can come out, and I think then be reinvested into the things that can drive our business like technology and marketing. So as a result, you can get the lift in assets but remain expenses relatively flat from where we are, maybe slight growth.

All of that process over here...

Well, it's -- the consumer business, it's a joint effort, but Holly O'Neill, who runs our retail and works on a lot of those sort of big operational excellence projects, but it's very much a -- every part of the business has to be part of it. So we collectively prioritize. We collectively look at what the technology investments needed. And then we, as a leadership team, everyone is involved with operational excellence. So we're constantly looking at each part of the business and identify where we can take out costs. And again, I think a lot of that, though, you're going to see reinvested back into the new technology, new markets, a little bit of that flywheel concept. Save money from one place, reinvest it so that we can improve the overall and then it keeps kind of going around. And that's been a little bit of -- again, if you take out the COVID costs, if you look at consumer for the last 5 years, that's been to roughly what has happened, right? A lot of asset growth and expenses have been relatively flat.

Aron, actually, on -- talking about asset growth. With your new products, you have unlimited cash rewards credit card and you've got the Balance Connect, which helps people when they overdraw their account. What's been the uptake of those products? And what are some of the considerations that you guys take into account when you launch a new product?

Yes. So 2 different places that I can hit both on. Let's do the Balance Connect. So obviously, look, I've talked a lot about preferred where there's a lot of growth in revenue. One of our big obligations is obviously serving all the communities and serving low to moderate income and retail mass market customers. And one of the things we've been committed to is how do we reduce fees and make sure we serve these clients, and so they get what they need. And we've rolled out these several products, Safe Balance was a way for clients to avoid overdraft, the ones that can't afford it. You mentioned Balance Connect, which we just rolled out, which is a $500 -- up to $500 loan. That's for a $5 flat fee that can get paid back over 90 days. A great product for those clients that are just trying to manage their paycheck to paycheck, make it to the end of the month and a great way for us to help them do that with low risk. And then we have other things that we continue to do to help on the overdraft. So those set of products is really about making sure that our retail clients have the benefit of all of our capabilities and avoid fees that they really can't afford. And we couple that with a lot of financial education and a lot of other ways in which we help those clients. On the credit card side, yes, we're constantly looking at the offering. We added in this unlimited. What we were hearing from clients is we had a card in which you select certain percentage for different -- and we had clients say, I just wanted to be unlimited cash. I wanted to be a little more simple. So it was really in response to that sort of client demand. And so far, it's exceeded expectations. We feel great about the clients' response to that card and again because it did fill a need. And now we're rolling out here very soon, Premium Rewards Elite Card. This is going to be a card that's more geared towards not only the Preferred client base, but the Wealth Management and Private Bank, slick-looking, black, metal, fancy with great benefits, concierge kind of service. So that was a gap that we had, that upper, upper end card. In conjunction that, we roll out 2 new tiers to Preferred Rewards, Diamond and Diamond Honors. So we start to have a model that supports the entire continuum. And I think -- so both from a reward standpoint and a card standpoint.

Yes. Question?

A couple of questions about just kind of following up from what you just said. I'm interested in how much rewards cost inflation there is in cards? And then a different question on rewards is how is the rewards model developing more broadly? So how are you using customer analytics for personalization? Can you give us some examples of what you've been doing there?

Yes. Look, and this is a place that we are pretty unique in terms of how we set up our rewards. So there's been growth -- certainly over the last 3, 4 years, I think it's been about 10 for us, about a 10% growth in reward costs. But again, that, I think, is less than competitors. We don't have a lot of co-branded, right? That's not -- we don't work with the airlines, we have Alaska Airlines, but although we're not big into that space where a lot of the rewards is getting driven and a lot of the costs that the card companies are in the banks are taking on. Remember, we use this Preferred Rewards program, which is a big benefit, but the benefit comes in the spirit of more deposits, more investments. It supports driving auto loans, supports driving mortgages. So it's a holistic program. It's not just card-based. So the economics is based on the whole client. And I think that's pretty unique. So we give a pretty robust reward when you have Preferred Rewards on top of it, but the benefits come back to us with lots of different economics attached to it. And I think that's really what we've constantly been doing across sort of all of our -- is thinking about not offering individual products that have individual models, but what does the client need across all 3? Banking, lending and investing and how do our programs and models and rewards and loyalty all support that holistic relationship. And I don't think anyone else has quite gotten there yet on being able to do that.

As opposed to the work of the general card product going through a lot of vendor or sub-partners, how were you backing [indiscernible]

But just because we do have rewards at the card level if you don't qualify for Preferred Rewards, we certainly do that as well. And I think there, we're probably not at a -- we're a little less competitive. So when you add the Preferred Rewards where we get pretty competitive on the rewards side. Yes?

How many branches do you need in a new market -- in your expansion markets? Is it 5, 10, 50?

It's definitely not 50, and it's definitely not 5. I'd say we're kind of coming around -- 20 is a good number, roughly. When I really think about. We've been in Denver and Minneapolis now for 5 years, and you sort of feel like it could be 25. But that's kind of the general. We just opened our 16th in Indianapolis. So I think 20 to 25 is where I probably put that number. It's not a perfect science. And I think, again, this idea of each market is different and unique, and we really just do have a very specific market plan. And we have, both on the ground, our market president function here, and Brian talk about that a lot. And so when we go in, our -- my team is with the local team really looks at each market and says, what's the right balance. But generally speaking, I think 20 to 25 gets you.

So I just set you up here. So why in the world do you still have 4,200 branches? So let's take 20 branches and the top 100 MSAs.

Right?

Right? That's 2,000. You have 4,200 branches. So why are you at such a high number? And I know compared to the U.S., it's fine, but compared to, say, Australia or other countries, it's just too much brick-and-mortar, right? So...

Yes. I mean, again, I think you've seen us on a net reduction course for -- but clients still use -- there's still 700,000 -- even post pandemic, 700,000 visitors a day to those 4,200 branches. There's still 60% of all sales, even though now digital is now moving to 40%, 45%. It still leaves 55% of sales. There's still clients that want to have meetings. I think the key is to differentiate transactions and advice. And the fact that we have 3,000 financial advisers, clients want to come in, sit down, talk about those their long-term financial needs. And so we're building relationships with those clients. So I agree. Transactions keep coming down, the number of centers will keep coming down. But the financial center channel for us is still incredibly productive across the board, if you look at all the different metrics. But you clearly see a trend where you don't necessarily need that many. And then what we'll be evaluating and what we do evaluate every year is how many do we need in any given market. But the financial center is far from dead in terms of client usage. And there's a lot of research that says that Gen Z, millennials make decisions on opening up an account still based on if a company has a branch. And we see that in all the centers we have close to the universities and campuses. We open up a lot of accounts for students and the center is still important to them.

Actually, Aron, you mentioned those 8 expansion markets that you guys have gone in. What's on the horizon? I mean, are there other expansion markets that you think you may want to get into?

Yes, I won't name names. There's always a list. And obviously, again, you go back to where is Merrill Lynch located, where is our commercial bank. And so there's probably 3 or 4 markets that are always evaluating. It's a long cycle. It's going to -- even if I said today, we're announcing it, It's still 2 years. You can accelerate it if you can find existing buildings. But the real estate cycle takes a while. So I would expect there'd be a couple more, but not a huge lift. There's a couple more spots we might get to. But we're still filling in to get to the right level on the markets we have. And look, there's still need for centers in major markets. And so the net can come down, but there's still plenty of opportunity in different parts in New York, L.A., Chicago, where you still see very productive because it's not just about deposits, it's all the other business that goes on, mortgages and financial advice and referrals to Merrill Lynch and all that stuff.

And speaking of which, when you mentioned referrals, Andy has talked about growing the global wealth through the referral process and think Katy Knox and your investment management area also. Can you share with us how does that work, the referral process? And how do you keep it connected?

Yes, it's a great model and one that goes 2 ways. So for us, we set up, as I mentioned, those financial center advisers, their compensation has always been if they refer business to Katy and Randy, they get paid no different than if they did the business within consumer. So there's a completely open model where it says, what's the client need? If we can meet those needs with the platforms we have, refer, there's great relationships at the local level. In fact, Lee helps drive our local market presence function. So there's a lot of activity around that. What we're seeing more and more is Merrill Lynch and Private Bank clients who really do either have one or want a self-directed account. I mean -- and we're seeing a huge amount of hybrid business. And that's -- those are assets that used to go to Schwab, used to go to e-Trade, used to go elsewhere or stay, we're now collecting assets from from those clients and defend. And I think that's probably the biggest growth area. So yes, we send them quite a number of referrals a year, but they keep the client, but those assets we're defending more and more so that a Private Bank client that might have 50 million total portfolio and wants to move 2 million, where once it would have gone through Schwab, we now capture that to keep it within the company. So it's been really important in both ways.

Yes. That's good. Yes. Pierce, hold on. There's a microphone coming to you.

I don't know if we can come back to a question Mike was asking it. The...

No. Not my questions, we try to move on.

The lower attrition rates, the Preferred Rewards sort of segment. Is there a way to sort of delineate the difference between it really is sort of the value of the offering itself that you're making versus those are customers who are just -- their financial lives tend to be more complicated because they have more stuff. And unplugging and going somewhere like it's sort of inherent in the banking model that these people have very limited...

Yes. We actually, we do. We have actually a pretty good control group because we still have 3 million, 4 million eligible clients in that same look and feel exactly the same. They just haven't clicked on it, so we can look at retention rates if they do have Preferred Rewards versus if they don't in a very similar client profile. So we look at those upper end clients. Because again, a lot of times, they just haven't activated because they weren't aware of it, they don't know. And you can see a very direct correlation. If that client has engaged with Preferred Rewards, there are a couple of whatever it is, 50, 80 basis points more likely to stay than one who has -- the numbers are all -- we're doing very well across the board, right? So it's not this huge gap, but it makes a difference over scale.

With that, we have gone over a little bit. But Aron, thank you so much for joining us and join me in a round of applause. Thank you.

Thanks, everyone.

State Street is up next, so stay in your seat, we'll have another fireside chat.