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

So in the interest of time, we're going to get started. So up next, I'm delighted to welcome Bank of America's Chairman and CEO, Brian Moynihan, who's going to join us for a fireside chat. This is Brian's 12th consecutive time presenting at this conference, 11 times in person, once virtually. So thank you very, very much for coming too consistently and welcome back. It's been great to see the evolution of Bank of America's franchise under Brian's stewardship. And we've got a lot to talk about. So why don't we just start off with a broad question around your expectations for the economic environment. And I appreciate, look, there's a lot of different moving pieces here. But if you could just set out what your base case is for economic growth next year, perhaps talk about what you're expecting in terms of the trajectory, the interest rates, and maybe in your answer, you can talk a little bit about some of the different corporate and consumer spending trends that you've seen over the course of the last few months.

So we'll get that done in 34 minutes. So starting from the top. We, like, a lot of firms have basically coming to about 4% GDP growth predicted for '22 in the U.S. and then 2% in the world, similar. And so what does that really mean? We're moving back towards trend growth rates, and you're seeing it 6%, 4%, 2% if you think about it. But the way I look at it overall, though, if you think about where we were in '19 before the pandemic, the economy is relatively the same size, predicted [ Year 4 ] to grow twice as fast. Unemployment is now down to 4.2. And then yet not a fiscal stimulus still out there is huge, talk about more. So there's any fiscal help for the economy still and then you have the rate structure. So if you put all that together, I think the [ chair of power ] has been clear in his testimony last week and stuff. It's in the central banks around the world. It's getting to the point where they've got to start to change their posture. So our view is interest rates will rise next year multiple times and beginning sort of midyear, even maybe a little bit earlier, the tension would be how much earlier that could happen. But they have to sort of normalize the environment given everything going on. Now when I just go to sort of say, so that's general information that all our clients out there have tons of intelligent people that they work on this. But if you actually see what we see in the spending data, the month of November was 20-plus percent over the month of November last year and over the month of November before that, it's like 28%. And halfway through the month, I predict it would go to 20%, so it actually picked up in the second half of the month. So what does that really mean? So American consumers who have spent $3.2 trillion of Bank of America year-to-date have spent 20% plus more in '21 than they spent in '20 and 20% plus more than they spent in '19. So that is twice the rate of the '18 to '19 turn. And so if you remember, '17, '18, '19, the economy was growing at 2%. The feeling was that the tax reform at year-end pushed the economy forward, and you saw that pick up as we came in at '19 and it went from like a 5% to 6% number to compare that to a 10% number and now you're twice the rate. So think about that pace increasing, and it's increased during the year this year, too. So that's what's interesting in the consumer side. If you think about it from terms of commercial clients and stuff, they're starting to use their lines a little bit more when you talk about loans and loan growth later, but they're using the lines a little bit more. The supply chain and everything impacts the inability to get labor. But if you look at it inside in the consumer confidence in terms of what they do with their money, no matter what they say is they're outspending and they have a lot more money in their accounts to spend. And so if you think about a person who had $1,000 to $2,000 in their checking account balance prepandemic, they're sitting with $6,000 today in their deposit balances and the average balance was like $1,400, $1,000 to $2,000 was $1,460 or something like that, now it's 6,000 change. Inching up for the month of November, that went down by 1% after rising a percent for the last 6 months in a row, which meant there was a little bit of out of the account. So when you get into more affluent consumers with $5,000 to $10,000 balances, their accounts are still growing on a monthly basis in terms of deposit accounts. Again, up 2x or 3x what they were. And if you go below that to the people who had $500 to $1,000, they're up 5x or 6x prepandemic. So people still have a lot of money in their accounts. They're well employed. Wages are rising and they're spending money, which I think in a day of a consumer-led economy in the United States, I think that's the unique thing I could add to it as they're spending and they're doing, that's just -- that bodes well for the U.S. economy absent all the things I'm sure that [indiscernible] you and I can talk about.

Yes. And maybe it's too early to comment, but since the concerns around Omicron have you seen any changes in terms of spending patterns?

It's still pretty early in the sense that this is only 2 weeks old in terms of our awareness of it, meaning outside of certain areas. But if you think about what happened in the second half of November, Black Friday was a record day. It hasn't slowed down. It's actually kicked up a little bit now versus last year's November and '19 November. Second half was strong or stronger than the first half. And so I don't see any impact yet. And if you go out to a restaurant, I don't see people change their behavior. The TSA numbers, you can see bounce around a little bit. But this is -- you got to go back and it was [ coronavirus ] that we had to win, and we haven't won it totally yet. But if you think about it, the vaccine levels in the United States being at the levels they are, unless we get a different prediction, people can get exposed to this new variant, but the reality is it seems like the vaccines continue to work, and we'll see what that plays out. I'm not the scientist, but it's got time and the data will get better, but we're not seeing any behavior change here.

Good. Got it. So before we talk about Bank of America, maybe you can just spend a couple of minutes talking about some of the perceived risks from a macro perspective next year, whether it's inflation, the risk that rates move too quickly or whether it's just some of the issues from the ongoing supply disruptions and the issues that, that's causing?

So we had a group of the Federal Advisory Council last week and the notes will become public. But think about a bunch of bankers sitting around and talking about what our clients tell us and uniformly across those banks, of all across the country and of all sizes. It was the supply chain disruption to commercial clients, the inability to get labor and whether that would be a constraint on growth and constraint on business plans and spending and things like that. You haven't seen it yet, in terms they're still spending relatively strongly. But that's the real risk is when does that become such that people just can't buy stuff, they can't get all the stuff. They can't do it. Now the countervail of that is people are traveling more and using the money on experiences. So I think we have to be careful about that. But I think that, that's a constraint. And if you talk to people in the shipping industry, it's not a fix overnight. It takes a while because it's not just the ships, it's all the components of the process. So I think that will be a constraint and that, in fact, is why our team has probably taken our economic projection for next year from 5 to 4 over the course of the last few months is really those constraints, but they pushed out some of the growth further out because the idea is it will be delayed. Labor shortages, you can see it and the participation rate went up. The unemployment rate is down. Why aren't people come off the sidelines? There's lots of theories that, that's the other risk. And then honestly, and it's the question of can they get it right of sort of the soft landing. And so we do a stress test every quarter where we look at the [ 70, 71 whether that ] was inflation and say, what if we have to do that kind of change to get the thing back under control when we stress our portfolios, and that we've been doing for 3 or 4 quarters now figuring that we'd be at this place where inflation is real and out there and now you have to control it and the Fed has the tools to deal with inflation. But if they have to apply them too aggressively, central banks and the Fed, it doesn't feel so good, and that's why we're testing. But with the capital and liquidity we have, it's not an issue at all, but it just would be -- the economy have to go into a recession to -- they'd have to force it in if they thought it was out of control, but that's the real test. So those are the risks. Can the commercial customers get the stuff to make the stuff to sell the stuff so people can buy the stuff so you can keep the economy rolling. And then the virus is always a risk as it become so prevalent they have to change behaviors. But the other risk is can we glide the economy back in by reducing the monetary accommodation and the experts are on it and believe in it, but that's going to be yet to be determined as we go through the first half of next year.

Okay. Great. So let's segue and talk a little bit about your strategic priorities. And I know that this conference usually follows the Board meeting where you go through strategic planning for the next few years. So can you talk a little bit about the 2 or 3 most important strategic priorities that emerged from the strategic planning meeting that you had this year? I'd be interested in hearing how it differed from last year given the environment was completely different a year ago. And I think within your answer, I'd be very interested to hear how things like sustainable finance and stakeholder capitalism are starting to feed their way into your strategic priorities as you think about Bank of America over the next 3 to 5 years?

Sure. So let's sort the 2 things out. If you look at the company, coming in '16, '17, '18, '19, we were starting to outgrow the market deposit growth, loan growth, household formation, wealth management, et cetera. And so then the pandemic hits and everything becomes hard to figure out for just the numbers in the massive loans and then the massive paydown on PPP, et cetera. But if you look at it now, the prepandemic organic growth trend is back on track. So if you look at year-to-date in '19 versus year-to-date in '21, core checking account growth is up 30%, 40%. The numbers of credit cards are back at where they were and growing beyond that. Probably everything but home equity origination just because of the nature of what's going on in the mortgage industry over the last few years are there. And so commercial credit, the officers are back on the streets generating loans. We're back in a growth mode. And so that's the one thing we want to make sure, and that means the company is running different. We're an operating leverage company now to expense management. We got to manage expenses well, but the reality is the revenue was growing faster than expenses for 20 straight quarters in the last quarter and expectation to continue that. That's what we're trying to drive. So you get the Board's mind around we're out of the pandemic -- our mind around we're out the pandemic and how do we get back on the organic responsible growth platform and just drive it and drive a competitive advantage. And that's what we think we were doing prepandemic, and you could see it in '17, '18, '19, and then we hit it. So that's number one. But then if you go underneath that, the idea is we take the Board through, outsiders coming in, talking about all the competitors, both regular competitors and fintech competitors and what DeFi means and all that. And so we go through all that. And we look at us comparatively and we're focused on making sure our capabilities are equivalent for all different segments. And so obviously, the obvious inquiry of a main -- a bank like Bank of Americas, are you relevant to young people in the category of 16 to 24-year-olds were open up customers at about 1.5x the rate that we have market share. So we're gaining share, and we're relevant in our digital capacity and as everything is ranked well, we had 40 million users today. We have 2.6 billion digital interactions. So we talked about are we -- the buy now pay later and business banking as a service, all those discussions. So we talked about that, and we have to just drive -- the implications drive that digital lead out there. But then the question was, how does that come across the company? And so Andy and Katy on the wealth management side talked a lot about the digitization, their practice, adviser-led, but how you digitize at Merrill Edge, $300 billion and growing at 20%, 25% a year is in the plans and stuff. So it was all about how you digitize the whole company, Faiz Ahmad and [ Tong Van ] and others on the payment side and how we're driving a new payment, [indiscernible] Mark Monaco and the team. It's just, but it's all about how you keep digitalizing taking advantage of that competitive position and driving it. And you're sitting and say, well, that's not a lot new. But underneath that, there's massive changes. We demonstrated the stuff that's up and working in our company, in picking up millions of customers, Zelle and Erica in the life plans. And then we highlighted, like in merchant services, now we have the joint venture. Now we have a new product. We're starting to drive sales, and they're growing every month and why that's so important, the payment scheme and the interaction. You take Zelle real-time to B2B and how that sort of just changed the whole merchant landscape and things like that, so we showed them that. So those are the priorities. But none of them are particularly stark. It's just we got to just keep putting a hammer down and drive.

Okay. And look, I know this question has come up before, but has your thought process changed in terms of where you see the greatest opportunity to take market share from here either by product or by geography?

Well, one of the things that we -- if you think about the United States in terms of the real relevance to a lot of our businesses, except for Global Corporate and Investment Banking, this global business and market as a global business. So if you go to those 2 businesses, what we did in market is that we started to expand under Tom's leadership and [ Jim Demarest's ] leadership and [ Bernie ] leadership and [ Sofia ] and others. We said we'd expand the balance sheet, and you're going to ask about capital at some point, but that was -- we put more capital in that business, a lot of the [indiscernible] points to accumulate and things. And so you're seeing the benefits of that. That's discrete in some ways away from some of the other stuff. It's clearly connected to the company, but that was critical because as a company gotten bigger, the capital base has grown, but that had gone from like 30% to 20%, and we need to push it back up. And so we've been doing that. And then on Global Corporate and Investment Banking, Matthew has done a great job of getting us back in and we continue to invest in people. We have about 10% more MDs now than we had in '19 and things like that, and we continue to add MDs and [ DEs ] and we continue to add in capacity in places. And we're still not there. We're going to need to do more there, not because we're not doing a great job, it's because we just need to keep expanding to meet the need in the middle market, especially investment banking. But when you look across the rest of it, it's really about making sure we go [ wall-to-wall ] in the United States in the markets going -- the markets through size, expanding the markets and then using the Merrill platform and the banking platform, a private banking platform and the business banking platform, commercial platform and Columbus for 15 branches, and we went from nowhere into the thing, Minneapolis, which we started 4 or 5 years ago. Our business is now growing to a few billion dollars in size, Denver, et cetera. So getting the market complete and then using our competitive advantage. Those are the real opportunities, which is -- even though we've been after it and done a good job, we still have a lot of people who don't use their Bank of America card as their primary card We don't have -- people get the mortgage loan somewhere. And so we're growing that, and that opportunity is almost infinite and then adding more customers, especially in these markets we weren't in before. And so we continue to do that. So even though we're coming down in branches, if you look at the mix, a lot of -- we're opening in places we never were and we're opening up a scale in those places. We don't open one and say we're there. We opened 15 in Columbus in 2 years. And you will get another 5 or 10 probably on top of that, Cincinnati and Cleveland, and Indianapolis, Minneapolis, and Denver, Salt Lake, just really going in, in Lexington, Kentucky and saying, we've got to build a marketplace. Pittsburgh, the same size we were and watch the customers come in and then work, the dynamic of that. But it's consistent with the overall digital practice and everything.

Okay. So you talked about operating leverage and Bank of America, going into the pandemic, how did -- as you said, a great track record of driving operating leverage. I think we said 20 straight quarters of improvements in operating leverage. As growth becomes more important as a priority, should investors think about near-term operating leverage differently relative to perhaps the prepandemic period?

I don't think they should think about it differently, the job of management in any company, our company is to create revenue growth faster than our expense growth. But the difference was a nominal level of expenses was coming down. We got it to a level and then you expect it to grow from there. And if you look at 6 years later, we're running the company about on the same level of expenses. It's just they started growing and the pandemic kind of [ threw some onetimes ] in there and stuff. So we feel comfortable to think about the current run rate we have now. We're 14.3% -- 14.4% last quarter because of people forget that they all think about the capital markets and the investment banking. But remember, our wealth management incentives from '19 to now, will be up $1.5 billion almost in 2 years. And so it's [indiscernible] on that. Now it's a good thing, right? Because at the end of the day, it's a partial payout of the total revenue. If you looked at it and really a way to analyze the business, it will be net revenue after that, but that's -- we're not going to change the accounting [indiscernible]. So if you think about that as long as that's companied with good leverage, and so what's grown in '19 through '21 has been the most intensive [ caustic ] businesses because the capital markets, investment banking and wealth management take a lot of comp as a percent of revenue, whereas the businesses that are more spread based that just grow, and that's the next leg in the tool. So if you think about what happened in '17 to '19, as we expanded $2 billion a quarter, NII basically flow to the bottom line. You'd expect this -- we get the [ REITs ] rise back up, we get it on the other side, you'll see that the operating leverage will come there. Meanwhile, you ought to be cheering for expense growth from wealth management because it is completely marginal and completely profitable, but you're going to take out $0.45 on the dollar start. So think of this as an operating leverage company, but we're trying to get people away from that nominal expense level. So if you think about third quarter, fourth quarter will be up a few hundred million dollars in expenses, but it's all going to be because of revenue. It's the stuff you have to cheer for, not the stuff you ought to be -- now underneath that, headcount will come down this quarter. So it's kind of this interesting dynamic and how do you keep whacking away at this question of how you reengineer the company and the OpEx and put it back in. So that's kind of the -- and the efficiency ratio over time ought to come back down to where it was and things. But we gave up a lot of revenue in the consumer business due to the rate pressures because of deposit [ 0 floors ] that we'll get back over time. And still, it's making great money. It's just not as easy as it was once it was.

So just as a follow-up, I know you talked about 1% to 2% expense growth for next year. Can you just unpack a little bit what's incorporated in there in terms of investment spend and normalization of capital markets?

Yes. So if you think about -- we're running, as I said, we'll be up a few hundred million this quarter over the last quarter. You just kind of run that out, I think the first quarter has a little extras, but that's kind of the run rate we're at and how to manage it. But what do we do within that? That's the key. So within that, we have $3.5 billion of tech development expense. We have, I don't know, 300 new branches, probably or something like 300 or 400 new branches. We have just in last quarter, we did 65 renovations, and that's going on through the system. So all the investments are embedded in that run rate. There isn't like something we got to go out and spend the marketing. I think over time, one of the strategic questions we said the Board is as we take out expenses out of the operational process side, you're going to plow more in the marketing because -- in marketing, in the current sense, not marketing in traditional sense because at the end of the day, when you have a mass market customer base, the size of ours and they're dominated by digital, you have to do it. So -- but embedded in that $3.5 billion, a couple of billion dollars of marketing, $400 million in charity, 400 new branches, hundreds of renovations. It's all in there at the current quarterly run rate you see. So the only question is, if the markets stay flattish, then you'll see the expense from the wealth management business be flatter if it goes up. If you look at our incentive comp, the wealth management business between Katy and Andy and a little bit in consumer, that's more than half the incentive. So it's going to ebb and flow before you get to the markets banking. So our market outlook is for the markets to be constructive next year, but not as fast growing. So you'd expect that to be less pressure. And then we have some COVID stuff coming out and then you're deploying this way. So we're trying to just make it all work successfully. But I think you should rest assure that the thing that we watch is how to get the dynamics out of that expense and that's good.

Got it. So maybe we can talk about NII as well because that's obviously a very important part of the thesis heading into 2022. And maybe you can just walk us through some of the different moving pieces in terms of your expectations for loan demand, the pace of deployment of cash into securities. And also perhaps just touch on your expectation for deposit betas, just given the amount of liquidity in the system and how you think those crack compared to the last rate hiking cycle?

Well, it is different only because there's been a fusion of liquidity. But if you look at what's happened in our consumer business alone, just the consumer without the wealth management, which people forget is consider consumer businesses, most people put, it's done over $1 trillion in deposits, and it's dominated. I think they have $20 billion or $30 billion of CDs or something like that. So just think of it as all basically the half, 40%, 45% or whatever the number is of checking in both interest bearing and noninterest bearing and then money markets. And so I'd laugh because I was talking to the team about this and we're sort of thinking about it and anticipating your question, you sort of say, this is the Yogi Berra's Deja Vu All Over Again. You're going to ask me -- everybody is going to ask you a bit quarter about deposit betas and what happened last time as rates went from 0 to 200 basis points shortage and consumer deposit went from 4 basis points to 11. And that's because the impact of 0 across a big number of them or near 0, it just the thing. So it's as we say, asset sensitivity is the correct term, and I'm not debating. We're really liability insensitive. And so if you even look at our wealth management business, the amount of core checking deposits and into the commercial business, we never took any. So we crossed over $2 trillion of deposits, and we have not been reaching for yield and we won't. And so I think the betas when we saw now there's new entrants, new competitors that ease of moving. All the stuff we talked about last time that you all were asking about is all the banks are going to take it away from it. It didn't happen. So we'll watch that play out, but it's the core thing. Our current plus 100 basis points is $7.2 billion. We invest because we have $2 trillion deposits. We have $900 billion of loans and something's got to happen with the rest of it. And so we just are careful, and we hedge a lot of that so that we have the right to take off the hedges and have it flow -- if we play or not play around. We drive this thing to get the most out we can both near and long term, but the reality is it comes from having a $1 trillion excess cash every day that you got to do something with. And by the way, it's -- you need to exit the Fed sort of for all your calculations, that's like 10%, 15% of it. So the rest of it is just [ pre-investment ] dollars, and we make judgments on how to do it, but -- and we balance it, but we expect to achieve. You have $7 billion plus of rates, a couple hundred basis points parallel from the current rate structure. That was what we said in the third quarter. Interesting enough, we captured the $1 billion we talked about at the beginning of the year. We said we captured $1 billion last year too and we already got that in the third quarter. And we still have almost a sensitivity we had then. I think it went from low 8s to -- just around 8% to 7.2%, so it hasn't moved much. So it's just the deposit growth. Now as liquidity comes out, that's the big debate. will the nominal balances move? We looked underneath it, you say, they probably will. But how much when you've added a few million core checking accounts and more checking accounts in the wealth management business. You have more operational accounts -- checking accounts [indiscernible] or but operational accounts for those customers. I think they'll move, but I think it will move much slower for us because just to what it is. It's not -- these aren't money part here. This is money that is in motion than people have.

Okay. So let's talk about the capital markets business and the wealth management business, too, because I do think you're right, we should think about those really as levered to similar themes. We're 2 months through the quarter. So maybe you can just update us on what happens. There's obviously been a recent spike in volatility. How does that impact the cadence of capital markets activity and also engagement from wealth management clients?

Yes. So starting on markets when Jim and the team -- traditionally, you saw a tail from third to fourth quarter in 10% to 15% type of numbers historically. That happens because just the nature of the calendar and what happens. But if you look at it, '19 to now, it will be up; '20 to now, it's going to be kind of cuspy; '20 was the largest [ fourth ] quarter we ever had in the last 10 or 15 years. It looks like we're sort of right around those levels, and we'll see how it ends up. So that's a pretty good thing. And if you go back, it's fundamentally moved to total amount, sort of [ 2 4, 2 5 to 3 1 ]. And team has done a good job and expanded. When you get the investment banking, that's not [ wood, but you knock on wood ], we'll get another $2 billion a quarter out of that and the team, which gives a strong performance, and Matt and the team have done a good job. And then the wealth management business is a month in arrear, so it's kind of -- honestly, it kind of just rolls in. So whatever the market levels and we should have a good business there. So we feel good about those businesses. Market seems to be doing a very good job, led by the equities were stronger most of the year. Now it's balanced a little bit with fixed income. Matthew's done a good job of another $2 billion in investment banking fees. And the important thing is loans and deposits and stuff also really drive the revenue, but those businesses seem to be in pretty good shape in the fourth quarter.

Okay. And as you said, the higher level of capital markets in wealth management will impact the expense base in the fourth quarter by...

And that's why the market's been strong, and that's good news. And so after all those quarters of sort of record investment banking revenues, you thought it might, it's not, it's kind of flattened.

Okay. Great. So maybe we can talk a little bit about some of the consumer line items, too, because those actually did very, very well this year across a broad range of products. So can you talk broadly around your outlook for growth in consumer fees just given the elevated starting point that we've got in 2020? I mean is this a base you think you can grow from and other pockets that you think will continue to outperform over the course of 2022?

Maybe let's start from the top on loans overall, and then we back in the fees because we didn't touch on that in the NII, but we saw [indiscernible] forgiveness balance is dropping off in the third quarter, we saw like a 9% annualized growth rate. So far, quarter-to-date, all the lines of business are up off that level and up at a similar annualized growth rate. We'll see how we end up, but and PPP impacts less. So that's a pretty good start. But the important thing is think about underlying that. That means the economy also is doing well because you're seeing more demand whether it's credit card, whether it's mortgage, whether it's -- the only one that's down quarter-to-quarter so far is home equity. It's down a lot less than it's been down in the past quarters, which makes sense, but cards, autos, mortgages on the consumer side and on the commercial side, every business line is up. And so we feel good about that. And so when we get the fee side of consumer, really, you'll see -- as you think about it, we are driving overdraft fees down. That changes we make all the time and the amount of no overdraft accounts we have is well over 3 million, 3.5 million accounts. 40%, 50% of all the accounts we open especially for younger people who all know overdraft. So that's taken that fee level down. But other than that, all the other fees kind of grow with the business. So whether it's card charge fees, the fourth quarter is generally strong, debit, credit and then whether it's cash management fees on the commercial side, they're all growing, and we feel good about them. And it's a dog fight on a given day because we're giving a lot of rewards back, which take that net growth in card fees down, but it's the right thing to do for the business. And that's why our preferred retail business -- preferred consumer business, so we have retail, which mass market preferred, which is mass affluent. It's got about 80% of deposit balances and that's where the big rewards cost comes in. So the charge volume grows like this and then if the fees receipt grows like that, and that's all rewards expansion, but it's all paid back through the NII. So they're all solid. I mean it's just -- the team is doing a great job of growing those things.

Okay. So before we talk about capital, maybe I can just ask you a broad question about disintermediation. It's obviously a question that's coming up more and more, just given the proliferation of products that we're seeing from nontraditional bank providers. So if you just take a step back and look at what's taking place either in terms of buy now pay later, in terms of what some of the large tech companies are doing and what some of the payment companies are doing. How is your view of the competitive environment changed? And are you seeing any components of disintermediation across your business that are red flagging in any way?

Well, going back to the Board discussion, that's what we test. We don't fool ourselves. And so the question is what happens next with a lot of these people because we're not seeing the impact now that concerns us, but we've got to make sure it doesn't concern us. And so if you think about 5 or 6 years ago, that all the discussion was about -- on the small business side, the new on deck, et cetera, and that stuff and without getting all the competitors. And the -- on the wealth side, it was the robo advisers. And you come 5 years later, Merrill Edge has grown faster than they are and stuff in the life plans and business is $4 million and growing. And so we can compete against these, but you've got to be careful and make sure you're not full in yourselves and where a trend is different. And so we look at it very -- with a lot of humility and a lot of clear eyedness. They don't fool yourself like was fooled in other industries where it got away from. So now you back up looking in the merchant services business, we allowed to make people take too much of that share, quite frankly. And that's because we're hung up in the joint venture. And it wasn't because we didn't have a good joint venture partner, just different when you're running as a part of the payment scheme as opposed to a separate stand-alone business. We brought that in. We put $300 million to REIT tool of product set that we think is competitive. As it works with the P2P parts of Zelle, which is already implemented in out there, it works in real time and Zelle come together, it works with all these different things. You can see the ability to have these gateways and do the things differently. So that's something we did lose too much share to, obviously, the square and people like that. So we have to think about that. As opposed to other areas, we have to see where the -- we started $0 trades in 2007. I got on a triple -- double decker bus, and [ we went ] all around New York, and it's not a new concept. The question is what do people see and so we watch that in a sort of app-type banking, we look at that and our customers, we can see our customers, what are they doing with those, who goes after, what's attractive to them and very small numbers, but you can sort of look at what's going on and that's why we have the best app for banking. And we only count real customers that really do stuff. And so that we have $11,000 average checking account balance behind this 40 million digital customers start to do the math, that's a little different than other competitors, but we've got to stay on our toes. So that's happened. On the loan side, you'll see a lot of us come out with buy now, pay later type of things, and you'll see it. But if you play in a real prime space like we do, it's less of a question, I think, that if you play in others. But the mortgage business, it's 50% plus in the nonbanks, it has been for quite a while now. But we get our share of what we want and we can do better there, and we're pushing hard to do it. But it's not like I see us as taking -- we're 20% at the high point, but we only did about 3% or 4% of the people that are actually our customers. The rest of us bought paper for lack of a better term. We're still at 3% or 4%. So it's like we're not -- we haven't changed our position. It's just we don't have the 17% of correspondence and that just allows us to control our own destiny. The card business, we still have -- the home equity business, our shares -- the bank share is high, our share is high. Card business, the bank share is high, our share is high. In the payments business, it's still a banking business, but we've got to be careful, and that's the impact of the DeFi crypto, all that stuff and also the impact of the people who are doing an overlay and a square being PayPal, square and people like that. But we keep driving the back and we partner with some of them and compete with other ones.

Good. Great. So let me ask a question about capital. And look, I thought rather than just ask about capital returns, I'm curious how your thought process has evolved around capital allocation between clients, investment in the communities that you operate in and distribution to shareholders. How are you thinking about where is the best use of incremental dollars of capital today relative to those 3 groups?

So if you look across the last few years, the only major change we made in real capital, not expense dollars because that's different is as to the markets business and allowing them to use up more capital through the G-SIB calculation, et cetera, and [ given the team ] put it to work, and now we're having potentially the best fourth quarter we've had since I've been CEO and Tom and Jim and the team put it to good use, et cetera. So that was really capital. When you think about expense dollars, we were at $300 million and $350 million. We're now $450 million, $500 million in annual share book contributions. We've raised wages across the board. That's all in the expense numbers from $10 to $20 now to $21 and $25 as a commitment and across the whole company. If somebody who was working for us in 2010 and made $0.5 million, they've experienced probably double-digit wage increases across the last decade plus. If they're making $50,000, it's even higher. And so we invest in our team and because they're a great team and our attrition, while it's kicked back up, it's still where it was in '19, which is an all-time low for the company, and that stability is key. So we continue to invest in the people. So when you really get the capital overall, we had excess capital. And as we bring that down, and the question is what we settle in, where we settle in with the G-SIB and all that, there's a 50 basis point debate that everybody is having. And the question is, just let that play out. But the reality is you got to step back and say you're earning at $25 billion year-to-date so far. I pick a number, you pay out about $8 billion in common dividends, you pay out about $1.5 billion [indiscernible] dividends and all the rest of it goes back to shareholders, not because we are investing about as fast as we can in technology and wage growth and benefits and all the things. And we're getting the right benefits out of it. And the balance is it all goes back because it isn't needed to meet the business needs. And that's hard for people to understand. So our stock buybacks are not our preferred route. It's the route you have when you've done a great job and everything else that we have.

Okay. Let me ask a last question, which is around credit losses. And they're at the lowest level, I think we've seen in 30 years. As we think about '22 and maybe even '23, should we think that a normalization of interest rates and economic growth should lead to a normalization of credit losses? Or do you think it could remain at this level for a period of time?

Well, I think it's card and all else because at the end of the day, if you went back and look at our prepandemic, you had $900 million of charge-offs a quarter, which is now down to $400 million. Card was $500 million or so -- it's $500 million, $600 million of that, and the rest was other stuff. And so unless you say there's a recession coming in the commercial business, you don't see any change there for until you get a more recessionary environment. There'll be A company, B company, if something blows up, but that's life. And then on the consumer side, it's really cards, and the team has done a great job of underwriting. We've been back to our rig of way underwriting standards and, say, the late fall of last year. And we're not seeing the delinquencies tick up or anything. So we think this rides out. And it's because of where we play and the fact that unemployment is very low. And so therefore, unemployment is already back down to 4.2%. So we feel very good about credit. Now everybody says it will normalize, but keep saying, so what's the factors that drive it there? And sure, if we get the recession, that's different. But as long as the economy keeps growing at 2% to 4%, you should see credit should stay very low because embedded in that growth is wage growth, high employment levels, why wouldn't people pay their bills. When you look it down to -- will business models screw up yet, if somebody make a bet and do something wrong or that happens. But that will be the unusual thing. And then the question is, will there be corrections in capital markets, all that stuff, our strategies can talk about. But the reality is, is that underlying the way we lend money, we didn't -- the rating system in the commercial business held up very strong, under constant scrutiny, as you might expect over the last couple of years by the regulators and others. And their team does a great job, and Bruce Thompson leads that group now for us across the whole company, and we feel good about it. So will they normalize? Yes. I don't think it's as near term as people think only because, quite frankly, you've got to remember the underlying economic assumption of 4% growth, unemployment pushing below 4%, that's hard to believe people not to pay the bills in the near term.

So with that, we're out of time. But Brian, thank you very, very much. And we look forward to seeing you next year. Thank you.

Thank you.