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

Great. Okay. Good morning once again. For those of you joining us via webcast, I am Susan Katzke. I cover the large cap banks for Credit Suisse, and I feel quite privileged to be hosting Bank of America's Brian Moynihan next, without a doubt, one of the most respected bank CEOs. I give you responsibility and credit for turning Bank of America into a really high-performing institution. We were right here 2 years ago. A lot has changed over 2 years. It's good to see you and have you here in person. So let's jump in as I know we're all very anxious to hear your thoughts from the macro to the micro.

Well, it's good to be here again in person. And I was driving in and I said, when was the last time I was here? It was 2 years ago, right about now. So before it all started.

Right about now, 1 week later. So let's start with the macro. And I take it, based on the strong spending data that you put out last week, that there's a lot to be quite confident about on a macro basis. But maybe you can give us a sense for what you're seeing in terms of broader client activity.

Well, so what we said is January spending was very strong. And then even coming into the first couple of weeks of February, you're seeing that continue. And that's just people moving money out of their accounts to do things. And so it's, I think, 16% for February so far. And so transactions are up 10% with -- 10%, 12%, which is good and then the spending levels are up. So often, I get the question, so inflation. Well, nobody is going to charge 3x of the actual transaction volume. And the restaurant spending, travel spending, which is more about forward spending, is up. Spending on child care, basically, has hit the level it hit pre-pandemic in the month of January, to give you a sense, which means people are starting to move back to work. So that all bodes well for the U.S. economy and that the consumer base is spending at Bank of America. And then when you look at the accounts, if you look at sort of people had $5,000 and under average account balances pre-pandemic, they're now sitting on 2x or more, going up to about 8x when you get to lower level balances. And it's grown really every single month since June. So when stimulus stopped last March, the debate was these accounts we drain, they actually keep growing. With 1 month -- the lowest level balances went down for a month, it came back. And so they're up like 30%, 40% February last year to February this year, to give you a sense. So the money -- there's still money in accounts. People are paying down -- the paydown rates on cards and stuff is starting to slow down, which means that's nicer for balances. But on the other hand, people are starting to use the cards for longer-term activities and stuff. And so that all bodes well. And we go into our loans and deposits and stuff. We grew loans $50 billion in the fourth quarter -- in the quarter. $15 billion was in the markets business, which ebbs and flows with securitization activity and all the stuff; and the other $35 billion is in the rest of the core businesses. The good news is the rest of the core businesses have kept all that and grown from there. And so not at that rate, obviously, in the second quarter, but growing more at the normalized sort of mid-single to upper single-digit growth rate if you annualize it out. We'll see how the quarter ends, but that's across the board in the commercial businesses, which is good, in the wealth management business. And then because mortgage dynamics change, the paydown rates come, mortgage balances are starting to grow a little faster. Cards have their seasonality. So we feel good about that, and deposits are doing what we usually expect. The markets business is down on loans. And that is almost to be expected because the securitization activity is down because of the other thing. We'll see how it ends. But -- so we feel, knock on wood, that the loans are fine and deposits are fine and economic activity to customers is strong. You all know the issues. They're struggling with employees. They're struggling with supply chains. Those are easing a bit, but there's still room to go. And all that sets up a 3.5%, 4% GDP growth rate in the United States, which ought to be good for our company.

Okay. So let's talk about monetary policy, the tightening cycle, QT. How do you see this playing out? And maybe in the context of what's different this time versus the start of the last rate hike cycle?

Well, what's different this time is the speed at which everything happens. So we were talking about a rate hike cycle in 2015, '16, or whatever it was, and the damage to the economy is 8, 9 and 10. So 5 years later, we finally move rates. You're now talking about the damage to the economy was really the second quarter of '20, and you're talking about by the first quarter of '22, we're moving rates. And so the fiscal stimulus -- the fiscal response, excuse me, by the prior administration, the current administration, the Fed's response, the fact that the banking sector was in great shape going into it, it wasn't -- didn't have any issues, so we could all continue to support the clients. And then the unemployment level is completely different. It took us to like '19 to get to levels of employment we're already at now. And so labor is tight, we're at full employment. So I think the -- if I was sitting here with you 6 days ago and I said, the Fed ought to go 5, 6x this year, like our analysts were saying at that time. You guys were all so, "Oh my gosh." That's like the given now. Now the question is, how do they do it and why. But they've got to start moving because they know the pace is much different. That's what's different. The speed of recovery. And also, what's different is the external factors are still there. The virus question still hangs over. Will that impact? And then obviously, the geopolitical events, which none of us have any better insight than anybody else in terms of what we're told. But the reality is, is that is on their mind because that could stop things or change things and then the supply chain issues. And so they've got some different issues, but this Fed in 2019 with economy about the same size, predicted or at 1/2 the rate, unemployment at the same level, had the Fed funds rate at 2%. So they've got to put it back, to normalize it, and that will bring the economy in. So we have 6% last year, 4% this year, 2% next year is our growth expectations, which is a more normalized event. But inflation was realized fall. That's still real. And they know what they say, and they're going to do something about it.

So that's my next question for you is on inflation. What are the risks? And how are you managing around the current related pressures?

Well, we run stress testing every quarter. So we look at -- it's dangerous to say this, that they get it wrong. I would say, get behind, and they do it. And it's hard to say that about your primary regulator. But they get behind, so -- but we have to run those scenarios when inflation gets out of control and then have to do something. If you go back to the 70s or whenever it was, leading up to the real moves, that we look at those scenarios. At the end of the day, what will hurt in the industry generally will be if they have to create a recession. And that's not their goal for sure. And we'll -- they'll do -- hopefully do a great job handling it. But -- so we stress test that. It's just another recessionary environment that we stress test every quarter, and we're fine. We're fine.

And more in terms of just the expenses across the business, how much are you feeling the rate of inflation?

Well, we feel wage inflation. But if you -- one of the things that we took very seriously from the minute we, the management team, came together was a basic notion that we had to be the best place for teammates to work, which included a lot of work around stabilizing the high turnover parts of the company. And so what you hear about a lot, they're saying great resignation. At Bank of America, the turnover rate in '21 and the turnover rate in '19 are about the same. It's just in '20, it dropped in half. And '19 was a multiyear low. So when you get -- when you see our end of year report published, you'll see this. It's not -- there's not a mystery. We're at 15-ish and 10%, 11%. It got down to 11%, and we're running about -- rounds up to 12% now, mid-11s now. And so we got back to that. But how did we do that? The way we did that was continuously raising wages, especially for teammates under $100,000, $150,000 a year and stabilize that base. That's where the big numbers are. And that brought our head count that needs down and change it. And also brought our service quality up dramatically in the branches and the call centers and the processing side, brought our air rate down, allow us to take expenses out. So in that time frame, we went from 280,000 people to 208,000. The company is a lot bigger and the turnover rate is a lot lower. But the wage growth for people in our company, for teammates who worked -- who were here in 2010 or any cohort, '11, '12, '13, '14, have had average annual increases of double digit. So the inflation was already there. And before the pandemic, I said I don't know how you calculate wage growth. But as an employer, we are seeing 4%, 5% without a doubt. And so that's stabilized the workforce. So yes, you see it in the workforce now. If you look at our expense base in the '21 versus say '19, especially in the markets-related businesses, compensation up a lot, but across the board. And hopefully, we've done a great job with the team. But in, knock on wood, we'll see where turnover goes this year. But we've been doing fine. And then we did broad-based programs, like the award of equity to everybody in the company this year. Then last year, we did it to everybody and gave cash below a certain level. This year, we dropped that cash level down. And those kinds of equity awards vest over 4 years, or 3%, 4%, 5% of the compensation levels year after year after year. And it builds up to be something good, and they can participate in the growth of the company. So it's all -- that's how we work it. And so yes, we have the same inflationary pressures. But the reality is, can you engineer the process? They need less people per activity, not the head count is going down a lot now like it was before. But that amount of head count can support a bigger and bigger, bigger company.

Sure. Sure. So you touched on the markets businesses. And kind of in this macro operating environment update, maybe you can tell us what you're seeing right now in the investment bank, where I think most people have noticed that industry pools are noticeably lower year-to-date. So how is that playing out for you? And what does the pipeline look like?

Well, Matthew Koder and the team on the investment banking side and the market side with Jimmy DeMare and the team, they had 4 record quarters of the 5 highest we've ever had in the history of the company last year. So you see the pools come down, but the level they're coming down to is actually the level they were, say, the year before. So it's -- so we're a little bit -- probably a little bit better than what you see in the market. The pipelines are still full. And so the question is whether this is like a year like '16, where it started slow and it picked up when things got straightened out from whatever was bouncing around the markets then. Or does it stay low? But we'll be relatively in line with what's going on out there. But that's -- it's a big, open business with lots of participants, and you expect that. So we -- I think they gained 50 basis points of market share last year, and we incrementally were working their tail off to do that. But we wouldn't expect to fare a lot different than the market just because of the activity. But the real question is, will the market -- the pipelines are so full that, that bodes well as long as the market stabilizes at some level, and that stuff can through.

Okay. And then on the capital market side in terms of trading, what are you seeing right now in terms of the first quarter activity levels? And how are you thinking about what's normal?

Well, those of you who remember last year, there was a lot of volatility in the market for a whole host of reasons. And so there was opportunities that probably aren't going to exist this year. So if you look at first quarter '20 and first quarter '22, we're kind of seeing the same thing so far. And you're seeing the traditional move from the fourth quarter to the first quarter, up 40% plus. So we feel good about it. But it's -- last year, there was some excess volatility due to some events going on in certain of the businesses that created just opportunities in trading and volumes that will go away. So if you look at '19 and '20, we're kind of equal, '20 and up over '19. And that's -- Jimmy runs that business to -- it's a moving business. So it's not a big, principal risk, and they move it. And last year, they had, I think, record revenue for the year again. And we've increased the size of the balance sheet, which puts some pressure on the G-SIB buffer and stuff, which we've -- we can talk about later. But Jimmy has done a great job, and they continue to capture share, and that's what we're driving that business at to the places we play. And they make -- so it will ebb and flow. With a lot of the activity right now, it's sort of running more normal for the first quarter. When you look at prior first quarters, last year just had a little extra pop in it.

Okay. Fair enough. So let's take a step back and kind of go up to 50,000 feet. And what I think about is kind of BofA 2.0, where in your first decade as CEO, it's hard to believe it's been this long, right?

It's actually -- this is my 13th year, so it's a baker's dozen at this point.

Yes. But the last 2 kind of don't count in certain respects. I mean they counted, but so...

You guys didn't say they didn't count. We produced record earnings.

They counted. They counted. So -- but if I think about it as your first decade in many respects, was the infrastructure overhaul and responsible growth. And I know you're not giving up on infrastructure investments nor are you giving up on responsible growth. But I think of you is now positioned to really leverage what you've built through continued organic growth post pandemic. And so when we think about kind of the next decade going forward, and that's where I'm leaving out the last 2 years, what is it that you intend to accomplish in terms of growing the consumer franchise, growing the wealth management business. Maybe let's start with the consumer bank and where the biggest changes have occurred and what's next.

Well, the company had made the transition from restructuring in '10 through, say, '15 to a company that was starting to hit its stride on organic growth. And the reason why we use responsible growth as a mantra in the company and outside the company is you have to grow, no excuses. You have to do with the right risk, the right client focus, on a sustainable basis was because after you'd run off all the portfolios, we actually could grow. There was a while there that we took off $200 billion of loans and stuff that we didn't want any more. So it was a little hard to say we're going to grow through that. And so we hit that inflection point '16. It goes through '17, '18, '19, and you'll get -- growth tended to pick up. It gets knocked around '20, and by '21, it's back on course. And so we are growing the organic activity in the consumer bank in terms of new accounts, new primary checking accounts. Well, let's take it across American people: wealth management, the flows, loans to wealth management customers, deposit wealth management customers, Merrill Edge growing. And all this stuff is back past the point and growing faster. And the interesting thing about that is we had about 30% pre-pandemic digital sales in the consumer bank. Now we're running over half on a given quarter. So the leverage is more infinite. And so as you think about the next decade, that trend will continue. But you'll see us push more away from people sales to digital marketing sales, right? You'll see us push because we have to. Because that's where the volume of the business is coming from. So branches are critically important. Call centers are critically important. The service quality is wonderful. Teammates supply is terrific. But on the other hand, as more and more activity gets digital, you have to back that to be not only investments in the feature functionality, but also awareness and knowledge that's there. And so we're pushing that. And so that's probably, if you think the next day, especially in the mass market retail side, what we call retail in our company, which is 2/3 of the client base in consumer. That's the drill. And how do you virtualize the activity. And then on the preferred, it gets a little more hybrid because those are your most valuable in terms of deposit levels and loan levels and things, investment levels of the company. And also -- so we handle that more personal, but still huge infrastructure. And then that plays in the Wealth Management business. So if you think about it, it's all about applying technology, continuing scale of technology, continuing to work on the redundance of technology, continuing to drive the operational excellence through and then making sure you're staying completely in tune with your consumer customers on every feature functionality question and what will scale and be important. So 5 years ago, I would have said the word, Zelle, and you'd look at me sideways. 5 years later, we are doing more Zelle payments from our customers, and our customers are writing checks. That's a big cost takeout. It's no different revenue. I mean, the money is $1,000 in the checking account, $1,000, what came is the cost changes dramatically. That network and just pushing that through. And I think we passed Venmo ourselves in terms of payment volume. Just us, not the whole industry. It's most of them. So you have to drive that activity. And then if you go to the wealth management business, it's really enabling those advisers being more and more effective, driving that digital capacity and capability. So we saw a giant leap in the pandemic of usage of the digital capabilities between us and the client. You got to drive that through. And that then -- the age-old question is, if you have a business which gets $1 revenue and basically get half in the compensation structure -- which we aren't going to change. Then the question is, how do I make -- right now, I make 30 points out of the 50 points left. The way I'm going to scale that is to basically be able to drive that much more automatedly, for the benefit of that adviser and client. And so huge implementations there. But using Merrill Edge as this capacity creation vehicle, but also customer accumulation vehicle, 500,000-plus in accounts, average balance per customer account at opening $60,000. So these are not hobbyists. These are people are really serious about investing. MEGI, which is the robo-adviser type of program started a few years ago, billions of dollars in it. Life Plan started only about 1.5 years ago, 6 million people using it. These are numbers that are staggering. You just keep leveraging off that. Commercial, it's lending and capabilities and capital markets -- capital markets and investment banking, the middle market, which we get about 30%, 40% of our revenue from now. And we just have a lot of room. But the key is all GTS. It's all about payments. That's why I brought in merchant. That's what we're doing there. And markets, we basically made the move to increase our size and scale, and Jimmy and the team have done a good job of deploying in that, and it's staying. But it will always be a business, which is linking our investor clients and our issuer clients across what we want to play in. And they do a good job, but we made the investment there to jump -- really increase the business by 30%. And then -- so that sounds like [ RG 2 ], as we call it. It is, really, it is. That's what it is. But it's more about -- it's more -- as I said to somebody yesterday, if you're skiing, you have a left leg and a right leg pushing on the snow. It's more pushing on the growth than responsible. Not giving up on responsible. It has to be there. But the way we're going to win is to keep driving organic growth, and you saw it come in. We probably gained share during the pandemic, and now we're going to put the hammer down.

Okay. And just to touch on capital markets for a minute because that performance in the market share gains, we've talked about this, I think, pretty consistently over the last couple of years, where there's been some change in the risk appetite. How much are you willing to change your risk appetite in that business? And what do you ultimately want to be given the consolidation of market share?

Well, we play it the way we want to play it now. So Tom Montag and Jimmy, they run the business very well. We make money almost in [ sufi ] and then the equity side. We make money almost every trading day. It's a throughput business. And so did we increase the risk? Yes, the balance sheet went up from 600, 700 to 800, 900. That's a pretty sizable change, and that's in the market every day on purpose. We drove it there. And so the VAR appetite moves up some. Some of that stuff is not the most risky stuff, some of the prime brokerage capabilities and stuff like that. So the real risk question there is you have to stay on top of your infrastructure, and you have to not get ahead of it. So Geoff Greener and the team, working with Jimmy and the team, when they went to do the expansion, there was 100-and-some different things they were going to do. And 60 said infrastructure was fine, and the other 40, we said we got to build it first, because you never want to get ahead of infrastructure or else you have. And that's really where the investment and risk, honestly, our budget is. It's a very risky business, and the team does a great job running it. But the real risk is the operational side to make -- right now, to make sure that stays with all the different stuff going on in the world, that you really stay on top of that. And that's the data requirements in Europe and all. It's just -- there's a lot of stuff there, and they do a good job. But that's -- honestly, it's not like we have to say we want to be something different. We are where we are, and what we're doing is grabbing share, frankly, from the broad market. The top 4 or 5 participants are all very good. I think the question is there's a lot of market share and a bunch of other people, which we think we can outdo.

Understood. Understood. So in terms of market share shift -- and let's think about this broadly across your businesses. You talked about the digital shift in consumer. And I think what we've observed over the last couple of years is that even where you had this inertia factor forever in some of your businesses, the speed of market share shift has really accelerated. Do you see that any different between the consumer and the commercial businesses?

Not really. I mean we -- it's just what drives it. In the commercial side, whether it's our Business Banking segment, which is under $50 million rev companies or middle market, $50 billion to $2 billion -- we'll talk about the higher end. But those 2 businesses, it is literally market-by-market, deploying more relationship managers and we've been doing. That's why you're seeing the loan growth that was kicking in, in '17, '18, '19. We were starting to gain sort of consistent 4%, 5%, 6% versus 2% economy, which with our risk appetite and stuff. And so I think -- it's -- you've got to have it enhanced by what you do digitally. You've got to have it enhanced by the GTS capabilities. The international presence we have, I think, is a prerequisite to be in the top half of the middle market business in the United States. These companies do business all over. You have to have it. We have a very strong business in that. And so those things are built and going on, but it's adding people and then adding digital competency, both outside and inside. So in the wholesale credit area, we use Erica to do -- to help us with the underwriting work. And that's how you take out people. So we took out 20 to 30 people out of that group so far by using a natural language process, artificial intelligence ability to populate and things with Erica. Erica is a consumer-facing product at 20 million consumers. 400 million times order was last year. This is -- it's the same. It's me talking to you. It can interpret that, too. And so applying that to help people who are putting together credit offer memory and all this stuff to run more automatedly, and that's where you get some leverage out of the combined franchise. But it's mostly relationship management-driven local market business. And we look at every market. We have markets we're not in at the level we want to be. We do a comparison of all our markets, and we benchmarked what it would take to get our middle-market franchise to the 75th percentile or like-looking market. And then how many people that would take. And then we sit there and say, how do we add them over time on a rational basis, because it takes a year to get them up to speed. And we do that in all our businesses. So in Washington, D.C., we're about 35%, 40% touch in the consumer business. We are that in Los Angeles. But in the wealth management business, we're twice as big in Washington D.C. area than we are in Los Angeles. What's the thing? That's probably another 1,000 advisers. So you just got to incrementally think, how are we going to grow? We do that in every single market, and do these pare-away comparisons. Saying, if we look like that in that market, why shouldn't we look like that in that market. And middle market, we do that. So -- and we just go across 90-odd markets. Outside the United States, it's different because it's all large corporate. But -- and we just sit there and pare away at it. And then the -- so the resource demands are calculated bottoms up and top down. And you've got 800 business bankers, and we've taken it to 900, which is -- but it's -- these are not big cost investments. It's just getting people trained and getting them up and running and doing a good job and getting the right people. But then the real investment there is the GTS business behind it. That's hundreds of millions of dollars a year in new technology development every single year.

Okay. We're going to get to investments and expenses in a minute. But it sounds to me, when you talk kind of business-by-business and continuing this focus in your kind of existing markets, that you still have significant share to move your way organically. And before we move to investment and spending, one of the things that I think I know you like to emphasize and it's important to you and needs to be given more credit, is the leadership you have around the environmental and social issues, the whole profits and purpose. And you touched on that, even talking about your turnover and how you pay your people. But let's just spend a minute on how that leads into your -- not just your operating philosophy but the strategy in gaining market share.

Well, when we talk about being sustainable, which is the fourth pillar of responsible growth, best place for teammates to work and then sharing our success with our communities and then operational excellence. Operational excellence is the efficiency effort that we go through on a continuous basis to pay for everything. So when I talk to our team, I say OpEx is fun because everything you like to talk about, more marketing, more people work in the field, what we do for charity or something, comes because we can drive the cost structure from $72 billion down to $54 billion in the company. At the same time, the company probably went up 50%, 70% in size in terms of activity. And so that's what we got to do. So that gives us the ability to have the investments we can do. But what -- the broadest context here, you take the environmental part. Our clients need to make a transition, net 0 commitments across economies. Say the state of North Dakota has a net 0 commitment. You have to think about that. I went out with Senator Cramer and talked to the people and how they're doing it. So countries have it, states have it, cities have it, companies have it. And so if you have a bunch of 30,000 middle market, middle-sized companies, you've got to get them ready for that transition, and you got to help finance the change. So the last -- this year -- past year '21, probably did $100-some billion of financing on that for customers' behavior move, because they're going to make it happen. We can't make it happen. We just facilitate that. And so that's part of our philosophy, which is society needs to make a change. It's -- the government's agreed to do it. The companies agreed to do it. You're going to be affected by it, just like our suppliers are affected by it because of what we demand, and they do it. And so that's that part. And then you go to the creating an opportunity, like we create inside our company or outside our company that makes for a strong community. So we hired 10,000 people from low and moderate income communities in 5 -- we said we're doing 5 years, and about 3, then we said another 10,000. What we're doing is making those communities stronger. And those teammates are coming out and working for us and getting a job starting at $45,000 a year of full benefits with $10,000 of reimbursement for college and $275 per child per health care per month. Think about that. And if we can get them into that track and keep pushing their skills to career-level jobs, that makes that community stronger. That's in our best interest. So these things align. So they're not only the right thing to do. It's about how we do it. But we never forget it. It is what we call the Genius of the AND. We have to deliver to the shareholders, and we can deliver for communities and society, not or. And it's a Jim Collins phraseology, the Genius of the AND versus the tyranny of the or. They did in like 1996, it was profits and purpose, but we played with it a little bit. But -- and so we do that. Now what are we trying to do is make sure people understand that this is what capitalism can do. If capitalism doesn't do this, we're not going to accomplish these tasks, because they can't be done by charity. There's not -- we give away $400 million, $375 million a year. It pales by comparison to using our purchase power, which is $15 billion a year to drive supply change. That's where you're trying to get. Capitalism will make this happen. And we've got to get capitalism on the line, and then society will support us better. And that's all -- it's just -- so it's an iterative process of doing the right thing for the shareholders, doing the right thing for society, that I've been able to do more for the shareholders, and back and forth. And that's even how we run the consumer business. But what it did in the consumer business, we took the cost way down. And so we do twice as much consumer stuff with 40% less people. And people said, we'll have 97% less overdraft. The payback is in no turnover to customers and the cost structure, not in giving up the -- you're giving up the revenue. That's given to. But you can pay. And so is that good for the community? 110%, but it's good for the shareholder, too.

Okay. So on this topic of trade-offs, let's go back to investment spending for a minute. And there's efficiency ratios, there's returns, there's investment needs. How do you think about the balance over time? How much you're investing? What does that mean for your people focused with Bank of America on the dollar amount of expense guidance that you give to us? But the efficiency, the ROTE, how does that balance? How do you prioritize in a given year?

Well, just a little history on the expense. In 2015 or '16, whenever we gave you guys a number target, we couldn't get people to understand the expenses were still coming down. They just didn't believe us. So we gave it a number of target. People like yourself called and said, that's great, but really? Because we were 57 at the time. We brought it down to -- I think we said 53 or 54, and we've got down...

53.

Yes, 53. And so we did it. What we were saying is we got to the end of the pandemic, which is kind of when that came was wait, now we're an operating leverage company, 18 straight quarters of operating leverage, and by the way, the last 2 quarters again. So we've got to get people to think about us a little bit differently, is that you're going to grow revenue faster than expenses. Because at the end of the day, we got this company pretty well down in headcount of 204,000, et cetera. So we were getting it down to levels. And so that's a switch, but you've seen it play out in 18 quarters before the pandemic, and you're seeing it play out even as we're coming out of the pandemic. So that's one thing. So what do we really think about the trade-offs? Everything you talked about is a trade-off, except for one thing you missed, which is can you actually get the stuff done.

That was another question.

And so the reality is, we do major systems changes 50 out of 52 weeks a year, major installations of feature functionality across the thing. And so when people say, big companies don't do it. Every single week, there's more feature functionality just coming out a lot across a lot of businesses. So it's not like -- and so that's the other constraint. So we were about -- Cathy and I started this in 2010. We had about a budget of, say, $3 billion. $1.5 billion was conversion and other type of stuff. $1.5 billion was sort of the rest of stuff. We now have none of that. So we run about $3.5 billion of which is largely feature functionality or required feature functionality for regulatory purposes and stuff like that, so which is a cost -- the way you have to do business, getting the data right and all that stuff. And so we just keep investing at that level. We have pushed it from $3 billion to $3.5 billion and then got -- able to do it accomplish it. The team did their best. The team that runs it for us now does a great job. We do get at the edges of how much change you can go through. And then you have external factors come up, which cause you to have to slow down, wait things out, like what's going on. And some of the geopolitical things can cause you to hold up on stuff to make sure you're not getting caught in the middle of a change with something going on out there. So that's how we do it. Our returns are 15% plus on tangible capital. That was Board issue, where you get the returns up to acceptable -- more acceptable. Our cost of capital in this rate environment, I don't know what the calculation would be, but it would be very low. And as rates rise, we'll make a lot more money. I mean that's kind of the interesting thing. And so we look at all those trade-offs, but when we look about what the customer is demanding from us, or the clients demanding from us, the institutional investors demanding from us, can we fulfill it, is the return on that project there? We look at every single project at a very granular level. But in the aggregate, we're saying, can we get it done and is it worth there? And we pushed ourselves at the edge. And if we can figure out a way to do more, we'll do more. But this is a lot of investment in a given year. I mean there's just a lot of stuff going on.

I don't doubt that. But just to clarify, you're investing as much as you can efficiently invest for your businesses every year.

Yes. So we run a process annually. And if you took everything everybody asked for, it's like another quarter or 2 of work. So it's not like they need 4x as much. If it...

Right. It's not money.

But the question, could you get done all that in the 4 quarters? But it's not -- it's another $1 billion in the quarter or half over where we were. If we just took every project and said we're going do them all without -- irrespective whether something might think they're a good idea or not, it's just -- so that's the -- but that's the process we go through. And after -- this is the 13th year going through that process for similar groups of people, there have been different people, different times, driving it and thinking about it. People understand the push and pull. And so at the margin, you can have disappointed teammates who say, "My project didn't get done." But in the aggregate, we've got a pretty good budget and do it. And we've kept up. But the other thing that we think about hard is applying technology and scaling it. And so a different way to think about the infrastructure side, we've invested heavily to bring -- internalize the cloud. That saved us hundreds of millions of dollars a year. Now we work with outside cloud providers to see if they can actually provide us what we need at another level. That's the question. But the time to change what you did internally was really '12, '13. Because you could actually do what the cloud providers are doing it, you could do it yourself and save hundreds of thousands of servers. And we did do it ourselves. Now we're better positioned to figure out what we need from the great cloud providers. So there's that type of thing. Or you go into -- take Zelle or something like that or take Erica or something like that. We are -- nobody really has yet that I'm aware of, some people might. But you had to be willing to push it, not to develop it. So you did it, but then the question, could you get people to use it? Now we've got people to use it, then that's how you get the benefits out of it. So we -- we focus a lot on the penetration of usage of activity. So how many people deposit a check last month, who are digitally active, who deposit without using the mobile phone? Whether it's ATM or branch, both are more expensive. And we track that, and we try to remind people that you can do it this way, and that picks up incremental value. If we're down to 15% of the check going branch, down from probably 50% 8, 10 years ago, it's the dramatic movement. The ATM's stuck about 50%. It's all going to mobile, the difference between where we were, but the ATM should be coming down fast, too. The question is people are just used to something. You want to get them to do something else. But yes, that's where you extract the value. The feature function, keep investing in that. And that saves us money, and that gives us money to invest in other stuff. It's a...

At least the pandemic got people moving in some of those directions a little bit more quickly. But there are 2 things I want to touch on before we run out of time here on technology that I think are really differentiating and maybe not as well appreciated. One of the things that I noticed when you released your consumer spending data last week was the granularity of that data. And I think maybe what's not always appreciated -- and I think part of that data that you report is a function of all of this investment that you've made to actually extract the data and make it usable. And so I'm curious, from your perspective, how differentiating you see that to be? How hard is it to get this data that you're disclosing into a -- people have the data, but you can actually use the data.

Well, it was hard, but it's -- this is 20 years of investing. It's not like -- so this the warehouse and all the different -- so you're investing in it. And by the way, what it is now versus what it was back then. But the principle is always say, I've got to create this lake and I got to have the lake be accessible, and accessible by everybody in the company. There are a lot of people who can look at this and say, "I can do this," and they're very good at it. The difference is when you're making a financial decision on someone, the integrity of it, it changes dramatically, an underwriting decision. So you have to -- and so that's where -- if I told you the restaurant was on the left corner, the right corner, okay. But if I told you, you're turned down for your mortgage loan or not, that's a different thing. So it's not only the data itself. It's integrity of it and being able to track ability and how it runs through the artificial intelligence, the models and things like that. So the team has done a fantastic job, but it gives us the ability to serve customers offers that are relevant to them at relevant times. So let's just say that. And...

It's an enormous competitive advantage.

And we've been doing it, and we see that pick up. And that's why those digital sales keep ratcheting up because of the ability to take 50-odd million digitally enabled customers, 40 million active in the last 90 days, who are going at 1 billion times a month to interact with us. And now you can -- you have this relationship going, and they're telling you about that, because they're doing life plans and they're doing this other stuff. And it's pretty interesting. And the team does a good job, but we still have a lot further to go with it, though. It's -- and then we do it on the commercial side, insight, cash balance forecasters and things like that. We build on these products in our institutional side saying, we know from our data, people in your industry are seeing these types of things and stuff like that. So we can give insights to customers about their flows that they may not be able to see, especially in smaller customers, where they may not have the data.

And I assume that was a big part of the rationale. There's lots of reasons, but why you brought the merchant acquiring in-house.

At the end of the day, we needed to own both sides of the trade to build a 2-sided market. And that's what happens over time. So Zelle usage, me to you is up, but Zelle usage for me to a small businesses up, that last mile. And what you're building is 2-sided markets. So we have the merchant side and we have the things, and you can build it. We're not going to be selling products on that, but we can enable the commerce with instantaneously real-time account-to-account, verified, and it's pretty neat stuff. Meanwhile, we also need to own that business to drive the sales, and they've -- Mark Monaco and Tom and the team have been -- the sales have been taking off once we got it back in, in the small business banking area where the value is really additive. And shame on our industry, let certain competitors get ahead of us on that stuff.

Right. But you had the guts to bring it back in-house at a pretty significant cost a few years ago.

I remind my team of that all the time. Is that we spent a lot of money to get this in. Let's make sure we're moving it fast and then...

But it turns into yet another competitive advantage at your scale.

It is because you control your destiny. But we're sitting with, I don't know, 10 million, 12 million small businesses and 60 million consumers, and you think about the volume that is going through that you can make more efficient, more effective and more secure. And that's really important.

Okay. Well, the last item on my list was the balance sheet and capital levels. I think we're all pretty confident that your balance sheet is big, but it's also quite secure with an awful lot of capital. Just in closing, in terms of any changes from a capital management perspective, dividend versus share repurchase, now that you actually -- I mean, look at your stock, over 2x tangible book. Do you rethink that balance at all?

Well, it's being -- like we said on expenses, we bring them down, and then we're going to kind of get into an organic growth operating leverage. On capital, one of the things is our customers are demanding capital to grow and produce profit for you. So you say that is not a bad thing. So if you think of $100 in earnings, we said we'd get the payout on the dividend side up to 30%. That's that. The other 70%, if you think about where we are now and you can see where our G-SIB points would be, we've disclosed, that we need to retain some capital. But we have like 30 or 40 basis points a quarter to play with. And so the idea is you might pull some up. You also can make the balance sheet more efficient, frankly, because we just -- this hasn't been the topic of the moment. And then we've got to also figure out where all this goes as the monetary combinations are withdrawn from the market. Although last time, we had deposit growth entirely during the Fed tightening cycle, which a lot of you had questioned, but it happened, but we will see. So that will be -- but it will be a little bit more retained for a good, very good thing. Our clients are growing and we're growing. And we have to have the capital support that. It's a very modest amount in the grand scheme of things. But so basically, pay the dividends, whatever capital you need to grow their business organically, and then the rest of it goes back to the shareholders. And we have -- from almost a peak of 12 billion shares, we are getting perilously close to 8 billion, which is pretty phenomenal. So if you owned to share in the company back then, no matter what you did, your interest in the company is up a lot. So it's good.

That's a good place to be and a good place to finish.

Thank you.

So thank you for coming back. And we hope we see you again in person soon.

Thanks. Thank you.

Thank you.

Thanks.