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

Thanks, everybody. Thanks again for joining us today at this conference. It is my great, great pleasure to introduce Brian Moynihan, Chairman and CEO of Bank of America. And you guys are always going to talk about BofA, but I'd like to say that as a member of the banking industry, we've been extraordinarily fortunate -- just as BofA has been fortunate to have had him as CEO for the last 14 years, we've been extraordinarily fortunate to have had him as a leader of this industry for this period. Not just in the way in which he runs an important financial institution and shows us how you do it well, also his leadership in the economy, broadly speaking, not just in the U.S. and globally, and importantly, his leadership in sustainability and climate. And Brian is the Chair of the SMI, which is the Sustainable Markets Initiative by the -- what was the former Prince of Wales and now the King, and brings together a lot of banks and does a lot of really good work really quietly. Now the important thing is, of course, to hear what Brian has to say about his company and about the world and the economy, and I'll leave that to Jason. Brian, thank you again.

Thank you. Thank you.

Brian, thanks for returning to this conference. I think the first time you spoke at this conference was 2008 on the -- 2 days before the bankruptcy of Lehman, so the world has certainly changed a lot since then.

Let's hope we improved as we get to that weekend, how about that?

Maybe the best place to start is big picture and maybe focus on the consumer. Bank of America serves over -- almost 70 million consumer small business clients, obviously, a very robust wealth management practice. Maybe kind of dig deeper into the health of the consumer, kind of any recent changes in behavior, other observations you want to make in light of a potentially deteriorating unemployment picture?

So I think -- thanks, Jason, for hosting this, and the importance of this conference to our industry, and you continue to do a great job. So as you think about it and come through the COVID recovery, the -- first, the revenge buying, then revenge travel type of things, and so the spending was increasing double digits early '23 over '22. As you came through '23, it went down and worked its way down to 6%. And this is across $4 trillion plus of money moving out of consumers' accounts into the economy. Then you get to the early part of this year and it kind of moved into the 5%, 4%. And in the summer, drifted even lower to 3%, and that's when you start getting worried. The good news is it stabilized around 4%. And to give you the context, that would be where it was in '17, '18, '19, when the Fed had raised rates. The economy has bumping along with low inflation, somewhere around 2% -- was below 2% at the time. Growth was around 2%. And so it stabilized at level. And I think that the key, when you think of that, both from their spending patterns across the $4 trillion at that level, they're getting a benefit from lower gasoline prices. They went to more hotels. They actually didn't spend more nominal dollars on hotels because the pricing got tighter this year versus last year. I travel to Europe a lot. You read all about that. But again, the overall spending is locked in a good level. So the employment is fairly stable, even though unemployment has ticked up a point or two. The spending is fine. And you'd say, "Well, does that mean it's too good?" No. I worry more that if the Fed doesn't start to meet the expectations they read about in the paper, Fed cuts, they can actually [ dispirit ] the consumer. So the consumer stabilized and came up a little bit, I think in anticipation that there'd be rate cuts. So now the danger starts to get to the other side, and so we feel very good. Now credit quality stuff, we can talk about later, which is all fine. But when you look at it -- and the money in their accounts has stabilized. So year-over-year, for the lower -- the people who were here in the pandemic who are still here that had $10,000, $100,000 average balance accounts, it's actually flattish to up a little bit year-over-year. When you get in the higher-end consumer, it's lower. That's because they move the excess money into the rate. People had $0.5 million in balance, and the consumer -- that moved in the rate. It's kind of balance [ in line ]. But the lower-end consumer is actually starting to grow slightly over year-over-year in terms of average deposits collected in accounts, which is again good. Kind of okay.

Interesting observation. I guess maybe sticking kind of bigger picture, turning to the corporate side of the house. Maybe what are you seeing there?

So on the corporate side of the house, in general corporate person, small business and business banking, which is under $50 million revenue companies for us, we're seeing stability in the loan balances. We're seeing a little more growth in the small business, which is good. The credit quality is strong, but they're only using their lines at a rate that's still below the pre-pandemic level. So it went down a lot, came back up and now it's flattened out. And that's because it costs more. And then when you go to the middle market, you see the same phenomenon. So just to use big round numbers, let's say there was a 40% average draw rate before the pandemic for all sort of middle market and small business and business banking clients, dropped to 30%, got back up to 37%, 36%, is now running at 36%. And that, again, is -- they're a little more hesitant. The rate to borrow went up a lot, they're not employing more people, they've slowed down their investments. Again, they're sort of waiting for the rate structure to move and the economy to clarify and the final demand to clarify for the products and services. So I think they're fine. The credit quality is fine. But they're probably a little more nervous. And again, that's where we need to keep them in the game too. And you hear a lot about delayed purchases because of election. That has more to do with, frankly, the final demand is still settling in to make sure that they really can sell the products and get the price and things going up.

One of the things we like about Bank of America, just how balanced you are across businesses, if you look at kind of the first half of the year results, income almost evenly split between kind of servicing people with the consumer bank and wealth management and then kind of companies, institutions, with the Global Banking & Markets unit. Maybe just talk about the importance of this diversity and how you just manage this balance so far as capital allocation and investments.

Yes. It's not like we sat down and said if we're this much, this much and this much in the different businesses, we're fine. They all returned above their cost of capital. We have capital to grow them. It's a question the opportunities and risks that can take to do it. But the idea of balance is good, because in any given moment, if things go right, it goes -- things go not so right out in the world, so you might have a slowdown in capital markets transactions to investment banking revenue is slow. But on the other hand, the commercial side of the balance sheet, the loans are solid and the GTS, the transaction services business is growing. So we like to have the balance and also the balance, not only in sort of share income, but the nature of how we get a lot of fees in the wealth management businesses and size, a lot of deposits drive the business in consumer fees, wealth management fees and deposits drive it in wealth management, and we get to commercial loan balances, but really driven also by the deposit balances, the $500 billion plus we have that drive a lot of the economic value. And then, Jimmy in the trading business has the ability to see all those flows and have middle-market customer hedging, which provides, frankly, a strong [ fit ]. So we like the balance between the businesses, and at the end of the day, you grow them together, and that's why we can optimize capital a little differently than some peers, because we're not leading in any one direction, and also why the risk sort of balances out.

And then maybe when you kind of -- you touched on a lot of different areas, but maybe where do you see the biggest growth opportunities for Bank of America over time? And just how are you investing today to drive that growth?

We still have certainly people in both wealth management and consumer banking. We still have -- we're the leading market share in retail consumer banking deposits, but we still have 14% or whatever it is. The idea of growing that is just easy because we have gone from 10% to 14% in that area. So we've grown it. We've grown it year after year. That is deploying in new markets, that is optimizing in other markets. That's the huge digital capabilities we've had and the mobile capabilities, digital capabilities, Erica. All these things do that. So there's a big opportunity to just continue to grow that core business. We're adding 1 million new checking accounts a year, net new checking accounts a year. Those are the customers of the future. If we weren't adding -- if we're adding those in '20, '21, '22, '23, '24, what happens in '26, '27, '28 is some of those customers who are in college are now out and working, and so they start to mature into great customers. So what we really think is a lot of room in consumer wealth management, we're mid-single digits market share, again, expanding markets, adding financial advisers, building the training program. Then the cement between a person who is just starting working and you, who's a wealthy analyst, cement between us to have...

Just because my picture's on the screen,doesn't make me wealthy.

The cement is to be able to serve them from the day they open their first account all the way through. So Merrill Edge provides a bridge from with $450 billion, $500 billion in assets, drives a bridge from the first investment they make to Merrill Lynch and the Private Bank. And so that's the value. Likewise, the commercial business, same thing. Largest small business line in the country, but still probably 10%, 12% share, 30% representation [indiscernible] clients, but overall share of loans, stable around 5%, 6% commercial loans in America, 8%, 9%, whatever it is. You have plenty of room. So all the businesses have a lot of room to grow organically. And then outside the United States, we continue to complete the franchise, and there's a fair amount we can do there too.

You mentioned outside the United States at our London conference this year. We had Bernie Mensah present on just the -- for those in the audience, he's President of International for Bank of America, and he kind of just talked about the international growth opportunities. It does seem to be an area of maybe increased investment of late. Maybe just talk about kind of what distinguishes your international model from others, and just -- a lot of time you talk about responsible growth. How does that kind of play into this international opportunity?

So it's -- we do 3 businesses outside the United States: Commercial Banking, including both loans and transaction services, Investment Banking; and Capital Markets. And we have a lot of opportunity, and we've taken advantage of that opportunity. So if you look at our loan balances in commercial, and you would have gone back a decade or so ago, we've probably gone fivefold increase in loans outstanding outside the United States from, say, $20 billion to $100 billion, round numbers type of stuff. And that was building out to continue to build the franchise so we could both have balance sheet treasury services and investment banking capabilities and markets for hedging and FX and those things. And so we feel very strong about it. What we've seen of late, when we started executing on it, is in the countries we've been at it for a long time, so we're the first company to make a loan in Japan after World War 2, so we've been there for a long time. We've been in Argentina since 1914, Brazil since '54, I think it was. You go to India, we're 65 years, I think, this year. So the idea is we're in these countries for a long period of time. And so we've been able to keep maturing the franchise along those dimensions. But there's still opportunity, and that's where Matthew and the team have looked to take -- to go a little deeper on the client base to privately owned businesses of size, but are consistent with the businesses we operate on a global basis or involve the global supply chain, and that presents another opportunity for us. There's only so many large companies around the world and then [ 3,000 ] type of coverage that expands, and we feel good about that in places like Germany, France, Switzerland, U.K., a little bit in India, and trying to help those companies be more prosperous and other countries follow behind, and that's where Bernie's been putting his effort.

One of the things that we've heard, I guess, a lot of companies talk about, and you have as well, is just kind of the importance of integration and whether it's across the different business lines, across kind of distribution channels, whether it's physical or digital. Just maybe talk to how Bank of America is approaching this. Does this provide a competitive advantage? And is there kind of more you could do on that front?

It starts from a basic principle that we want to be the best global competitor with the products and services and capabilities that nobody has. But at the same time, you bring it to every market at that market. And so we have 90 -- we have 100 markets in the United States. We have about 30 markets outside United States, [indiscernible] markets. We have teammates that lead those markets across all the businesses. We measure all the referrals from business to business. We keep track of it all. They work together to deliver those. We bring them in twice a year, those teammates, to reward the teammates who do the best at it. And that's helped us in things like plastic sort of business banking customers, $50 million, $40 million revenue companies, too, the wealth management business and vice versa. But also one of the big pushes we made in Matthew's area was to add middle market investment banking, smaller -- transactions under $1 billion in notional size of -- et cetera. And Matthew has a fellow -- a couple of people that run that for him. They've done a good job. We went from 50 people to 200 people. We're continuing to take that up. That is now about 1/3 of Matthew's revenue that comes off of that middle market franchise and growing at strong double digits. So even while there's been struggles in some of the big deals and things going on, that kind of activity is strong. And that comes to life by commercial banker in Kansas City, working with their clients and understanding those opportunity and distributed investment banking talent in the market is driving it. It makes us unique, I think, as we can do that across the businesses. So even when we enter Columbus, we enter with a position of strength because we had wealth management teammates there already. We built our first branch. I think we're up to 15 now. You can see that as you move up the rank in terms of market share, it's driven off the interconnectivity of that franchise, and then you pick up the business side at a faster pace because of connectivity. And we've been at it for 30 years working on this, 20 years working on this. And since the Merrill transaction in '09, this is something we've done and we've done well, and you can't leave it to chance. And it's interesting to watch it as it matures and teammates do it. We think it's a major competitive advantage. It then fits the business proposition of small business to large business growth, a high school kid to an entrepreneur or to a professional or to just work in the rest of his life at any job, cementing these relationships deep on and then referring them back and forth and getting them deeper, and there's a big opportunity. The line just cross-sell for years, but believe me, we count it, happens several million times a year. And so it's one of the reasons why our fundamental growth rate outstrips the industry.

Got it. Maybe we could maybe shift gears and turn to the financials, starting with loan growth. It's clearly been kind of sluggish across the industry. I think BofA are kind of 1% year-over-year in the second quarter despite card up 5%, which seems to be the kind of loan bright spot, although loan spreads appear to have widened. Maybe just talk to what you're currently seeing? And then what do you think borrowers need to see to get reengaged, whether it's rate cuts, getting to the election, getting confirmation [ we had ] that can engineer a soft landing. Any perspective you have?

So far this quarter, it's consistent with what we thought back at earnings, which is sort of growing at 0.75%, a little better than the H8 data, which is good because it's a big base, but it's a combination of some demand for transactions and some demand in winning some new clients and things like that against the borrowing rate online that's just sort of sitting there. And so I'd say that the loan demand is okay. It's not falling, but it's -- they're not aggressive. And what the catalyst there, I think, has to be, I said earlier, the election clearing. We'll at least get policy set. But importantly, as the Fed starts bringing down rates, a lot of those borrowers borrow on a short-term basis at a spread of a LIBOR, a spread over SOFR now. You have 250 basis points, 275 basis points, and we've been inching up those spreads, but that's a basis point or two a quarter. But the reality is the sheer cost of that, when you add the 5.5% versus 50 basis points is a big difference. And so they're a lot more careful on deployment. And you see that going on in businesses saying, wait a second, do I really need that piece of equipment? Yes, but maybe not this quarter. I'll do it next quarter, just to save the borrowing cost before they'll buy it and then put it up on online if they want. So we think commercial side, overall, sort of 0.75%, commercial side, probably stronger in the midsized companies, and smaller companies on the consumer side, card is still growing a little bit, which is good. The rest of it is kind of run to stay in place, mortgage loans, autos and stuff like that.

And then on the deposit front, average deposits were mildly higher in the second quarter, slowing in the increase in the rate paid. You have seen some pressure on wealth deposit rates. Maybe just talk to how balances are progressing this quarter and kind of maybe segment out non-wealth and wealth.

We look at it sort of -- we have 3 dimensions: consumer business, the wealth business and the commercial banking business. And so if you go back, we hit the low point in May of last year in terms of deposits, and it's been growing since -- I think [ $80 million, $100 million ] off that low point. As you said, last quarter, modestly up quarter-over-quarter. Ended the quarter, I think, at [ $19.1 trillion ], if I remember right. Right now, it's running [ $19.2 trillion ] or so, and so has grown. But the interesting thing in that is we're paying down sort of market-based deposits this quarter, $10 billion, $15 billion, and building back more core. So you're seeing the plateauing of the increase in rates now happen. And the only impact, when you go across the businesses, in rate structure quarter-to-quarter is really where people are adding deposits in the banking business, which is $550 billion or more. So they don't add noninterest bearing add at the margin or interest-bearing add -- it's not a mix. It results in an exchange, but it's not people taking money out and moving. It's more just where the money growth comes from. Same in the wealth management business. We ended the quarter at $280 billion versus -- I think $270 billion, $280 billion or something like that. We're sitting at the same number. And all our pricing that everybody has talked about all went through in the second quarter. So there's been no change in methodology, their intensity. It's a thought process since then. And then consumer, we in the last quarter, probably $950 billion or bounced around $935 billion, $940 billion, and that literally is very high in consumer still peeling a little bit off, and the rest of it fairly stable, and the noninterest-bearing balances are kind of bouncing -- noninterest-bearing [ checks ] bouncing around the same levels, down a little bit plus or minus $5 billion, and that moves $15 billion on a Friday to a Monday. So -- I'm talking averages. So it's solid. And overall, we're up -- we'll be up -- we're doing better in the H8 data we see out there, but importantly, we're -- for the loss in the balance sheet, you're starting to tighten down and get rid of a lot of the liquidity that was built by us and others in the industry, you can now run off and replace the good core stuff, which will help the yield -- the NIM yield and stuff.

Helpful. And maybe tying loans and deposits, together, you previously talked to this 2Q net interest income trough with growth in 3Q then growth again in 4Q with maybe a 4Q number in the $14.5 billion area. I know the rate environment has certainly shifted since you've said that. So maybe just talk to how you feel about that, what kind of the impact of an evolving rate environment is? And maybe what causes you to do better or worse than those figures?

So from an input standpoint, the deposits and loans are doing -- probably on deposits, a little bit better than we thought back then, basically what we thought, and loans kind of consistent with a low single-digit type of really 0.75% type growth. So we feel good about that. If you look about it, when we made -- at earnings, we had 3 rate cuts, and we literally had 3 because on Monday it flipped over and we just follow the market. We don't say what we think is going to happen. And now there's 4 rate cuts. And so the third quarter is $14 billion, which is a little bit of growth off the second quarter. The trough did occur in the second quarter. We grow in the third quarter. The fourth quarter, $14.5 billion had 3 cuts. At 4 cuts, it'd be $14.3 billion and change. So you guys can tell me what you think the cuts are, and I will try to tell you what the math is, but it's all -- the fundamentals will happen the same way. And so remember, part of that pickup is [ a day ], part of that pickup is BSBY kicks in. A portion of it then kicks in more next year, that amortization we have. And so we feel pretty strong about that. And so we're off the floor and growing, and I think it happens -- if all that takes place, you'll see the growth, year-over-year growth, in NII starts to take place as we move out of this year into next year. And that is important for the operating leverage of the company. So we peaked at $14.8 billion, I think the trough is $13.9 billion, and now we're building it back through it. And then you go beyond that because of the size of the balance sheet and the spread is even better, depending on where rate structures go, ultimately.

Got it. That's helpful. And then on the maybe capital markets, we've seen -- or maybe fee income in general. But we've seen pretty strong fee income performance, wealth management, investment banking, trading, global payments. Maybe kind of talk about what you're seeing for each of these key drivers, and I've got to ask you about the obligatory third quarter trading and investment banking fee update.

So overall, as you sort of stated, the wealth management business, because the market levels despite the last couple of days have been stronger, we feel good about that. That creates some compensation pressure. We can talk about that when we get to expenses. But that's good. GTS, the transaction services business is fine, all the changes in the consumer business and over [indiscernible] all went through many -- a few quarters ago and a year ago, so we are starting to see a little bit of growth in recurring fees in that area bouncing around, so all that's good. If you go to investment banking, last year, we were at $1.18 billion, I think it was. This year, we think we'll be $1.2 billion. And that is -- so that's basically flattish third quarter last year versus third quarter this year and down from the second quarter. We moved up and moved it strong, and Matthew and the team have done a good job. The mix of transactions is not as favorable to us, and so we'll be fine, but it's going to fall off this quarter. The counter of that is sales trading line, we'll be up low single digits year-over-year based on our estimates through how many trading days, whatever [indiscernible]. So it will be up low single digits year-over-year and kind of flat to the second quarter. Now why is that important is about 5, 6, 7 years ago, we started investing in that business, and you've fundamentally moved it up. So this is the tenth quarter, if this comes out, if the rest of the quarter fares the same way we thought it would, you'll have a tenth quarter in a row of year-over-year revenue growth in that business, and that's a very strong performance and is starting to reflect the investments we made a few years ago. And the capabilities across both fixed income were very strong, building and back up the equities business and getting our fair share there, some of the lending business and stuff. So we feel good about that, and Jimmy has done a good job. So that will be up low single digits and flat quarter-over-quarter, which seems to be rolling against the tide a little bit.

Got it. And then maybe any other areas of kind of fee income you'd want to highlight beyond...

Credit, we've said -- we filed that provision last year or the last quarter. It will be plus or minus that this quarter. We're not seeing -- we're seeing delinquencies flat on the consumer side, which is good news, and then we saw charge-offs flatten out as we go through the months. And so we're still cleaning up -- the real estate charge offs will be down quarter-over-quarter, and we'll get through the rest of that as we go through the next quarter, as we said in our earnings. Anything else is kind of -- autos are fine, and everything is kind of bumping along at the same level. So we feel good that we've sort of normalized the charge-off level back to where you were pre-pandemic, and it's sitting around a charge-off level absent the commercial real estate, which has come down each quarter that is consistent with [ $350 million, $360 million ] credit card charge-off rate, which drives the charge-off number. The rest of it is kind of not very much, honestly.

I guess we had a company earlier today kind of talked down kind of auto loss -- or [indiscernible] auto loss expectations. That's not something you're seeing flow through.

It's basically flat month over month, sort of bouncing around at the same level. We have seen that. If you look at the way we put it in our earnings deck and you see it there, I think our auto originations in the second quarter were 850 FICA. So we only play in a very high-end business in auto, because it's a very customer convenience business to our dealer clients and to our consumer clients. It's not -- and so the best news about that is it rolls off, it helps the NIM build up because we're rolling off fixed rate assets that we price up and that the credit risk is always managed tightly because it's not meant to be a credit -- it's not meant to be a real risky business for us.

Got it. And then we kind of skipped over expenses. You kind of maybe touched on some comp pressure potentially just given seeing year-over-year growth in trading revenues and investment banking fees maybe flattish. But maybe kind of talk to maybe some near-term expectations and then just how you think about this potential return to operating leverage.

Yes. So if you go back in the early part of '23, coming off all the inflation and head count and all those stuff that go on, we've said we had to start managing expenses more consistent with how we managed them traditionally. And so we absorbed all that inflation and started bringing them down. What's happened since then -- basically year-over-year head count is down about 800 at the end of August. And so there's head count investments in financial advisers and head count investments in new branches open up and head count deletions and operational process improvements. But I know that if we can keep that head count at that level pre-pandemic, we're about 204,000, 205,000 and a chunk of that is growth, a chunk of that is also just dealing with all the pandemic stuff still going through the system and all the controls and environment in California and employing all the stuff we're finally putting behind us. So we continue that. And so we are -- we were $16.3 billion last quarter. We think it's closer $16.5 billion, and a chunk of that will be -- is really FA and other related compensation in the markets businesses, which outperformed. And then the other chunk, which is just getting environment right. But the good news is the head count stabilized where then I can -- then we as a team can basically project out where it's going, and that was the key. And we saw that. So we absorbed 2,000 new kids this summer, and basically head count stayed flat. And so that means the engineering of the system. We're investing heavily in the data and control of the company to continue to improve that to really position us for the next big round, which is how do you use even more digitization, whether it's augmented intelligence, artificial intelligence, whatever words people want to use. But even more digitization requires that data environment, that control environment, understanding it to be absolutely perfect to make the decisions off it. So we already do big things off of it. But as we come to other parts of the company, we're investing heavily in getting that -- continuing to improve that to keep us positioned so we can push even harder. If we started 2010 and -- this is my 15th year, I think, if I got the math right, but we started [ 205,000 ] people and went up to [ 305,000 ] and we run the company at 212,000, which is nominally as low as it was in 2018, and nominal expenses where it was in, say, '16. So we've absorbed all the stuff through that engineering, customer changing behavior or branch transformation, all the stuff everybody talks about. And we did see that going on. So investing in the future, that is also important. So simple answer is you're going to be -- a little more inflation expenses this quarter as best we can tell, and that last quarter, I thought that -- they told me that this time next quarter came out being where we thought it would be, but we'll see what comes out, but just to make sure that people -- we're watching it carefully and spend it right way.

I guess given your kind of commentary with the kind of net interest income dropping in the second quarter, growing in 3Q into 4Q, and you kind of touched on potentially next year and it feels like we should expect this return of positive operating leverage.

You should. As NI kicks in, that pretty much all flows to the bottom line because a big chunk of that comes from the consumer deposit value and doesn't increase expenses. So that's -- so as we turn, we got to get the -- the year-over-year comparisons and expense growth are tricky because it drove down so much last year -- we went $16.2 billion to $15.8 billion, $15.6 billion, I think, and then with inflation and everything going on, we're sitting at $16.3 billion. So we've got to get that sort of normalized and we're out the other side. But our job is just to grow revenue faster than the economy, keep the expenses growing a little bit less fast than the economy and that operating leverage, which we did for 5 years in a row, is powerful. But it does take the ability to get value out of loan and deposit growth because our balance sheet, that drives so much of our revenue, that has a lot less expense base attached to in a given day. And that's what the stabilization of deposit balances, especially in the consumer business, also in the wealth management business, and then the stabilization of pricing, which you've seen this quarter. So the deposit rate paid moves a little bit, but not [indiscernible], and now you can work it out from there. And as rates fall, that all pass through the system.

And then you touched on AI, and we kind of view Bank of America as -- you've kind of been kind of leading, I think, the industry in terms of technology and investments in products and services to your customers. Maybe just expand upon in terms of how you see that.

Well, we continue to invest in innovation heavily. So in '19, we probably had about $3 billion in technology initiatives a year. Now, we're probably $4.2 billion this year, and we'll push that up for next year. And a lot of that is around automation, digitization capabilities. And so we just believe that. So we -- our team is innovative, and I heard a story from my colleague, [indiscernible] who runs all technology, of a person that came through a special program we had in India the other day who just got her first patent as an innovator. So it came from a farming environment to our company, we trained her, we put her through education and now is a strong enough inventor to get a patent, which is pretty remarkable. And so the team would say that they have the most patents of all financial services companies in the United States, and we do, I think, in financial services and I think we were 1 in 10 or 1 in 5, maybe, [ AI ] patents in the last year granted. So we spend a lot of -- the question is that's all interesting, but how do you make it work? And so when people talk about what could happen to AI, if you look at Erica, what Erica was is a large language. It was a natural language processing model that was built in combination with Stanford, some other people, 10 -- 8, 9 10 years ago, probably now. We start on answer straightforward questions based on our data and our information. And we believe Erica runs 22 million customers through in a given month, so the active users are run to that. It still grows 10% of those. The transaction volumes grow in the expansion of it, so we have it in the cash flow now. We have it for employees now. And so that straightforward model, when you hear about the difference between large language models and tailored models, that was a tailored model. People at the time wouldn't have recognized that thought. It wouldn't have put the terms of [indiscernible]. So as we look ahead, there's going to be opportunities to keep applying these specialized models in areas and drive it. There's opportunities to -- what will really happen, I believe, is a software provider is now embedding an AI in what they do. So your customer relation management software, if you listen to Marc Benioff of Salesforce are driving through AI into that. Since we have that already deployed, we'll be able to take advantage of that. Likewise, in Microsoft, other major providers. So they'll be all that. And it will be these large language models, which have application. But there will be a lot of people in that business are coming to us saying, "I can build a model to help you. But what I'm not going to do is put it in a public domain, so you have all the risk of hallucination, legal data and all that stuff. But I can do it for you a much more -- much faster and much less expensive than you can do it to solve certain tasks." And so I heard a couple of panels, so I can't take credit for it. Basically, where AI is going to be beneficial is think of any task, and if you do it every day, that involves text and test, which is your stock and trade, I hate to tell you, you have to take information and reformat and think about it and put it back out there. That's what you do is -- and expensive people to do those tests, that's where you can really change the dynamic fast. And so if you think about cost per person and susceptible to AI, you've got to be looking where it can do it. Everybody focus on our processing teammates. We have 25,000 processing teammates in the company now. We probably had twice that in 2010. So we've already optimized a lot of that. So the real value is how to aid people in commercial relationship management and how more efficient they can be. And that's financial advisers, private bankers, that's what's going to be an interesting thing here. That takes it really embedded in their day-to-day work tools, and that's what we're working at.

Helpful. Maybe shift gears to capital. And I'm not going to quiz you on Barr's speech today because I'm sure you were busy during it, and I'm sure we'll gets like 450 pages next week. But at the headlines, it looks like what was supposed to be a 20% increase to capital on the original proposal is now maybe a 10% increase to capital. I know the industry was told before all this that there'd be no increase to capital. I guess kind of maybe what are your thoughts on this whole process?

Well, -- we originally said that we had the capital to meet the 20% lift. So we don't -- the base principle be with our $200 billion of CET1 capital, no matter how many times you mix up the apples and oranges and play with it and count it, it's enough dollar volume to do what they [indiscernible]. And now they said they could -- on average, let's cut that back by half. So that means we're fine, and we can continue to buy back stock out of the -- all the current earnings to the extent that the business don't need it, we have excess capital, we got to wait for this proposal to really get out there. So that's good news. Now on the other hand, we go back to -- you had success of -- the industry's point of view, originally, was you've had successive chairs our Federal Reserve Board and people in the supervision saying the capital is right in this industry, and suddenly, we needed, as we combined, it went to the Basel [ end ] game, we suddenly need more capital, and that was what was confusing the industry, and that's what caused the reaction. Because at the end of the day, if our capital goes up by 10%, it stops us from making $160 billion of loans we could otherwise make. And those loans would go into small businesses and middle market companies at competitive rates of which they could then compete in the global economy because everybody competes in the global economy today. And so it's -- and if you do that across the industry, take those numbers. And so we're saying that why we're doing this and the theory was where we had to normalize Basel III, you're saying, yes, but we're normalizing against an advanced standard outside our country without gold plating, without G-SIB buffers, so you're normalizing something that is not equivalent. And so if you look at companies outside the United States companies, they're carrying less capital and stuff. So that sort of sets why we're doing that. And we -- the industry made our points and I think we were heard, and so now they've come out with a proposal. We don't have to look at that proposal. They've also said that they're going to index G-SIB, which was in the original statute and had been forgotten about, but that's important to a lot of us because the economy from '12 or '13 when that data is based on to now, even before the financial crisis, almost twice as big, so whatever the math is. And so we feel good about it. But I'd say -- there's an old phrase, [indiscernible] and they'll take the spare. I sometimes feel that, that's what we just got. They showed us 20, and they're saying, take 10, you're saying, wait a second. Let's think about the logic in that. So we'll have to see where it shakes out, and we'll see what the reaction is in industry and stuff. But it just kind of boggles my mind sometimes. We are starting to place at our capital levels in the United States. We're so strong. We've weathered storms. The economy has grown. We've been successful. And it's kind of ironic that this comes out on the day after former PM Draghi, former ECB head Draghi, saying Europe has a competitive problem, has a vibrancy problem, has a capital markets inflation problem. You're saying -- so why would we follow that trail? And their economy is effectively at the same place it was in 2007 to now. And that was known by everybody. Now people are just pointing it out, they're saying, why would we follow that trail for our [ whole history ], it's not only in our industry and other industries. We'll see it play out. But at the end of the day, you have to go all the way back to even before Bank of America. This is always [indiscernible] management will continue to be, but it doesn't mean it's right just because we can absorb it.

Helpful. One of the questions I've gotten a lot lately is Berkshire Hathaway selling stock. I did call him last week.

You called him?

I did. He didn't call me back. I emailed Debbie the assistant, still waiting. But I mean, your largest shareholders have been selling stock. It seems like every time it's above $39, any -- have you -- maybe he returned to your calls, but any thoughts you have around that?

You might assume that I can't call him about it, so because it's -- look, he's been a great shareholder. He made 2 investments in our company. The first was at the depths of the post-financial crisis and all the mortgage mess and everything. He put $5 billion in for 700 million shares, and that was the first piece. The second piece he did -- he bought that put him over the 10%, et cetera, was in '18 to '19 time frame. And so he bought another $300 million. And so he sold a chunk, but it's still above about 11%. And so I don't know what exactly he's doing because, frankly, we can't ask and we wouldn't ask. But on the other hand, the market is absorbing the stock, and it's a portion of the volume every day, and we're buying the stock, a portion of the stock, and so life will go on. But he's been a great investor for our company and stabilized our company when we needed it at the time. I will tell you that if you actually make a calculation, he bought common the same day, you would have been able to buy it for $5, I think it was $5.50, and you have fared as well as he would. You just have to have the guts to do it in a big way, and he did, and it's been a fabulous return for him. We're happy that he gets it.

That's fair. Maybe kind of bring together a lot of the stuff we've talked about, but -- you've talked to a 15% ROTCE for the company as a whole. Just given kind of all the progress you've made under your tenure, we talked about NII normalizing, the return of positive operating leverage, Basel III ultimately getting finalized at something less than initially feared, is that the right number? And just how do you kind of think about overall returns?

Well, I think -- somebody reminded me the other day, and I used to remember having these discussions 10, 12 years ago that when we said we get to 13% or 14%, they thought we were crazy, and we moved through it relatively quickly and have held up there. And so it's a 15% better -- 15% is good now in an environment with the rate compression going on as rates expand, they go from 200 basis points to, say, 230 and NIM spread yield. You should see expansion in that. But during that time that we [indiscernible] this, the broad cap we've had has probably gone from $120 billion to $200 billion in tangible common equity. So we've been putting the returns up on bigger, bigger. Now if we find to get -- end game means end game, that you're actually done, then we can start to optimize back down and figure out. So we feel good about that. It's well above the cost of capital, but it doesn't mean we sit there and say 15% is perfect and 14% is not. It's -- we keep pushing all the businesses, do the best they can with the capital they get, and our pricing models actually have higher returns on capital. But when you mix it all together with some of the other things we deal with and the size of the balance sheet is grossed up a little bit on fairly low yielding stuff just because after the crisis in other companies last year, we had to build a lot of equity. Now we're fine-tuning it. So we feel that's a good number, and we've done it, and we should always strive to do more.

Helpful. We have about 3 minutes on the clock. I'm not sure if there's any quick questions from the audience that they may have. I guess, Brian, you mentioned G-SIB surcharge not being [ recalculated ]. I think this goes back over a decade. As you talk to regulators, any kind of acceptance? Or do you think that's something eventually they will revisit?

Well, I mean, in the speech today, he said they're going to revisit that. What exactly they'll do, we'll find out better here in, I guess, it's a week or so, 10 days, whatever it is. And so it just -- there's a reference in it that they will in a paragraph, which as they flip through a speech you see, so -- with no definition of how. Obviously, if the economy has gone from x to 1 point, probably in that time frame, 1.4, 5x, and we just had a relative position -- think about the deposit industry. In '19, we had $1.7 trillion deposit. We have $1.9 trillion plus. So we're up 35%. The industry is up 30%. That was all just the kind of get in front of the cash and the gross up of the economy because of inflation in net economy growth was different. Why suddenly does our G-SIB go up from then to now? It's 100 basis points. And didn't outgrow the economy by a lot. We just grew with it. Our risk really didn't change relative to other people. So that hopefully will come out in the watch list. I just don't know -- I don't know how they're going to adjust the calculation, but it's needed. Because otherwise, you have a constraint on the size of these very important institutions relative to -- they have to get smaller relative to the economy in some ways to keep the G-SIB constant, or keep adding more capital for the same risk, even though the nominal dollars are higher in a relative basis. So I think we get into this -- it just gets a little bit sort of stacking on stack and the -- our nominal [ spike ] price is one of the factors. And you kind of say that's kind of interesting. What's that got to do with your -- but it was in there. And so I mean it's not -- it's a per share price. It's not market cap or weighted market cap or market cap against -- and sort of say these are sort of hard to understand things, except for -- they just got in there and now we got to figure out in the debate about the rule and what they say about it, how they're doing it, we'll see. But any adjustment on this would be good for our industry.

Great. So we're out of time. Please join me in thanking Brian for his time today.