Bank of America Corporation (NYSE:BAC) Morgan Stanley Financials Conference Call June 12, 2018 8:00 AM ET
Dean Athanasia - President, Consumer & Small Business and Co-head, Consumer
Betsy Graseck - Morgan Stanley
[Call Started Abruptly] Dean is President of Preferred and Small Business and Co-Head of Consumer at Bank of America. Dean’s team is responsible for providing a full range of financial products and services to 67 million consumer customers and more than 3 million small business clients through all its channels, be it either digital or branch, call center or bots. This includes responsibilities for more than a $180 billion of client assets through Merrill Edge. So, Dean is responsible not only for the branch side as well as Merrill Edge, BofA’s digital investment platform. And Dean has been Co-Head of the consumer business since 2011. And Dean, I know you have a presentation that will be about 20 minutes or so. And then, we go into about 20 minutes of Q&A, so just wanted to -- so, everybody up for that.
There are presentations in the back of the room, if you haven’t picked one up, just FYI. Dean, thanks so much for joining us this morning.
All right. Thanks, Betsy, and good morning, everyone.
And I hope -- I mean, those are good questions, and I hope to cover that through the presentation. But, there are five areas I want to cover today. And again, just that we’re a powerful industry, leading U.S. consumer bank. We have over 67 million clients that Betsy mentioned there. But, we’re growing. We’re investing and we’re growing in this business and we continue to do that.
We have a certain approach that I hope comes across in the presentation, both high-tech and high-touch, meaning that we invest in both sides because we believe in both the digital equation and our physical presence and branches across the U.S. as we’re a nationwide consumer bank. But, the two of those coming together is a very powerful equation for us and a great approach for our clients.
Other than in the past, we have come a long way with our culture, but this is one of client care. We transact with our clients over 600 million times every single month. Our goal is to make sure those interactions happen smoothly. They have the greatest experience, whether they’re walking into our branch or calling us on a phone or using our digital device, critically important to us, and we’re going to talk about how we change the culture, because that helps us in the next point. We are leading the industry and deposit gathering for our clients. Again, deposit gathering is our focus because it tells us that’s the lead client relationship, they’re bringing their relationship here, they’re opening accounts with us. So, we critically watch that component of it and continue to grow that and we’re very efficient at it.
Second is on that same token and you guys mentioned the loan growth, but loan growth is critically important for us as well and we focus on that. We want to grow with all client but we want to do it responsibly. So, you’re going to see us, we are a high quality shop, we’re very efficient at what, and we’ve got great loan growth but again, it is for the upper quadrant. We’re in the prime and super prime segments of the organization in our businesses.
And then last, as Betsy said, yes, we will talk about operating leverage, critically important for us both the top-line and the bottom line. We are focused on both. And again, with $17 billion in cost on the bottom line, my job is to make sure that’s optimally deployed. So, I believe and I still believe, there is enough room in there to both take down cost and to reinvest in our business and get that top-line growth going. So, we’ll cover those five areas and be happy to take any of your at the end of this.
Just to give you a little bit of our profile. We drive about 40% -- 38% of the bank’s net income, this is as of the 2017. We are responsible for 52% of the deposits in the entire bank. Those are our assets on the lower right hand corner, $182 billion in investments, $280 million in loans; that’s our breakout. We have number one positions across the board whether that’s consumer deposit market share. Our digital bank is number one and growing. We have number one online broker out there in Merrill Edge; number two small business lender; number one HELOC originator; number two bank in the retail mortgage origination.
What makes us distinctly different from the other consumer banks when they get up here and present, is that we are focused on our clients but specific client segments. And I’ve got two here. We’ve got many sub segments but we are focused on retail clients and preferred clients, hence the name, but they are distinctly different. 80% of our clients are retail clients and are mass market clients. They drive 85% of the overall transactions that are going to the bank. So, you got to be very fast, very good, very efficient when you handle those clients. Conversely, 25% of our clients are preferred clients, but they hold over 80% of the assets. So, it’s important that we take care of those clients, retain those clients, making sure we are advising those clients on where and how to borrow, how to lend, how to invest, and where to hold their money.
So, two distinct client segments. I won’t talk about through the presentation but everything is designed around these clients. We are organized around these clients. And we are focused on driving and taking care of them with client care.
As you can see that strategy has worked, whether it’s year-over-year or where it’s over the last three years, client satisfaction. Again, just to give you a little bit on that number, when we say 80% client satisfaction, it’s 80% of our clients rating us a 9 or a 10. And that number continues to go up. We are focused on that and we will continue to drive that upwards.
If we do that, clients bring us more their assets. We are now at $1.1 trillion of assets. You can see some of the growth year-over-year, loans growing at over 8%, deposits over 9%, Merrill Edge assets over 22% against a growing asset because we only we have 15% penetration with that asset class. But, it continues to grow for us. And you can see the three-year change, just phenomenal growth and that over 55% growth in those assets and investment assets. That’s driving revenue, close to 9% revenue growth this year, net income growth 14%; net income growth 32% over the last three years. So, tremendous growth across the board whether it’s a one-year or three-year performance.
Our efficiency ratio continues to slow down. We are at 51.5%. That number dip below 50% in the first quarter and I will show you that and show you where that’s going in the future and how we are thinking about that. Credit quality, once we’ve cleaned up the portfolios and our platforms, we’ve got consistent credit quality. Again, we are prime, super-prime shop. So, we expect to focus on that and continue to manage that in the right way.
And then, growth in deposits, as I mentioned, one of our critical focus. We are also the most efficient deposit gatherer out there, 160 bps on cost of deposits. That includes the rate paid. So, we continue to drive that down. So, both, growing and doing it efficiently, using our large network and our digital franchise. And then, return on capital 22% high and growing as well.
Just to take a look at our franchise, again, high-tech and high-touch. So, high-touch side, we’re the number one consumer deposit share. We have a great franchise nationwide, over close to 4,500 financial centers optimally positioned, and we are growing in new markets, Denver, Indianapolis, Minneapolis, Salt Lake City; we are going to cities in Ohio, few cities in Ohio; Pittsburgh is coming out later this year. So, we continue to grow our franchise and our branch and physical presence in those locations and continue to invest in that. And I will show you what we are doing in our financial centers to change the way and the behavior of how we use those centers to drive growth.
We are also the number one digital bank. So, we complement everything we do on the ground with our digital bank. We’re the number one digital bank and continue to invest in that as well, and the two work together, which I am going to show you. And we’ve got Erica came out this morning; that’s our AI capability. We rolled it out two months ago. It’s already over 1 million users.
So, the things we are rolling out and the innovation that’s going on is helping us to grow, whether it’s digital mortgage, digital auto, and you can see some of the investments across the board. I’ll talk a little bit about -- more about those in the presentation.
So, again, just to look at our three-year growth here. Revenues up to $9 billion and growing; efficiency continues to come down as does expense, flat to down and we continue to reinvest some of those savings. Pretax earnings growing over $2.2 billion over the last three years, all the way to $3.6 billion; average deposits up to $674 billion, continuing to grow as is client brokerage assets up to $182 billion and our loans at $280 billion. But just to show you the momentum we have in each asset class and in our earnings and the way we’re operating this business.
So, Betsy mentioned operating leverage. We had 17 quarters of positive operating leverage and we continue to drive this going forward, both the top-line and revenue growth, as I show and the bottom line and expenses. And what’s important about this slide is, while we’re driving operating -- it’s not just all about cost saves. We can do that; we’ve got $17 billion in cost, but during this whole period here over the last several years, we’ve been reinvesting in the business. We’ve got a new deposit platform. We’ve got a new credit card platform. We’ve got a new mortgage platform. We’ve invested in our digital products. Everything that can do physically in our organization, you can do on the digital platform or via phone. 26% of our sales are digital. So, everything going. So, that continues to grow. We want to get that up to 50% and keep driving that forward. But again, that’s from investments, features, functionality and capabilities for our clients.
We enhanced the mobile app with Zelle. We rolled out Merrill Edge, Merrill Edge guided investments, which is our robo advisor, so continue to innovate there. In the bottom line, we added over 8,000 client professionals in our market. We have 67 million clients. We have to have more people on the ground. And we have to have higher and better digital capabilities to reach every single one of them and to build that client experience and make sure they’re connected and have a relationship with Bank of America.
At the same time, we can get more efficient, we can drive it down, but we’ve got to watch client satisfaction. So two numbers we watch at the same time, our efficiency ratio in the first quarter dipped under 50% and we’ll continue to drive that. And at the same time, our client satisfaction has gone the other way. So, the things that we are doing and everything I talked about, the clients like. And we have to watch it every single day. We measure them every single day. And the way we do that is with Bank of America voices. Every single interaction, every single day is measured in this organization. People rate us all the time in client sat, but those are the outside. Look, we know our clients better than anyone. We interact with them 600 million times a month. We have a system that asks for feedback every single day. So, we are looking at our client feedback every day, making changes in technology, making changes in our branches, making changes the way we answer the phone and handle any question or any issue they have and it gets better and better and better. And that’s voices. So, we promise over to the right in our client care program. Every single interaction we’re going to handle with care. You have to have an exceptional experience.
Everyone in my organization gets measured on a client care score, and that’s why it’s going up. There is accountability there which is the main focus. Because if we take care of them, they’ll bring us more their assets, consolidate more their relationship here. You can do business with us locally. Again, we are across nationwide franchise. You can come into any of our financial centers. I’d ask you guys to go in, go look at new look financial centers, but you can do that or you could use your phone and do anything digitally with us. You can bank at your convenience 24/7 and do anything you want on that phone, if you choose to do that phone and that you connect together. That’s our promise to you.
And then last, we offer things. We’re not just doing a single issue capability. All of our things tie together, and we often use something of value. So, if you have a relationship here, whether your personal relationship or small business you get enter into Preferred Rewards which is enhanced rewards, not just in credit card but lower fees or no fees, you can use any ATMs you want across the board for free, you have higher rates. So, if you are in a Preferred Rewards program, you get that value that no one else can bring to the table, both on the business side and on the personal side. And I will show you a few examples of that. How we try to create differentiated value streams with every single -- everything we are doing in all of our investments.
All that, as I said, deposit growth is a key focus of ours because it shows that clients are holding a relationship here, more checkings accounts, more savings accounts, bringing their assets. We’ve grown faster than anyone in the market whether it’s our peer banks, or the regional banks or the smaller banks. So, we’ve got the highest growth. But going back to the first slide, remember, we’ve got the best efficiency as well. So, we are driving deposits faster than anyone and more efficiently bringing them in and all of that goes to the bottom-line. So, it’s not all just about rate paid -- we watch all that stuff but again, it’s building relationships, doing it efficiently, having people taking care of them, they will bring you their assets and that’s our equation for growth and deposits as we go forward. Same thing on the lending side. You’re going to see, in 2015, that’s the year we sort of sold off a lot of portfolio. So, we’ve got moderate growth from ‘15 to ‘16. And then, once the portfolios have been corrected, we start to move forward and we start to grow, and we’ve got good growth across the board whether it’s business, consumer credit card, auto or home loans.
We do that efficiently, we also do it effectively. We are a prime shop, super prime shop. So, you can see our net charge-offs have come down, and it’s growing because of -- overall total is growing because of the modest uptick in basis points up. But, we are controlling our credit quality. Look at the bottom slide. We are at the lowest there at 767 FICO score. So, go check your FICOs. I’m sure you’ll find out what range you operate in but we’re generally 770 and above in terms of all our asset classes and originations. So, we lend. We lend responsibly. We’ve learned a lesson. We don’t do it across the entire portfolio. We find the clients who can borrow responsibly from us and we advise them and we tell them how to lend responsibly with all of our products.
Just to give you an example, when I said we’ve sold off and we’ve changed and we modified our portfolio, credit card, if you went back to 2007, 2008, we were the worst performing credit card and credit portfolio in the market. So, we changed that. We sold off some of our portfolio. We retargeted different types of clients. We focused on the clients we knew. We didn’t do scattershot direct campaigns and things like that that just brought in single credit card only. That might dampen growth a little bit but at the end of the day we get a better quality portfolio, we get a better quality of returns. We are highly efficient. And if you can see where we are now, we are 100 basis points under our peer bank average. So, we’ve gone from worst all the way to first in terms of asset quality and credit quality, and we will maintain that as we go forward. You can look at auto loans. You can look at mortgage and look at yes -- same things, same equation, credit, quality, portfolios, focus on the right clients and the right growth.
Now, switch gears and talk about high-tech, high-touch strategy just to give you a little bit. As I said, in the phone, if you pulled out your phone, your volume going through here whether -- we advise transact, pay, borrow, invest, this to us is worth, 1,300 financial centers in the old bank. It’s gone -- the volume going through here is that high. So, we don’t need as many financial centers as we had before, hence it’s coming down. But for every financial center, we do have -- we’re improving, we’re reinvesting in it, we’re adding individuals, we have 40% -- every time we renovate or open a new center, we have 40% more people in that center, client professionals than we had before. So, sales power goes up. So, it’s not so important to have out of thousand or hundreds or thousands of these across the nation, it is important to have the right ones in the right locations with the right people connected to the digital device. And you can see on top, 1.5 million digital appointments. That is somebody going on here, using this, then saying, look I need some advice here. And then setting up an appointment in the local financial center and getting advice. So, the volume going through here, we’re taking care of it fast and efficiently and costs are coming down, but at the same time, it’s driving both sales, 26% of our sales going through there, and sales in the financial center, because we’re driving traffic into the financial centers, high quality traffic in the way of appointments.
I won’t spend too much time on this. But if you look, everyone asks me, what’s the role of the financial center today? And it’s distinctly different than it ever has been in the past. In the past, we had to move from having a financial center that people had to go to, to do a transaction, to an area or to a center that people want to go to, to get great advice. That’s the transformation we have to make across the industry. Hence, we’ve added more client professionals. We’ve added financial solutions advisors who advise you on your investment portfolio. We’ve added small business bankers to advice our small business clients. We’ve added loan officers to advise on any type of loan, home, auto, home equity. And then, we’ve got relationship managers that advise on general banking. We’ve also got digital ambassadors, 3,500 digital ambassadors that are there to help clients get on our digital applications and be able to use them. It could be older clients, it could be new clients, it could be students, but that’s a particular advice for us as the more volume that goes to there, the better off we are and more efficient we are.
What you’ll notice on these pictures, there is no teller line. We didn’t call them tellers anymore. We call them customer service reps. So, there is no more -- the space is not wasted. We have client space, we have office space, we have more client professionals to service client who is around the corner. We’ll still do that, but it can’t be the main feature of the bank as 90% of what goes on, in the teller line, in the past can be handled with an ATM. So, we have automated devices to handle that. And we have our people spend more time with clients, developing the relationship and deepening the relationship as we go. And then, it has all the latest and greatest technologies. People walk in, they have iPads, they can tell who you are, they know who you are, they are prepared for you, they can take better care of you. If you set up an appointment, they have everything ready for you. So, they don’t have to scramble to get that up. And they’re interacting with you and they’re advising you on whatever you want. If you came in for a home loan, that’s great. We’ll take care of that, but we can also take care of your investment business, set yourself up for time, talk about your kids’ education, setting up 529 plans. So, you can do everything in a financial center; it’s right there for you. By the way, if you want to do it on your own, you could do it with your digital advice and you can mix and match between the two.
Talking about digital, just to go through some of the stuff we’ve rolled out in the last 18 months, cardless ATMs, advanced centers without people, just showing our innovation and our constant investment in this business. Merrill Edge Guided Investing, which is the robo advisor, digital budget and spending, you know about Zelle. in terms of fintechs, I always get this question. But everything that you’re hearing out there, we’ve got digital business loans, digital auto loans, digital mortgage loans. The difference with us and with anyone else, the fintech out there is we know your relationship. We have all your assets; we know all the information about you. We don’t need to ask for all that. So, what we’ve done is, yes, we have a great front-end we can get into but we don’t have to ask you for all that paper information, your accounts, we have it right there, we can package it for you and give it to you and have it approved in not alone case in a minute or less. Digital goal setting and Business Advantage Rewards I talked about. That’s the 18 month. Going forward, we’ve got an equal amount in our plate coming out. Erica, I talked about, our digital virtual assistant is out there, already has 1 million users in two months. Digital shopping, you can drop applications in a shopping cart, save it for later; if you want to open an account later, you can save everything you are doing. Digital wallet integration, so Apple Pay, Google Pay, Samsung Pay, Android Pay, all those. And you get a new credit card. Before you get the plastic, we can set you up in all your payment mechanisms and have you operate from day one versus waiting all the way through.
Digital account advantage; I’ll skip a couple of these; mobile, client on board, again just improving digital interface, digital bank, digital awards dashboard shows all the rewards and all the savings you get from our organization, better integration between our Bank of America and Merrill Lynch application. So, you can move seamlessly back and forth. You can do that. But, we’re adding features to it today; Business Advantage 360. Everything you can want as a business at your fingertips as a business owner. You’ve got to be the chief marketer or chief HR person, chief finance person. So, this allows you digitally to do all that within one application. And then digital wealth management which is basically automating everything we do on the wealth management side.
Now, that’s a lot of stuff that’s coming out. And I agree, but our goal is to have it in one app. Everything I showed you is available in this phone. So, it’s a one app, you can do everything, client borrowing, investing, savings, transacting, you’ve got it all right here, fully integrated with the best information and you’ve got a digital assistant on there to help you navigate whatever you can find when you are going through different pages. You can just ask her to go find you the most relevant information and it’ll come back. I asked myself last night how much did I spend on Barneys in the last six months, it pulled from three different credit cards, pulled from my checking account, what I paid off and showed me all the transactions in one spot of what I paid at Barneys in three months, six months and a year. So, we can do those kind of things that you wouldn’t normally get in a digital environment. So, one app strategy is critically important for us.
And then, you can see some of the growth, active digital users up to 35.5 million, great growth in payments, Zelle, 28.6 [million] in payments. We are already twice the size of Venmo, Zelle in total. And then we’re at 25% of Zelle out of 100 banks. We are 25% of the volume of Zelle. So, we are driving it forward and the driver behind that but working with all the other banks to move that forward.
Mobile channel usage, 1.3 billion transactions going through that a quarter. You can see mobile deposits, 24%, ATM of 50%. Only 25% of our deposits are happening over the counter. That’s costly to us. So, we expect that to go down, either through a phone or through the ATM in the future, and again additional cost saves for us, digital sales I talked about that up 26%.
Just to show you the leverage we have with 67 million clients. We put things out there like Merrill Edge. We innovate for our clients and then we drive volume and usage. So, you could see $63 billion when we started, we’re 182 now and going north. We’ve added features and functionalities. But, look at the acceleration over the last couple of years, that growth is just demonstrably going up in a multiplier effect and it keeps going. So, we expect this to keep going. But, if you think about, we can innovate, put things out there and then get great growth.
Same thing with our digital and mobile app, started 77 million logins, now we have over 500 million. A lot of that’s coming in the last couple of years as we enhanced the features and functionalities. And again, we’ve shorten that time to frame and speed. This is critically important. Now with Zelle, we’ve launched it two months later, 1 million -- I mean, excuse me, Erica. Zelle, 10 months ago, we were already close to two times of volume that’s going through there, same thing for Merrill Edge guided investment, almost 3.5 times of volume in 12 months. And then, weekly mortgage volume through our digital app. 13% of all mortgage apps are going through this organization digitally and that’s up over 3 times in 2 months time period. So, it’s just the incredible operating leverage that we have. When we roll things out, we can get immediate buying and usage with our clients.
Same thing with Denver, I mean we can do it on the physical sense too. We could roll out the Denver, this is just one city. And then a couple of years later we’ve got $2 billion in deposits from that one city that we rolled out all of our branches and ATM Locations.
I’m trying to finish fast here, so we have some time left for questions. So, that takes me back to where we started. We’ve got a powerful industry-leading organization. We can talk more about that. High-tech, high-touch approach, especially in this environment critically important to us. Culture of care with our clients, we’ve got to take care of them. Great deposit growth, solid loan growth, staying up to prime and super-prime space. And then again that focus on operating leverage.
With that, I’ll stop, Betsy, and we can do some questions.
Q - Betsy Graseck
Thank you so much, Dean for very enlightening presentation. So, the group basically has two key drivers that we’re looking for, one is loan growth; one is expense management operating leverage. I think, you hit on both of those, but maybe we can just dig in a little bit more on loan growth. And you said a couple of times, look, we’re going to stay our credit box. Question one is, do you feel like you’re maxing out your loan growth that you’re capable of within the credit box you have today and therefore is there a need to maybe widen a little bit to accelerate growth? Any color on that?
Yes. The way we look at our 67 million clients is the way we measure penetration, which ones are credit qualified. And so, we look at every single asset class. So, in credit card, we’ve got a high penetration of credit qualified. So, that’s up around 57%. So we’ve had great room to grow; we’ve got 45% more to grow there. We’ve got mortgage and HELOC. We’re at about 30% penetration. So, we’ve got room to grow there. Auto loans, same thing; we’re up around 30%. So, we can grow in that asset class as well, but targeting the right clients. So, we think everyone kind of says, they look at us, like do you have to go outside. But when we’re dealing with one in every two households, and we know those households and we understand how they operate and they can borrow from us, it’s easy for us every single place they come in, whether it’s a financial center or whether it’s digital, we’re interacting with them and we’re asking them about their home loan or their auto loan or what their needs are. So, for us, it’s just a repetitive process that we can do. And we’ve done the hard part; we’ve got all the clients. And there is room to grow in every single asset class.
Okay. Where do you feel that the opportunity set is the biggest?
Depending on how you are asking the question, in terms of client assets, we’re going to get steady loan growth, we’re going to get steady deposit growth along the lines of sort of -- in the range that I showed. And it’s easy to see the investment is for us is the biggest -- that will grow at double digits for the foreseeable future. We just have that many clients that feed that investment class, that asset class, and we have the lowest penetration of 15%. So, that’s coming on as fast as we can, as fast as we can get people trained up in our financial centers, and as fast as we can move forward in the digital space adding features and capabilities. That’s got a huge runway for us in terms of growth.
And just when you are talking about loan growth, do you see the biggest bang for your buck coming out of digital or is it really that direct, either via call center or chat bot or just good old fashioned Q&A in the branch?
I think, it works in a -- we have more interactions in the digital way. So, we are getting at clients more in digital in terms of -- because it’s such a big number of clients, asking them what they need and what their financial needs are. And whether they follow that through digitally, they can do that, and we have connection to them, or it becomes a referral to our financial centers. That is a huge source of growth for us. But where it gets delivered? it can get delivered in either place, and I expect the digital side to grow but our physical side, our financial centers really, really strong growth on the loan side because people like to sit down when they’re at -- except for credit cards, they like to sit down and interact, whether it’s a business loan or a mortgage loan or a home equity or auto loan, it’s sort of in the financial centers talking about this.
And just reflect on card a little. We have a lot of folks from card coming over the next two days. Are you still doing snail mail?
We do -- we’ve limited snail mail -- we used to do a lot of that but I mean it’s probably at one-tenth of volume it was. But, we only do snail mail for specific clients that we know are not digitally active, let’s put it that way. Our own clients that are not digitally active and they’re still using the mail, that’s who it sort of goes out to.
Okay. Just leaning a little bit into credit, because I know we didn’t discuss credit in…
By the way that’s hugely costly, by the way. So, I don’t know who comes through there. But it’s like 1% hit rate on average in the industry and it’s hugely costly. So, we can ask those questions. We’re trying to run our shop very efficiently in that...
Right. I think with 67 million clients you must have a lot of AI on what they’re doing and how they’re acting, operating, so I would think that you’re efficiency ratios might be a little bit better. And you are targeting of snail mail?
It is -- I am going to say on average with what other folks do.
Can we talk a little bit about credit before we dig into the expense side, just give us your sense as to what you are seeing, thinking, hearing, has taxes helped at all? And is there room to get more leverage out of the consumer or not?
Yes. I think it’s a -- consumers are definitely spending, obviously. And the biggest issue with any, if you have loan losses, it will be jobs, right? Because that’s when things sort of turn. So, people and clients are definitely levering up. And we have to watch that. We have that watch layering. Because it’s not so much if I lend to them and then if four of the lenders come behind and lend to them as well, then you have a credit profile that may not be optimal for that client, they may not be able to do it. So, I see right now, they have a pretty good level. There is no -- I’m not seeing any issues in terms of quality. It is ticking up a little bit because people are relevering out there. So, you see that just naturally tick up a little higher. And we just have -- we just watch diligently, not only on our own lending, but we watch our clients and what they’re borrowing from others, if they are, and making sure that the next time we go to talk to them we’re looking at the entire profile.
Right, because you can see your clients’ behavior every month. Right? I don’t know how often you’re checking.
Yes. And if they go for a credit increase, but they’ve increased -- they’ve asked four other people for credit increase and that type of -- we just have to watch that and make sure that we do that responsibly and they do that responsibly too.
And you’ve been -- or kind of putting your card offering together in a way that trying to get your cards the top of wallet. Maybe you could speak a little bit to how successful that has been? I’m talking specifically about the deposit tie-ins clients that you’ve got with your cards?
Yes. I mean, we tie in everything, I mentioned Preferred Rewards. But to get to Preferred Rewards, you need a checking account. And then, any other product that you open up in Preferred Rewards, you get a discount on. So, it’s Betsy, saying, if you open up a credit card and you’re at the Gold -- it’s Gold, Platinum and Platinum Honors. But if you are at the Gold level, you getting a 25% bonus. Next level up is a 50% bonus on any rewards on that card, that was a standalone you’re getting reward bonuses, up to 75%. So, you -- what we’re saying is like, do your business here, use our card at the top of your wallet, you will get enhanced rewards, not just card but it’s Merrill Edge, you get free transactions; savings, you get higher rates. Hopefully, I’m selling a lot of to you guys. But savings, you get higher rates; in mortgage, you get discount and you get discount on your rates and loans. So, what we’re saying to the client, look, do business with us, hold your relationship here, bring your assets here, the more assets you hold with us, the more you’re going to get in return rewards. We think that’s a better equation than just going out with a single credit card and saying here you go, here is your -- because then it’s just like everyone else. So, we want to differentiate ourselves and have a differentiated offering, and that’s our way to do it.
So that sounds like it might cost you a little bit on giving extra bonuses et cetera?
Yes. It costs a little bit but we make it up; we’ve measured this. We make it up. We give a little bit more on rewards on a credit card, but we make it up on the net interest side and deposits and deposit growth, and that’s one of the reasons we’re growing. But, remember, we’re growing with core checking accounts and core checking deposits which are the most valuable to us. So, it’s a great trade off. And the reason others can’t do it, they’re just not organized the way we are because you have to make a sacrifice in credit cards to grow deposits and have a better shareholder value equation overall. And we are able to make that trade off as we’re organized around the client, not in these individual silos or product groups.
Got it. So, I’m going to open it up to questions, if folks have any in the room. Otherwise, I’ll keep going. Okay, one in the front. There is one. You have to kind of -- right up here. Thank you.
Thank you. I’ve got a couple of questions about the branch network. Firstly, over the last five years or so, roughly how much has branch football fallen?
I think if you went back depending, we’re at 6,200 or something like that, financial centers. And now we’re below just below 4,500.
Sorry. I meant in terms of like people coming through the branch per day. How much has that fallen?
You know what, I measured a little bit. We’re at about 1 million users every day, just under that. But, I’d say it’s fallen. But the good part about that is there is good volume and there’s not so good volume. So, the good volume people go in to get advice and go into what we call the platform; that’s up like 70% and overall volume might be down 25% from, if you went back, depending on how far you go back. So, we measure in two different ways. And by the way, that 25% going down is not bad for us, it’s a great cost save equation because we are able to consolidate branches, we are able to reduce CSRs, what we call them, the service reps or tellers, and we reinvest that back in digital. But cost of going through a digital deposit is like one-tenth of cost of doing on your phone. So, we -- down volume in that sense is a good portion for us.
You said the check, you said like advice space is up 70% over the last five years and so volume is down 24%.
So, the other question was, you are talking about how you’re transforming these financial centers, how far through that transformation process are you?
Well, I gave a press release a little while back. We are going to open 500 new centers in those new markets. We are going look like what we’re offering here. And then we’ll renovate another 1,500 over the next three years as well. So, we are just methodical about it. We are going from the top and go all the way down, we’ve done 600 and we’ll just kind of redo those as we go as part of our investment and continual investment in the financial centers.
How much does it cost to renovate one branch and how quickly do you kind of earn that back?
I am sorry, what?
How much does it cost to renovate one branch, to change into this new look financial center?
We don’t generally give out those numbers, but they are -- when we downsize, we have more than enough when we are downsizing and changing things. We have a more enough cost to cover it. It’s a capital charge and amortize it over three years. So, it’s not anything that’s going to stick out or bump up in our investment. So, we cover on the expense base. It’s just a normal sort of process for us at this point.
Maybe you could layer on that, just the expense ratio outlook. I know you are not going to give guidance, but you brought down 650 basis points, your expense ratio in your business over the last four years or so, five years. I get into a lot of debate with people, can you persistently move below 50, can you?
Yes. We will stay below 50, I would say flat to down is what I would tell you. And I would say, like, remember, $17 billion costs, as I said. Our job is to optimally deploy. We still have a lot of paper to take out and it’s not the normal like people -- I do this or I do that or downsize financials. That’s not getting -- it’s taking out paper, paper statements, paper checks, paper processing and all that paper causes moving cash around the system. That’s rapidly coming down, and we’re taking that to the bottom, some of that; and some of that we are using to reinvest back in the business to do more of it and over and over again. And so, until all the papers out, we have more than enough in our expense to continue.
I think there was one comment, I don’t know how long it was, but maybe a year or so ago, $5 billion cost to move cash and checks. Is that still in your run rate or do you feel like that’s come down?
That’s come down a little bit. But that is every day with the Zelle volume going as high as it is, that’s all cash coming out. We are hoping a lot of merchants are accepting more than just cash and checks. So, that is rapidly happening. So that number is coming down. But, it takes a lot to go to 5 billion. So, we will be working at it, but it’s constantly and consistently coming down.
And on the branch expansion, you mentioned 500 new branches in new markets. Could you give us a sense of how many new markets that is? And also, how do you think about how you measure the success of those branches? Is it kind of the traditional deposit volume over a certain period of time? What and how many years to break even and that kind of thing?
So, first, I may get them all because nine new markets coming Denver, Minneapolis, Indianapolis, Pittsburgh, Cincinnati, Columbus, Cleveland, Salt Lake City. I may get them all here and there is one more. So, I get eight out of nine. So, lee can get you the rest. But, there is one more out there, I think, -- oh, Louisville, Kentucky, there we go, 9. I hit it. So those -- but then in other markets like Queens and the Bronx, here we’re adding centers too. So, there is great opportunity in some of the markets we are already in across the country. And we look for those to break even anywhere from depending on the size because some are bigger than others, depending the space, two to four years, which is much better than industry and we look at deposits growth to get there. But, loan growth and investment growth on top of that accelerate the profitability obviously. And that comes in the door at the same time. So, we’ve got it perfected, pretty good; find a location. We’ve got we’ve lead with digital. We’ve had a great digital experience, you saw before. Anything happens, we’re out there. We already have clients in that market. We leverage Merrill Lynch, leverage U.S. Trust, we leverage commercial. So, right when we go in, the clock starts and the team is working to bring in clients and growing assets.
And you’re looking for there for pretty dense position in these new markets in these markets, I mean that’s 500 markets line -- 500 branches line, markets; that’s pretty dense.
Yes. There are 30 markets in the U.S. account. They drive 85% of the GDP. I think, we have 11 or 12 top positions and 30 that’s the tops out of any one. And then, we’re 1, 2 and 3 in all the markets we have been. And these are the ones that are on our radar. We just never had a physical presence here. So, Denver, I showed that slide; I went through that really quick as the shot clock was going down. But we’re already number seven market share in that market. And we haven’t been there that long. We haven’t had the many locations there for that long, but we keep building. And our job is to get in top three.
Great. Thanks so much, Dean.
All right. Thank you.
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