While Bank of America Corp. (BAC, Financial) impresses with its digital strides, such as the success of Erica and Zelle, Wells Fargo & Co. (WFC, Financial) emphasizes credit quality and innovation, drawing attention with a million new app users and its Fargo artificial intelligence assistant.
Both banks remain robust in their financial footing, with Wells Fargo's promising financial outlook for 2023 being a testament.
Bank of America: Organic growth and digital prowess
Bank of America's (BAC, Financial) ability to drive organic growth is key to its success. In the consumer banking sector, the bank opened 157,000 net new checking accounts in the second quarter, reflecting a consistent positive net new checking account growth for 18 consecutive quarters. These core primary checking accounts contribute significantly to the bank's deposit franchise.
Over the last three years, the bank has expanded its core customer base, increasing the number of consumer checking account customers from 33 million to 36 million. The bank also opened over 1 million new credit card accounts in the second quarter and experienced a 10% growth in investment accounts compared to the previous year.
The consumer investment business at Bank of America reached a new high of $387 billion, driven by a 30% increase in newly funded consumer investment accounts year over year. It signifies the bank's success in channeling customer funds into the market, showcasing its capacity to offer customers various financial products and services.
In the Global Wealth segment, the bank added 12,000 net new relationships in Merrill and the Private Bank. Advisors also established over 36,000 new banking relationships, highlighting the strong relationship model that combines investment and banking services for clients. Moreover, the company has strategically increased its digital capabilities, adding 190 experienced advisors to its salesforce during the second quarter.
Finally, in Global Banking, Bank of America has added clients and increased the number of solutions offered to each client. Over the past three years, the bank has expanded its relationship managers and client-facing headcount by nearly 10%, demonstrating its focus on delivering personalized services.
Favorably, the bank's emphasis on technology investments has improved tools for prospective colleagues, enhancing its ability to attract customers and offer tailored solutions to existing clients. Year to date, Bank of America has added over 1,000 new commercial and business banking clients across the U.S., matching the total number added in 2022.
Source: Second-quarter presentation
Continued expansion into new markets
Bank of America has been strategically expanding into new markets, introducing 310 new financial centers since 2019. This expansion is part of the bank's plan to open 50 centers each year. These new markets, like Pittsburgh, Cleveland, Indianapolis and Salt Lake City, have been particularly successful, and the bank is in the early stages of realizing the growth potential in these regions. The bank's combination of digital capabilities and a physical presence has been instrumental in attracting new clients and delivering a consistent customer experience.
These financial centers provide clients with convenient access to banking services, combining the benefits of technology and personal interactions. It is an approach that recognizes the importance of physical presence in a digital age. Bank of America's plan to open 50 new centers each year indicates its focus on continued expansion.
Erica's 1.5 billion interactions, Zelle's surge and the rise of seamless global banking
Bank of America has made significant strides in digital banking, central to its operational dynamics and the customer experience. The bank's digital platform boasts 46 million active users who log in over 1 billion monthly times.
One notable application of AI is Erica, which utilizes natural language processing. Interactions with Erica have increased by 35% in just one year, crossing over 1.5 billion client interactions in the first five years of its introduction. On the other hand, the use of Zelle, a peer-to-peer payment service, has also continued to grow, with a 19% increase in the number of users in the past year.
Notably, Bank of America's digital platform facilitates a great customer experience, leading to strong customer retention and high satisfaction scores. Furthermore, it positions the company as a leading transactional bank for consumers, businesses and investors. This digital superiority also helps maintain a strong deposit balance at a competitive price, contributing to the bank's core nature of transactional deposits.
The application of digital technology is not limited to the consumer segment; it extends to wealth management as well. Merrill and the Private Bank, serving the most digitally engaged clients, have seen an adoption rate of 82%, with 78% of clients embracing digital delivery as a tool for more convenient services.
Further, Bank of America has introduced a program called Advisor Match, generating 20,000 digital leads for 7,000 advisors. The program matches clients with their preferred advisors, enhancing the bank's customer-centric approach.
In global banking, corporate treasury teams and clients appreciate the ease of digitally doing business with Bank of America. CashPro App sign-ins are up nearly 60% from the previous year, and the value of payments through the CashPro App has increased by 20%. This demonstrates the bank's commitment to delivering efficient digital solutions across all lines of business.
Finally, Bank of America's impressive streak of operating leverage continued in the second quarter, marking eight consecutive quarters. Operating leverage results from growing revenue at a better rate than expenses.
Source: Second-quarter presentation material
Wells Fargo: A focus on credit quality and customer-centric innovation
Wells Fargo's (WFC, Financial) commitment to strong credit quality and effective risk management is a cornerstone of its operations. The bank's financial strength is underscored by its ability to maintain robust credit quality even during challenging economic periods. Despite experiencing an increase in net charge-offs from historical lows, the bank's overall credit quality remains solid. Wells Fargo's management is proactive in addressing potential credit losses.
For instance, in the second quarter, Wells Fargo increased its allowance for credit losses by $949 million. This increase was primarily driven by two key factors: the office portfolio and the growth in the credit card portfolio. While there have been no significant losses in the office portfolio, the bank's comprehensive, loan-by-loan review has provided valuable insights into the potential trajectory of credit quality over the coming quarters. The detailed approach demonstrates the bank's dedication to understanding and mitigating risks at a granular level.
It is important to note that assessing credit risk is not as simple as relying on a single statistic. Instead, it requires a multifaceted evaluation, taking into account various factors, including property type, location, lease rates, lease renewal notice dates, loan structure and borrower behavior. Fundamentally, by acknowledging the complexity of credit risk, Wells Fargo's risk management teams are better equipped to make informed decisions, ensuring the bank is prepared for future challenges.
Further, Wells Fargo's Commercial Real Estate teams are focused on collaborating with clients to monitor portfolios and reduce potential loss of content actively. This proactive approach safeguards the bank's assets and maintains a healthy relationship with clients, an essential aspect of banking in the long term.
Finally, Wells Fargo's focus on maintaining high asset quality extends beyond risk management. The bank's detailed evaluation of its assets provides insights into the sustainability and profitability of its loan portfolio. In the commercial real estate portfolio context, Wells Fargo has undertaken a thorough review. While some areas, such as California, are experiencing challenging conditions, the bank's approach considers specific property characteristics and the borrower's financial health. As a result, it manages the CRE portfolio with a focus on solutions rather than a one-size-fits-all approach.
Source: Second-quarter financial results
1 Million new app users and the rise of AI assistant Fargo
Wells Fargo's focus on customer service includes risk management and credit quality. The bank continually enhances its services and embraces innovative technology to improve customer experiences. The increasing adoption of the Wells Fargo mobile app clearly indicates the bank's success in this regard.
Over the past year, Wells Fargo has welcomed over 1 million new mobile active customers, reflecting customers' preference for the bank's digital solutions. Additionally, a 9% year-over-year increase in mobile logins signifies the sustained growth in digital customer engagement.
A standout example of Wells Fargo's customer-centric approach is the introduction of Fargo, an AI-powered virtual assistant on its mobile app for consumer customers. Since its launch in April, customers have interacted with Fargo over 4 million times.
Poised for growth
Wells Fargo's capital position is a key strength that allows the bank to pursue its strategic objectives. With a Common Equity Tier 1 (CET1) capital ratio of 10.7%, the company has ample capital to withstand economic shocks and invest in growth opportunities.
This strength is particularly significant in the context of the asset cap, as the bank's balance sheet can support growth without significantly expanding its exposure. By continuing to invest in strategic areas like wealth management and investment banking, Wells Fargo may capture market opportunities and drive growth.
Finally, Wells Fargo's strong fundamentals also manifest in its net interest income. The bank has guided for a 14% increase in NII in 2023, reflecting its positive outlook. While the growth of NII may be influenced by various factors, including loan growth, deposit pricing and macroeconomic conditions, the bank remains optimistic about growth potential.
Source: 2Q23 Financial Results
Takeaway
In a rapidly evolving financial environment, Bank of America and Wells Fargo have demonstrated significant agility, strength and forward thinking in their strategic approaches. In essence, both banks have shown adaptive strategies and a commitment to leveraging technology, demonstrating their readiness to meet the dynamic needs of the 21st-century customer. Their achievements and plans blend traditional banking strengths with digital innovations, promising continued growth and enhanced customer experiences in the coming years.
