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Wells Fargo & Co (NYSE:WFC)

Q4 2013 Earnings Call

January 14, 2014, 10:00 am ET

Executives

Jim Rowe - Director of Wells Fargo Investor Relations

John Stumpf - Chairman of the Board, President, Chief Executive Officer

Tim Sloan - Chief Financial Officer, Senior Executive Vice President

Analysts

Matt O'Connor - Deutsche Bank

John McDonald - Sanford Bernstein

Erika Najarian - Bank of America

Joe Morford - RBC Capital Markets

Paul Miller - FBR Capital Markets

Moshe Orenbuch - Credit Suisse

Mike Mayo - CLSA

Ken Usdin - Jefferies

Chris Mutascio - KBW

Marty Mosby - Guggenheim Partners

Keith Murray - ISI

Operator

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wells Fargo Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Jim Rowe, Director of Investor Relations. Mr. Rowe, you may begin your conference.

Jim Rowe

Thank you, Regina, and good morning, everyone. Thank you for joining our call today during which our Chairman and CEO, John Stumpf and CFO, Tim Sloan will discuss fourth quarter results and answer your questions.

Before we get started, I would like to remind you that our fourth quarter earnings release and quarterly supplement are available on our website at wellsfargo.com. I would also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties.

Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings including the Form 8-K filed today containing our earnings release and quarterly supplement.

Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures can also be found in our SEC filings, in the earnings release and in the quarterly supplement available on our website.

I will now turn the call over to our Chairman and CEO, John Stumpf.

John Stumpf

Thank you, Jim. Happy New Year and thanks everyone for joining us today. 2013 was an outstanding year for Wells Fargo. We generated record earnings, grew loans and deposits, had significant improvement in credit quality and rewarded our shareholders by increasing our dividend and buying back more shares.

We finished the year with a record $1 in earnings per share for the fourth quarter, our 16th consecutive quarter of earnings per share growth, clearly demonstrating the benefit of our diversified business model and our success in meeting our customers' financial needs.

Let me share some of our accomplishments during this past year. We generated earnings of $21.9 billion and earnings per share of $3.89, both up 16% from a year ago. Our core loan portfolio grew by $39.8 billion, almost $40 billion, up 6%. Our credit performance continue to be very strong with total net charge-offs down $4.5 billion, or 50% from just a year ago. Our outstanding deposit franchise continued to generate strong deposit growth, with total deposits up $76.3 billion or 8%.

By focusing on meeting our customers' financial needs, we achieved record cross-sell across the company, with retail banking cross-sell growing to 6.16 products per household, wholesale banking increasing to 7.1 products and wealth, brokerage and retirement cross-sell achieving 10.42 products.

We also had very strong returns this year by growing ROA by 10 basis points to 1.151% and return on equity by 92 basis points to 13.87%. We continue to generate strong capital growth with our estimated common equity Tier 1 ratio under Basel III increasing to 9.78%. This was a great year for our shareholders. Our stock price increased 33%. We returned $11.4 billion in capital to our shareholders through our higher common stock dividend and more share repurchases in 2013, up 33% from 2012. In our recent CCAR submission, we requested even more capital to be returned to our shareholders.

As we start the new year, I am excited about the opportunities ahead for our country, for our customers and for Wells Fargo. The unemployment rate has declined, GDP growth accelerated and consumer confidence is near a five-year high. While we don't expect the same rate of home price appreciation we had last year, we do expect the housing market to continue to recover which will benefit the U.S. economy and despite the rise in home prices and interest rates over the past year, housing is still very affordable. During the year ahead, we will continue to build on our commitment to our customers and to our shareholders and invest in our businesses to generate growth for decades to come. I am proud of all that our team members accomplished this past year. Our earnings power and capital strength have never been stronger. We believe we are well-positioned for 2014 and we are optimistic about the many opportunities ahead for continued growth.

Tim Sloan, our Chief Financial Officer, will now provide more details on our fourth quarter and full year results. Tim?

Tim Sloan

Thanks, John, and good morning, everyone. MY comments will follow the presentation included in the quarterly supplement starting on page two and then John and I will answer your questions.

For the fourth quarter, Wells Fargo earned a record $5.6 billion and $1 in earnings per share, both up 10% from a year ago. These strong results were broad-based with higher net interest income, fee growth across many of our businesses, lower expenses and improved credit quality. We have now achieved 16 consecutive quarters of EPS growth and 11 consecutive quarters of record earnings per share. Our ability to grow over such a long period of time reflects the benefit of our diversified model.

On slide three, you can see the strong growth in 2013 that John just highlighted, including a 16% increase in full-year net income and earnings per share.

Slide four illustrates our revenue diversification. We do not rely on any one business to generate growth. The power of our model and the benefit of our diversification were demonstrated in our 2013 results. As interest rates rose during the year, mortgage refi volume naturally waned as expected. As a result, revenue we earned in 2013 for mortgage originations declined $3.4 billion from 2012. However over the same period, we had double-digit fee growth in brokerage, investment banking, cards and mortgage servicing. This diversification enabled us to generate double-digit earnings and earnings per share growth.

Let me start by highlighting some key drivers of our fourth quarter results from a balance sheet and income statement perspective, starting on page five. Our balance sheet has never been stronger. We increased our earning assets by 5% by growing loans, purchasing securities, an increase in short-term investments as deposit growth remained robust. We continued to increase our capital levels even as we returned $3 billion in capital to our shareholders including reducing common shares outstanding by 16.6 million shares in the fourth quarter. The improving economy and high quality loan originations continue to result in improved credit quality with net charge-offs declining to 47 basis points.

Turning to the income statement on page six. Revenue increased in the fourth quarter as we grew both net interest income and noninterest income. Net Interest income increased while our net interest margin declined 12 basis points. Our ability to grow noninterest income even as mortgage origination volume declined reflects the benefit of our diversified business model. On a linked quarter basis, we had strong fee growth in retail brokerage, trust and investment management, investment banking, card, commercial real estate brokerage, mortgage servicing and insurance.

Our efficiency ratio improved as expected. Our expenses declined driven by lower personnel costs which were partially offset by seasonally higher fourth quarter expenses for equipment and professional services as we continue to invest in our businesses and addressed evolving compliance and regulatory standards.

Let me now cover our business drivers in more detail. As shown on Page 7, we had strong loan growth, with period end loans up $26.2 billion or 3% from a year ago and up $13.5 billion from the third quarter or 7% annualized, with broad-based growth across almost all of our portfolios.

Our liquidating portfolio continued to decline and is now less than 10% of total loans. This is down from 22% at the time of the merger five years ago as we have reduced the size of this portfolio by $110 billion. Excluding our liquidating portfolio, our core portfolio grew by $39.8 billion, or 6% from a year ago and was up $16.7 billion from the third quarter.

We have grown our loans on a year-over-year basis for 10 consecutive quarters, and for the past seven quarters year-over-year growth has been at least 3%, despite run-off from our liquidating portfolio.

On slide eight, we highlight how broad-based our loan growth was in the fourth quarter. Compared with the fourth quarter of 2012, foreign loans grew $9.9 billion or 26% and included growth in trade finance and a UK CRE acquisition we completed in the third quarter. C&I loans were up $9.4 billion or 5% as we successfully grew loans in asset-backed finance, government banking and corporate banking.

Real estate 1-4 family first mortgage loans grew $8.6 billion, or 3%, even with the run-off from our liquidating portfolio and included growth in high quality non-conforming mortgages.

Auto loans were up $4.8 billion or 10%, reflecting record originations in 2013. Credit card balances were up $2.2 billion, or 9% with strong new account growth.

We generated strong deposit growth throughout the year and growth actually accelerated in the fourth quarter with average deposits growing $34.8 billion or 13% annualized from the third quarter. This growth was diversified across our businesses with strong consumer and commercial growth, while we continue to reduce our deposit costs, which were down five basis points from a year ago to 11 basis points.

Demonstrating the strength of our deposit franchise, we have successfully grown deposits while reducing our deposit costs for 13 consecutive quarters. We also successfully grew primary consumer checking customers in the fourth quarter, which were up a net 4.7% from a year ago, an increase from 3.9% last quarter.

As shown on page 10, we grew tax equivalent net interest income from a year ago and from the third quarter. In fact, our NII this quarter was the highest it's been in five quarters. Average earning assets grew $58.3 billion from the third quarter, up 5% reflecting increases in short-term investments, loans and investment securities.

Our ability to grow net interest income on both, the linked quarter and year-over-year basis, while our NIM declined is why we don't manage to the net interest margin but instead focus on growing net interest income.

Our NIM declined by 12 basis points from the third quarter to 3.26%. This decline was driven by two primary factors. First, our continued strong customer-driven deposit growth, which has little impact on net interest income, but is dilutive to the NIM, reduced the margin by six basis points.

The liquidity-related actions we took in the third and fourth quarter in response to increased regulatory liquidity expectations reduced the margin by six basis points. Balance sheet re-pricing and growth and variable income did not impact the NIM in the fourth quarter.

While the factors that reduced the net interest margin in the fourth quarter were largely P&L-neutral. We expect they will continue to impact the NIM in the near-term. Non-interest income increased $132 million from the third quarter with lower mortgage origination revenue offset by stronger trust and investment fees and higher mortgage servicing revenue. While mortgage banking revenue was down $1.5 billion from the fourth quarter of 2012, we had strong momentum across a number of our other businesses.

Let me highlight some of the year-over-year increases we had in non-interest income. Trust and investment fees were up $259 million with strong growth in brokerage asset-based fees, growth in our trust and investment business and higher Investment Banking fees. These businesses now account for 36% of our noninterest income, up from 28% a year ago.

Card fees were up $91 million benefiting from strong account growth and increased usage in both our credit and debit card businesses. Insurance was up $58 million from improved results in our crop insurance business. Deposit service charges were up $33 million from a year ago benefiting from strong account growth and increased treasury management services to our commercial customers.

As expected, our mortgage origination volume declined this quarter as highlighted on Page 12. We originated $50 billion of mortgages in the fourth quarter, down 38% from $80 billion in the third quarter. Refis declined 32% of origination volume and purchases increased to 68%, a significant mix shift from a year ago and we filed for 65% volume and purchases were only 35%. Our unclosed pipeline declined to $25 billion at the end of the quarter down 29% from the third quarter.

While still early in the quarter, we currently expect origination volumes in the first quarter to decline from the fourth quarter reflecting seasonality in the purchase market and lower refi volume, but we expect the rate of decline slow from the levels we had in the third and the fourth quarter. Our gain on sale margin was 1.77% in the fourth quarter, up from the third quarter but lower than the historical elevated levels we experienced in the second half of 2012 and the first half of 2013. While there are a lot of factors that impact the margin, we currently expect margins in the near term to remain in the range we saw in the second half of 2013.

Reflecting the lower origination volume we had lower incentive compensation expenses related to mortgage production in the third quarter. We also had lower personnel expenses reflecting a reduction of 5,300 mortgage FTEs we announced in the third quarter and additional reductions of approximately 1,150 FTEs announced in the fourth quarter. The full quarter run rate of these lower FTEs will be reflected in expenses in the first quarter. We reduced our retail mortgage fulfillment FTEs by nearly 50% since our peak staffing levels in the first quarter of 2013.

Our servicing revenue was up $205 million from the third quarter and up $459 million from a year ago as prepayment speeds have slowed. We announced at the end of the quarter an agreement with Fannie Mae which was fully covered through previously established mortgage repurchase accruals that resolved substantially all repurchase liabilities related to loans originated prior to 2009. Reflecting our agreement with Fannie Mae our outstanding repurchase demands were down 46% from the third quarter to $708 million. As a reminder, we announced last quarter a similar agreement with Freddie Mac. So we have resolved substantially all agency repurchase demands for loans originated prior to 2009. As a result outstanding repurchase demands were down $1.2 billion from a year ago and our repurchase reserve declined $899 million, the lowest level since the second quarter of 2009.

Expenses were stable from the third quarter, declining $17 million as shown on page 13. Salary expense was down $99 million reflecting lower mortgage banking staffing and severance expense. Incentive compensation expense was down $54 million driven by lower mortgage production revenue partially offset by higher investment banking and retail brokerage activity. A number of our expenses are typically higher in the fourth quarter such as equipment expense which was up $96 million due to seasonally higher annual license renewals.

Our outside professional services increased to $131 million which included higher project related spending on business investments and compliance and regulatory related initiatives. Our efficiency ratio improved to 58.5% in the quarter, down 62 basis points. While we have seasonally higher personnel costs in the first quarter, we will have lower project spending and lower mortgage expenses reflecting a full quarter run rate from reduced staffing. We expect that our efficiency ratio will remain within our target range of 55% to 59% in the first quarter.

Turning to our business segments, starting on page 14. Community banking earned $3.2 billion in the fourth quarter, up 12% from a year ago and down 4% from the third quarter. Retail banking continued to consistently grow cross-sell, achieving a record 6.16 products per household up from 6.05 products a year ago. Our credit card business continued to have strong results benefiting from seasonality and new account growth. We grew new accounts by 29% from a year ago and household penetration increased to 37%, up from 33% in the fourth quarter of 2012. Purchase volume grew 14% from a year ago. Our auto business had an outstanding year with record originations in 2013, up 26% from a year ago. This strong growth reflects the increase in sales and the benefit of our partnership with GM.

We remained focused on serving the needs of our small business customers as well. We extended $18.9 billion of new loan commitments to small business customers during 2013, up 18% from 2012 and grew our primary business checking customers by a net 4.7% in the fourth quarter compared to about year ago.

Wholesale banking earned $2.1 billion in the fourth quarter, up 4% from a year ago and up 7% from the third quarter. These results reflected strong deposit and loan growth, both up 7% from a year ago. Loan growth was broad-based and included strong growth in asset-backed finance, commercial real estate and international.

Our investment banking business continued to have strong growth with 2013 market share of 5.6%, up from 5% in 2012. This growth reflects the success we have had by focusing on relationships, with investment banking revenue from wholesale banking customers up 22% in 2013, including a 16% increase in revenue from existing, commercial and corporate customers.

Treasury management revenue was up 8% in 2013, reflecting strong sales growth and pricing increases. We continually invest in this businesses' products and platforms and have been expanding our team of treasury sales experts, because this is an important product for building relationships with our wholesale customers.

Our asset management business also had an outstanding year in 2013, with total assets under management up 8%, reflecting net client inflows and increased market valuations.

Wealth, brokerage and retirement earned $491 million in the fourth quarter, up 40% from a year ago and 9% from the third quarter. As you know, this is a business that we have been focusing on and investing in since managing more of our customers' wealth that is an important part of our vision of meeting our customer's financial needs.

Our results benefited from the improvement in the markets and strong net flows. WBR client assets grew 11% to $1.6 trillion from a year ago. This growth was broad-based and included retail brokerage managed account assets of $375 billion, up 23% and wealth management client assets of $218 billion, up 7%.

Institutional Retirement plan assets grew 12% from a year ago. We also had strong deposit and loan growth, with average core deposits up 7% and average loans up 12% from a year ago.

Turning to credit on Page 17, the significant improvement we had in credit quality throughout 2013 continued. With fourth quarter net charge-offs declining to only 47 basis points of average loans.

Loans in our commercial portfolio were only six basis points and consumer losses declined to 82 basis points. We continue to have strong improvement in our commercial and residential real estate secured portfolios. Our commercial real estate portfolios were once again in a net recovery position as they have been every quarter in 2013.

Our consumer real estate portfolios continued to benefit from the improvement in the housing market with losses down $918 million or 69% from a year ago. Non-performing assets declined $1.1 billion from the third quarter and were down $4.9 billion or 20% from a year ago.

Both, commercial and consumer non-accrual loans declined while foreclosed assets increased $135 million from the third quarter, reflecting an increase in government insured foreclosed assets, primarily driven by changes to loan modification programs which slowed foreclosures in prior quarter.

Reflecting the continued improvement in economic conditions, we had a $600 million reserve release, down $900 million last quarter. Given current favorable conditions, we expect future reserve releases absent a significant [duration] in the economy. We grew our estimated common equity Tier 1 ratio under Basel III, a 9.78% in the fourth quarter, 78 basis points above our internal target of 9%.

While we have been building capital, we have also been focused on returning more capital to our shareholders. We increased our dividend by 31% in 2013 and purchased 124 million shares. We remain committed to returning more capital to our shareholders and our 2014 capital plan requested an increasing in our dividend and share repurchases compared with our 2013 capital plan. Of course our request is subject to Fed review and nonobjection.

In summary, our results in the fourth quarter and throughout 2013 were outstanding. We grew loans and deposits, increased our capital liquidity levels and reduced risk as our diversified businesses generated double-digit earnings and EPS growth. In addition we return $11.4 billion to our shareholders through dividends and share repurchases. While the future is never certain, we start 2014 in a much better position than we started 2013. The slow and steady growth we had in 2013 positions the U.S. economy for continued growth in 2014. We successfully settled many outstanding issues during 2013 including pre-2009 agency repurchase demands, agency MBS securitization and the independent foreclosure review. We also have more clarity regarding Basel III capital requirements and have taken actions in response to increased regulatory liquidity expectations. We believe that we never been positioned better and we are excited about the opportunities ahead for our customers, our team members and our shareholders.

We will now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Matt O'Connor with Deutsche Bank.

Matt O'Connor - Deutsche Bank

Good morning. Just circling back on the efficiency ratio and, I guess, specifically on the expenses here. As we think about entering 2014, what kind of growth expense base, you have got $12.1 billion roughly, there is some seasonal factor as some of the mortgage cost that need to come out. How should we think about that in a static revenue environment?

Tim Sloan

Well, I wouldn't worry about it being a static revenue environment. Our goal is to grow revenues over time and I think we have been able to do that, notwithstanding some of the challenges we have had. Matt, we are really focused as we think about our expenses on revenue efficiency and the efficiency ratio, how much it costs us to deliver a $1 in revenue. We were very pleased to be able to improve our efficiency to 58.5%, again down 62 basis points from the third quarter and down almost 30 basis points from the fourth quarter of last year.

I think when you think about the fourth quarter efficiency in expenses, we did call out that we had some seasonal expenses that boosted the total expenses in the fourth quarter. We talked about some of the equipment expenses as well as some of the professional fees. As you think about the first quarter, our expectation is that we will be able to operate within our range of 55% to 59% and believe that over the year, we can continue to improve that from the first quarter.

I do think we will have some benefit in the first quarter from lower seasonal expenses as we mentioned. We will also have some benefit from a lower run rate of expenses in the mortgage business but, overall, again we are very focused on the efficiency ratio and we continue to believe that we can make improvements.

Matt O'Connor - Deutsche Bank

And this is just a follow-up. Can you remind us what needs to happen to get to the lower end of the 55% to 59%? Obviously it's a range and you can show continued progress but that 55%, will that depend on a materially different macro environment or you can get there executing just what you can control?

Tim Sloan

Well, it's a fair point, Matt, because we look at the efficiency ratio, its going to be a function of expense dollars as well as revenue. I think to get to the low end of that range, we will need to see the combination of both, in crew expenses and lower expenses, which we think we can do over time but also with improved revenue. That said, if the revenue takes off and the dollar amount of our expenses are up and our efficiency ratio improves, that's fine too.

Matt O'Connor - Deutsche Bank

Just sneaking a quick one here. On the equity investment book, can you just remind us how big it is and is there any impact from Volcker on that portfolio?

Tim Sloan

Yes. A good question. Overall let me answer it maybe a little bit broader question and that is that as we look at the final Volcker rules, there aren't any real significant and material changes that we need to make in any of our businesses to comply. Obviously there is going to be increased reporting and things like that. The only the product business line that's really impacted, which is the [of your] question is the portion of our equity portfolio that's made up of limited partnership investment, that's a little bit less than $2 billion.

We stopped making those investments a few years ago when the first draft of the Volcker Rule came out and so that portfolio is liquidating down in the normal course. From time-to-time, we could potentially do some sales from that portfolio, but we don't believe that compliance with Volcker and the liquidation of that portfolio in the normal course will have a material impact on our financial results.

Matt O'Connor - Deutsche Bank

Okay. All right. Thank you very much.

Operator

Our next question will come from the line of John McDonald with Sanford Bernstein.

John McDonald - Sanford Bernstein

Hi. Good morning, Tim. I was wondering if you could give a little bit of color on the net interest margin and interest income outlook and your thoughts. I think you said you expect some ongoing pressure on the NIM. I am wondering if you could give us some of the puts and takes on that. How does the recent rise in a 10-year yield help you as you reinvest and then where are you on the liquidity actions? Do you still need to pick more there? Obviously, the rules aren't finish, but if you could give us a feel for your progress there.

Tim Sloan

I will answer your question in maybe reverse order. Maybe start with liquidity. Let me just step back and frame that a little bit, because you have seen us take some liquidity action in the third and the fourth quarter. Set the rules aside for a minute, and that is that first and foremost, we have got to be able to operate this company with sufficient liquidity to be able to withstand stressed environments both, in terms of an economic downturn as well as an economic expansion. I think, we have been able to demonstrate our success in doing that as we went through the last downturn, so the short answer is that we think that the existing liquidity we have as a company is sufficient to manage the business.

Having said that, there are a couple of standards that are out there. First, there's is the international standard and I can't comfortably tell you that we have exceeded the international LCR standards. Unfortunately, I can't tell where we stand as it relates to the domestic rules, because they haven't been finalized yet. The NPR was issued in the fourth quarter as you know. It's out for comment right now.

I think it's fair to say that you generally the current NPR is a little bit more conservative than most of the folks in industry have [got], and so in an anticipation of finalizing the domestic rules, the way that I would think about it is we have changed the complexion of our liquidity and what I mean by that is, we have increased some of our longer term deposits. You saw us do that in the third quarter and the fourth quarter and then we issued some additional debt in the third quarter, so we have made a lot of progress in terms of complying with rules that haven't been finalized yet.

The other thing that I would mentioned is that, there is a lot of good dialogue that's going on right now in terms of those rules and it's likely that there will be some changes. Then lastly I would point out that our expectation is the compliance period as it relates to those standards, theirs is going to be elongated meeting. We need to get to about 80% compliance by the end of this year, beginning of next year, so a long-winded overview, but I think what we have been able to demonstrate as we have changed the complexion of our liquidity and anticipated the final rules is that we can still deliver record earnings and we can still grow net interest income and that's really good segue into the first part of your question which is the net interest margin.

The net interest margin was down 12 basis points and the most of that was related to liquidity or deposits as we mentioned. In fact all of that was. Half of it was, we had great deposit growth. You have seen that over the last 16 quarters we have had great deposit growth, long-term that is a terrific thing from our perspective and will take that impact on NIM all day long.

Then the other half was related to the full quarter impact of liquidity actions that we took in the third quarter plus the liquidity actions that we took in the fourth quarter. So again, a reduction to the NIM but we have been able to grow net interest income.

So how were we able to do that with the NIM declining? Well, the good news is we had $13.5 billion dollars of point-to-point loan growth which is absolutely terrific. I can't promise you we will have that every quarter but not only is it terrific but results very broad-based, as I mentioned. And then also, our securities did grow and candidly, we are in a much better position today than we were six months ago or a year ago or a year and a half ago in terms of the reinvestment yields that we can achieve today versus the rolloff in the existing portfolio.

I can't tell you today because of the valley that occurred over last few days but they we will get pretty close. So over time, as we have said over the last few quarters, we believe that we continue to grow net interest income.

John McDonald - Sanford Bernstein

Okay, great, and then the second question is on capital return, and John mentioned your request to do more of this year than last year on capital return. When I think back here, April 2012 Investor Day, you laid out a goal for a total payout ratio of a range of 50% to 65%. I was wondering if anything has changed with you now exceeding your Basel III capital targets. Industry asset growth still seems sluggish such that you might reconsider at some point the upper bound of that target and at some point you will stop paying out more than 65% of total earnings?

Tim Sloan

Yes, it's a fair question. The short answer is no. We haven't changed that range of 50% to 65%. Part of the reason is that we are not at the high end of that range yet. So we are going to take it one step at a time. Clearly, we thought the payout that we had in 2013 was a pretty significant increases as we talked about. On a gross basis, f $11.4 billion. Something that we are very, very proud of and there are, as John mentioned and as I mentioned, our capital plans submission requested an increase from that. So we are hopeful to continue to make progress on that, subject to the Fed review but it is something, John, that we are going to continue to look at. But that that 50% to 65% is not etched in stone forever. It's going to change just like it has changed throughout our history.

John, I don't know if you --

John Stumpf

Yes, I think that's a really important point. It was a year and half when we came up with that. We are still there but those things change over time and as we continue to build liquidity and capital, we are not bound by that. And we are very shareholder friendly here. I think you know and our investors have known it for a long time.

Tim Sloan

But, John, I would add, Maybe this is a bit of an advertisement for our Investor Day that's going to be in May. We might change that. So let it be a good reason to come.

John McDonald - Sanford Bernstein

Okay, and you are kind of inflecting you are not reducing the share count on a net basis tenure overcoming option issue and things like that. Do you expect that to continue with a net reduction in shares?

Tim Sloan

Yes we do. Again, I can't promise it will exactly happen every quarter but my guess is, it probably will. But I think we reached the high point in the second quarter of last year and we have been very clear that our expectation is to continue to reduce that share count. So that's our plan, John.

John McDonald - Sanford Bernstein

Okay. Thank you.

Operator

Our next question comes from the line of Erika Najarian with Bank of America.

Erika Najarian - Bank of America

Good morning.

Tim Sloan

Good morning, Erika.

Erika Najarian - Bank of America

I just wanted to take a step back. John, Wells Fargo has been able to post pretty good point-to-point loan growth, even with demand in the industry for loans being humdrum. That being said, as we look out to 2014, have we hit an inflection point in terms of loan demand on both the corporate side and the consumer side?

Tim Sloan

Inflection, meaning that loan growth is?

Erika Najarian - Bank of America

Grown demand in both the corporate side and the consumer side, loan demand didn't start picking up for the industry, generally.

Tim Sloan

I think there will be some loan growth at the industry level. I am much more confident about our ability to grow loans, just based on what we have done in the past, what we have done this past quarter. But I will tell you, I am hearing more, when I talk with customers, about their interest in building something, adding something, investing in something. So there is more activity going on, I would say it's going to be a watershed moment, but yes I am optimistic about the economy. I mean, we sit here this January at an economy and frankly as a company in better shape and I have said here in the last five or six Januarys, so, yes, I am [proudly] optimistic about the industry and optimistic about our company able to grow loans and over time grow revenues.

Erika Najarian - Bank of America

Got it. Tim, in terms of the future impact of incremental liquidity actions, I know the NPR in the U.S. is (Inaudible), but is it fair for us to assume that the bulk of future liquidity actions won't impact your margin as much as the six basis point this quarter?

Tim Sloan

I would love to be able to tell you absolutely, but since we don't know what the final rules are, I want to be careful, so I can't give you a specific answer. I think the important thing is, should you have confidence in, A, our ability to move forward to try to anticipate some of those rules and not have it impact our net interest income or our earnings, the answer is yes.

Erika Najarian - Bank of America

Got it. If I could sneak one last question in here, is it fair for us to look at the 12% quarter-over-quarter drop that the NBIA is forecasting for origination volume and it seems that the drop that Wells Fargo will experience next quarter be similar on a sequential basis?

Tim Sloan

I don't know if I would jump to that conclusion. Our mix is a little bit different or can be a little bit different on average compared to the industry in any given quarter. I think it's reasonable to assume that there will be a client because of the impact of just the colder winter months as well as the fact that the volume is really driven much more by purchase activity now than it was by refinanced. We expect the decline but to be specific in terms of the magnitude decline, I don't know what that's going to be.

Erika Najarian - Bank of America

Okay. Thanks.

Operator

Our next question comes from the line of Joe Morford with RBC Capital Markets.

Joe Morford - RBC Capital Markets

Thanks. Good morning, guys.

John Stumpf

Good morning, Joe.

Joe Morford - RBC Capital Markets

I guess, first is just a follow-up, a clarification from Erika's question. The loan growth in the core portfolio strengthened quite a bit this quarter to $16.7 billion from $8.6 billion. I understand that's fairly broad-based, but how sustainable do you think that is as we go through 2014 here?

John Stumpf

Joe, it's a fair question. I think, when you say the 8.6, you are talking about the 8.6 from a year ago?

Joe Morford - RBC Capital Markets

No. The third quarter. Just the sequential core growth in the core loan portfolio.

John Stumpf

The good news is that as you mentioned that the growth was very broad-based. Again, in almost every one of our loan portfolios, with the exception of home equity, where we are still originating a good quality home equity loans.

I don't know if I would take this quarter and say this is what we are going to do every quarter from here on out, I think even last year when you axe out the impact from some of the tax changes that folks were anticipating the fourth quarter can tends to be a pretty strong quarter.

Our expectation for 2014 is that we are going to grow loans. What rate that will be? I don't know, but certainly the fact that this quarter was so broad-based, I think it is a good indication of our ability to grow loans at a faster rate than we did in 2013. Again, I think the other point to make about loan growth in this quarter is that is that we didn't have any acquisitions driving that growth. This was all organic, not that there is anything wrong with acquisition. We love them, but that was a bigger driver in the third quarter that was in the fourth quarter.

Joe Morford - RBC Capital Markets

Okay. That's helpful. Then the other question was just, wondering if you could kind of broadly speak about kind of key areas for investment in 2014 and along those lines what are your plans for the branch network given the growth in mobile banking and your recent piloted the neighborhood stores?

John Stumpf

Joe, we are making a lot of investments in technology as customers are interested in mobile and in other ways to access us. We still believe that stores are important and we believe that because our customers tell us that, and we do have that pilot that you mentioned and we are assessing that, looking at that. We will build stores this year. I don't think there will be a significant net increase because sometimes we build a new one and we consolidate one or two into that but most of the investments we are going to be making will be in areas like product and convenience for customers.

Joe Morford - RBC Capital Markets

Okay. Thanks so much.

Operator

Our next question will come from the line of Paul Miller with FBR Capital Markets.

Paul Miller - FBR Capital Markets

Yes. Thank you very much. Hi, guys. we know the mortgage market is on a downward trend. It looks the market is down another 25%, but you guys were down more than that, I think north of 30% and now your market share has dropped down to 17% and I also know that you guys have done a lot of refis and a lot of that is the refi side. I know you don't really model the market share but do you see continued declines in that mortgage space?

Then secondly, do you think that Mel Watt could be a game changer relative to opening up the credit box maybe with some of these going down the FICO score?

Tim Sloan

Yes, Paul, a good question. We have talked on a number of occasions about how our market share, over the last couple of years was disproportionately high, primarily because the biggest driver for origination volume until the last couple of quarters was refinances, and the reason for that, again to remind everybody, is that we are the largest servicer and the quality of our servicing book was the highest in the industry. So we had many more opportunities than most to be able to meet the needs of our customers by refinancing existing customers, by refinancing their mortgages. So it's not surprising and something that we had been indicating was going to occur as the percentage of refinance volume declined in absolute dollars as well as the percentage of the total decline that our market share would go down.

I think as we get to a more purchase driven market, we actually think we have got a great opportunity to grow the business because we have the biggest retail network and sales force in the market. So we believe that we can grow over time, but again the focus is not about market share the focus is about generating appropriate revenue, making sure that we are meeting the needs of our customers and doing that very efficiently. So again we are very excited about the transition into a purchase driven market because we got the best team and the largest team that's out there.

John Stumpf

Paul, with respect to Mel Watt, we are looking forward to working with him. We know him and I believe he has the same interest we all have, as Americans and as our institution has make mortgage lending and money available to creditworthy, Americans so they can buy houses. He already is digging in. He has put the increase to GP just on hold so he can understand. So we are all looking forward to working with him.

Paul Miller - FBR Capital Markets

I mean, do you think the government could make some adjustments there to get the industry to maybe open up the credit box more than it is right now?

John Stumpf

Well, I still believe there are some mixed messages coming out of Congress or Washington, I should say, and if we can all get on the same page that would be helpful. I think there some movement happening in that direction, but we will just continue to work on that.

Paul Miller - FBR Capital Markets

Okay. Thanks a lot, guys.

Operator

Our next question will come from the line of Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch - Credit Suisse

Great, thanks. Most of my questions have actually been answered. But just following up a little on the mortgage business. You have alluded to us in a couple of different narrations, but given how rapid that decline in refinance has been and it is likely to continue, are there any either other steps that you taking or strategic opportunities that you seek on in the business over the next couple of quarters?

Tim Sloan

Well, you know, we announced recently that we are going to be doing some portfolio lending for jumbos and high-end and we have an emphasis on that. And as you know, housing is an uniquely important asset class for Americans and uniquely important for recovery. So no recovery for housing in that play a leadership role and that's part of my optimism for the future and that housing is getting better and that we are seeing more activity on the purchase side, which is really good for America, so we will continue to make complying loans. We are also doing more with respect to our balance sheet.

Moshe Orenbuch - Credit Suisse

Is there just anything with respect to kind of integrating it somewhat more directly with the consumer bank?

John Stumpf

Well, I will tell you they are really - all hands are on deck there. I don't recall the exact percentage, but it might be 30% or so, but whatever mortgage we do get customer referrals from our bankers, so it's a big card. It's very integrated and actually when you have a purchased money market that actually plays to our strengths, because we are so actively involved with builders, realtors and there is a lot of referral activity that goes on to help serve those customers.

Moshe Orenbuch - Credit Suisse

Great. Thank you.

Operator

The next question comes from the line of Mike Mayo with CLSA.

Mike Mayo - CLSA

Good morning.

John Stumpf

Hi, Mike.

Tim Sloan

Hi, Mike.

Mike Mayo - CLSA

Just first a tactical question, the changes that accretable yield on purchased credit impaired loans, so this is back around page 33, 34, 35 of the news release or in the back section of it, but the drawdown there, the changes in accretable yield, I thought it would be drawn down even a little bit more in the fourth quarter.

It seems like it's been drawn down a lot year-over-year, but the last quarter it wasn't drawn down a lot. Just conceptually I thought the better credit quality for some of these problem loans, the more you can realize and recover to earnings and it looks like it slowed in the fourth quarter. Can you just give some color on that accounting and what you think?

Tim Sloan

Mike, there wasn't any major changes that occurred from an accounting standpoint in the fourth quarter. As you know from time-to-time we have look at the amount of our accretable yield and non- accretable difference and made some adjustments. We did not do that in the fourth quarter, so I would just describe the fourth quarter as just a reflection of just changes within the underlying customer mix. We had more customers that were paying their loans and then paid off, but there was nothing major that occurred in the fourth quarter.

Mike Mayo - CLSA

How can you take a look at that? Because, isn't it the case that with better credit quality that you would tend to realize some gains over time?

Tim Sloan

Mike, it's something that we think about and talk about a lot, but from a process point of view, we review it on a quarterly basis to make an affirmative decision in terms of the amount of the non-accretable difference and the non-accretable yield in terms of whether or not we make any changes, but that's the quarterly update that we do.

John Stumpf

Mike, you know as we make those determinations it then accretes over the life of the assets, so it's a long event, if you will, over 12, 13,14, years, whatever the life those assets is that how it accretes in.

Tim Sloan

I think the important point just to remember is that when you turned the clock back five years ago, I think there was a lot of skepticism in terms of whether or not the right marks were taken at the time of the Wells Fargo and Wachovia combination and then there was a lot of concerns about the portfolio. As you know the accretable yield has actually increased over that period of time, so we have $19.1 billion that's expected to accrete over the remaining life of loans. We are very excited about that.

Mike Mayo - CLSA

Then a separate question, so what you can control and what you can't control, let's go to what you can control and that's the economy and you guys had talked about that some. What's the line utilization for commercial or wholesale in the most recent quarter?

Tim Sloan

It hasn't really changed a whole lot. It's still about or in the mid-30s, but that wasn't a major driver for loan growth in the quarter. At some point, we will get to the point where there's a little bit more utilization, but that's been pretty stable in the mid-30s.

Mike Mayo - CLSA

Then separate from the market share, I know Wells would like to continue to gain. You seem more optimistic on economy, but line utilization hasn't really changed. It sounds like fourth quarter you had some good loan growth, but maybe it won't be quite as strong, seasonally strong, so do you really feel the economy is that much stronger or John, you said the best January in five to six years. Are you thinking next couple of quarters, next couple years? What drives you to that conclusion?

John Stumpf

Yes. When I was talking about the best January, that's compared to the five January's. I have sat and had this kind of conversation with you. Our merger is done. Capital liquidity, credit, legal issues, view on regulatory all better. Deposit growth, loan growth, cross-sell, the engagement of the team. So all of those things are better.

Am I saying there is a full recovery and there is going to be a watershed moment this year? No. I am not saying that but I am saying that uncertainty here, more things from more prospects and customers about buying a car, building a house, starting a business, adding new product lines. There is certainties to at least some that.

Couple of years, I didn't even hear about that. So its going to be a breakout year but we are going to see steady improvement and that's good for even now as rates rise in response to that which is a normal thing that reduces the refinance volume. The other side of that is improving credit which improves a lot of things. So that's good for America and good for our company over the long-term.

Mike Mayo - CLSA

And then lastly, what you certainly can control. I know you are proud of having 16 quarters in row of higher EPS growth but I down imagine you expect this level of equity investment gains to continue or this level of reserve releases to continue. You called out some seasonal expenses but how do you expect to continue that progression? What should be the main drivers?

Tim Sloan

Yes, Mike, look, we are not going to promise you that we are going to have a seventeenth consecutive quarter. We hope we do but the fact of matter is the complexion of every quarter is different. We could have that we, and I think we probably did have the same conversation about a year ago, how are we going to be able to grow, and when we think about what the company has accomplished over this last year in the face of a significant backup in interest rates that had a big impact on one of our businesses, we were able to deliver record earnings.

How were we able to do that? We grew our loans. We grew our investments. We grew our deposits. If you look at noninterest income outside of mortgage origination, we went through a laundry list of five or six businesses and there are more that were up and most of those were up double digits. We have improved our efficiency and John has mentioned we think we can continue to make progress there and credit continues to improve.

Will we have our loan loss reserve release in the first quarter of $600 million? I don't know. We do think we are going to have future loan loss reserve releases. So the fact of the matter is that what we have been able to demonstrate in the fourth quarter and all of 2013 is our diversified model works even in the face of headwind and as John mentioned it doesn't seem like there is as many headwinds out there than there were a year ago in January.

So we are very excited of our ability to continue to grow earnings. Whether that means 17, 18 or 19 quarters? I don't know. But over time we are going to grow earnings at this company.

Mike Mayo - CLSA

Thank you.

Operator

Next question comes from the line of Ken Usdin with Jefferies.

Ken Usdin - Jefferies

Hi, good morning, guys. On the brokerage businesses, the business this year, the trust and investment fees grew 13% when you have a nice correlation. Just wondering, especially with the lag built-in on some of the pricing of the fee base, how confident do you feel that you can sustain that kind of mid-teens type of growth rate in that part of the company?

Tim Sloan

Yes, Ken, a good question. I don't know if I would focus on a specific growth rate. We do think we can continue to grow and its going to be a function of the fact there is a little bit of a lag in terms of how the business is priced and paid for. The wealth, brokerage and retirement business has done a great job in terms of increasing the percentage of their recurring fee revenue. I think it's now above 75% and that was the goal that David Carroll set out at our Investor Day a couple of years ago. So we do think we can continue to grow.

What the growth rate will be? I don't know but in addition, one of the other things that we talked about at Investor Day a couple of years ago was the partnership between the WBR and our retail bank and that partnership continues to work very well from a referral basis. So that business is performing very, very well. Our expectation is that it will continue to grow. I hope that it continues to grow at a double-digit rate, but can't promise you that.

Ken Usdin - Jefferies

Okay.

John Stumpf

Our expectations are pretty high there, because we are starting from a lower base. And if you look at size of our retail franchise versus the size of the wealth, brokerage and retirement, we have lot of upside. As Tim mentioned, the partnership especially between any bank and Wells Fargo's retirement couldn't be better and there is just tons of opportunity there, so it's opportunity for the company.

Ken Usdin - Jefferies

Okay. Great. Secondly with regard to the rate sensitivity, you guys did disclose your rate disclosures a little different than most others do and I am just wondering with regards to the liquidity preparation and the changes you have made and you have referred to earlier, how if it all any rules on liquidity side change at all your assets sensitivity when and if you someday we get the front-end moving? Maybe I will just leave it there.

John Stumpf

Good question. Really given the amount of liquidity build that we had in the third quarter, it didn't have a material impact on our total balance sheet. Did effect net interest margin as we mentioned, so it really doesn't have a big impact on our interest rate sensitivity. I mean, we have experienced that the biggest impact that we could have to the company from an interest rate sensitivity standpoint when you think about the impact that we had in the third and fourth quarter from the rate rise in the impact on the mortgage business, we are very sensitive to a rise in the short rate which I know everybody believes will never happen, but some day it will and that will be beneficial to us.

Ken Usdin - Jefferies

Okay. Great. Then last just quick question. The tax rate has been running a little bit lower. Do you have any thoughts on just what we should be thinking about as far as the future tax rate? Thanks, guys.

Tim Sloan

Yes. The tax rate for the fourth quarter was 30.9%. That was a little bit higher than the fourth quarter of last year. Our expectation for this year is that our tax rate will be plus or minus what has been this year. Maybe just a little bit higher, but I guess not that it shouldn't have a material impact on our results.

Jim Rowe

Regina, we will begin with the next question.

Operator

Our next question comes from the line of Chris Mutascio with KBW.

Chris Mutascio - KBW

Good morning, John and Tim. How are you?

John Stumpf

Hi. Chris. How are you doing?

Chris Mutascio - KBW

I am doing well. Happy New Year.

John Stumpf

Happy New Year.

Chris Mutascio - KBW

Just two quick follow-up questions on the professional services cost that you highlighted being about 130 or so million higher on a sequential quarter basis. Then you broke that into different kind of buckets project spending and then also compliance and maybe regulatory related spend. Can you breakdown those two different buckets that calls the $130 million increase? Then just as a follow-up, how much of the compliance and regulatory related part of that is permanent or is not permanent?

Tim Sloan

Yes. Some really good question. One of the challenges that we have is that some of the investment that we are making, say, for a project impacts both is the investment in the business but also it's going to have a regulatory or compliance nature to it, so I don't have any detail handy to break that down, but it's not exactly how we think about it.

I will tell you that as we mentioned last quarter that our compliance and regulatory costs are up year-over-year and we are in the process right now of making sure that we got the best risk managed the company in the industry, so there will be some continued investment that we will need to make there.

Having said that, how much of that is permanent and how much is kind of a one or two time-type investment, I don't have an answer for you, so I apologize for not being able to provide some real specifics there, but again to repeat I do think you will see a decline in the professional services line in the first quarter.

Chris Mutascio - KBW

Okay. That's fair enough. A separate question. The net charge-off ratio was pretty stable with third quarter. I was kind of wondering did you think we finally has have had four on that ratio or could there have been some year-end cleanup in fourth quarter that would lead you to believe that maybe the charge-offs could go even lower in the first quarter.

Tim Sloan

I don't know for sure. Here's the way I would think about it. I will give you two numbers that made up the 47 basis points. The losses that we had in our commercial portfolio were about six basis points. We think we have got a great team that's very good at making loans on the commercial side but having a loss rate of six basis points is probably not something that's going to happen forever. So I think there's, probably over time, not necessarily in the first quarter, some pressure there.

On the other hand, the losses in our consumer portfolio were about 82 basis points. Now when you think about the composition of the consumer portfolio, clearly, there is some portion of that portfolio that's going to have higher loss rates like credit card. That's an area that we are building over time.

On the other hand, when you look at some of the other consumer businesses, we are not originating loans today that are going to generate 82 basis points of loss in the next year or two years. We are originating high quality loan. So my guess is there is probably a little bit more pressure over time and the commercial loss rate to go up and the consumer loss rate could go down. Again when you look at that 82 basis points, the disproportionate share continues to come from our home equity portfolio which among all the portfolios is really benefiting from the improvement in underlying residential real estate values.

Chris Mutascio - KBW

Fair enough. Thanks for taking my questions.

Operator

Your next question comes from the line of Marty Mosby with Guggenheim Securities.

Marty Mosby - Guggenheim Partners

Hi, I wanted to ask you two lines of questioning. First, on the share count. If you look at the repurchase volume that you have been able to do, share count is holding relatively flat. I was curious if you thought, as you increased repurchase going forward, do you think the share count can start to come down? And then, I wanted to ask you one more question about that.

Tim Sloan

Marty, in fact the share count has been down from the high in the second quarter of last year and the short answer to your question is, yes. The primary driver there is going to be the level of our share repurchases. We increased our share repurchases this year over last year. We have submitted a capital plan which calls for a request for more share repurchase. So the short answer again is, yes. We think we can bring that down over time.

Marty Mosby - Guggenheim Partners

The impact of equity compensation, would you think the dilution that you do have that offsets some of the share repurchase. Would that be more from issuance or more from market price appreciation?

Tim Sloan

Well, it's a complicated answer to a straight forward question and recall that we changed our options program a couple of years ago or a few years ago. So the impact of that is going to decline. On the other hand, we will continue to have a good portion of our incentive compensation around here based upon our equity because we believe that that aligns our team members with our shareholders.

So the fact that that is there is very important to us and hopefully, you will appreciate it's important to you but I don't imagine that that's going to have a significant change to the share count calculation. The primary driver there is going to be our ability to repurchase more shares and, again, we think we can increase that over time.

Marty Mosby - Guggenheim Partners

Okay, other kind of area I want to delve into was asset sensitivity. Earlier questions were kind of starting to allude to that but as you have seen this outsize deposit growth that you have been able to attract, you have been really pushing that more and more into cash. So that does make you more asset sensitive than probably your just overall measure with look and then also as longer term rate start to go up, you can begin to be able to restructure the portfolio a little bit. You have got excess capital. There is going to be some opportunities to accelerate asset sensitivity by restructuring as well. So just thought you could think about a few of those kind of tactics or other things that might make you be more asset sensitive than you look on the cover of your reports.

Tim Sloan

Well, you are absolutely correct. We are very asset sensitive. The disproportionate share of our loan portfolio is floating-rate in an environment where the short-end of the curve starts to increase which, at some point it will. We believe that that will be a net addition to revenues because our loans will probably reprice faster than our deposits. You have seen that before with Wells Fargo in prior cycles.

In terms of the investment portfolio, you are also correct, in that given the back up in rates and the current yields that we are getting off our portfolio, we can get much more attractive returns that are more or less about what the runoff is right now. Not exactly, but as rates continue to rise, it's going to make those returns even more attractive and we will get some benefit from a revenue standpoint there, so we think we are positioned fairly well for the environment that we are likely to be in over the next few years which is in the short-term probably an increase in the long end of the curve. I don't know by how much, but it probably will increase. Then in the next year to two years an increased short end.

Marty Mosby - Guggenheim Partners

Then lastly, John, you mentioned the mortgage portfolio and increasing the volume there. With the GDPs going up here shortly, especially on a higher quality customers, those low GDPs historically have pushed us to origination and servicing versus portfolio and mortgages, but it seems like you are really looking at that as an opportunity, especially with the steep yield curve to add some assets plus value especially as mortgage rates relatively adjusted to these new GDPs.

John Stumpf

That's right. My understanding is the latest increase in GDPs is the one that would suggest it has actually been put on a hold for a bit, but absent that yes, we think there is opportunity here to serve a customer base through portfolio lending and we have done that for a long time, but there's opportunities here and we sure want to serve that customer base.

Marty Mosby - Guggenheim Partners

Thanks.

John Stumpf

Thanks, Marty.

Operator

Our final question will come from the line of Keith Murray with ISI.

Keith Murray - ISI

Hi.

John Stumpf

Hi, Keith.

Tim Sloan

Hi, Keith.

Keith Murray - ISI

I just wanted to ask what's your home price assumptions as you think about sizing the mortgage business and on the credit side as well, what do you assume for home prices for '14?

John Stumpf

We think probably a lot where most economists are in the range of 3% to 5% increase if you look broadly. Now I think what you are seeing is some more regionalization going on in residential real estate, so I mean I live in San Francisco. It's been stronger here than for example than in the Central Valley, but housing is getting better generally everywhere but I think 3% to 5% is a pretty safe range.

Keith Murray - ISI

Okay. Then just going back to the payout ratio specifically on dividends, you were right at 30% for 2013 on dividend payout. As you think about approaching this year's CCAR, what are you comfortable with on the dividend payout ratio? I know, above 30% gets you extra scrutiny. How do you think about the dividend payout?

John Stumpf

Well, I can just repeat what Tim and I have said is that the submission is in. It's our request to do more on dividends and repurchase. It's in with the fed right now. We will all know here in another six weeks or so, so let's just wait for that time and see when that comes out.

Keith Murray - ISI

Okay. Thanks a lot.

John Stumpf

Thank you. I want to thank everybody for joining us, I very much appreciate your interest in our company and the questions and we will see you next quarter. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's conference. Thank you all for participating and you may now disconnect.

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