Wells Fargo's Management Presents at Citi 2013 US Financial Services Conference (Transcript)

| About: Wells Fargo (WFC)
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Wells Fargo & Co. (NYSE:WFC) Citi 2013 US Financial Services Conference March 5, 2013 8:00 AM ET


Timothy J. Sloan - Senior EVP and CFO

Timothy J. Sloan

Thank you, [Keith], and good morning, everyone. I appreciate the opportunity to speak to you about Wells Fargo today. Let me start with a little proviso and that is that this presentation includes certain forward-looking statements regarding our expectations about the future. A number of factors many of which are beyond our control could cause actual results to differ materially for management's current expectations. Please refer to the appendix for information regarding our forward-looking statements where you can find more information about our risk factors.

At Wells Fargo, everything we do starts with our vision to satisfy all our customers' financial needs and to help them succeed financially. We believe this consistent vision is a key differentiator for Wells Fargo and is one of the reasons that we've been successful through many different economic cycles and many different interest rate environments.

At Wells Fargo, we have over 70 million customers. We serve one of three U.S. households. We've created a deep and broad distribution system to serve these customers when, where and how they want to be served, whether it's in person, in one of our stores, over the phone, online, by mobile. With over 9,000 stores in all 50 states and over 12,000 ATMs, we have more stores to serve more communities than any other U.S. bank. We believe that that's a very powerful advantage for Wells Fargo as well as for our customers.

We also have leading market share across a variety of products that help us meet our consumer and our commercial customers' financial needs. We've been the largest small business lender for 10 consecutive years and one in every 10 small businesses banks with Wells Fargo. We're now the largest auto lender in the country in addition to the leading position that we've had in the used car lending market for quite some time. As you know, we're the largest residential mortgage originator as well as the largest residential mortgage servicer.

We're also the number one lender to mid-sized companies and we've grown loans to middle market customers for the last 10 consecutive quarters and we're the leader in serving our customers' wealth management and brokerage needs. We operate the third largest full service retail brokerage company.

Our leading position across a number of businesses is reflected in our balance business model. Our loan portfolio reflects diversity in serving both consumer and commercial customers. We are balanced between fee and spread income in terms of our total revenues and our sources of fee generation are also very balanced as you can see in that pie chart on your right.

The combination of this scale and the level of diversification as a significant advantage for our company were demonstrated by our results last year. We generated 6% revenue growth and we've earned a record $18.9 billion, up 19% from 2011. And our earnings per share also grew by 19%.

We grew our loan portfolio by $30 billion which was up 4% year-over-year reducing our liquidating portfolio by approximately $18 billion. We grew core deposits by $73 billion which was up 8% year-over-year. And we increased our ROA by 60 basis points and our ROE by 102 basis points.

This is my favorite slide in the presentation. Thanks for giving me intro, Keith, I appreciate it. In fact, I think it's really the only slide that we need to show. We've achieved 12 consecutive quarters of EPS growth and seven consecutive quarters of record EPS.

Think about the environment that we've been in during the last two years on even economic growth, declining interest rates, a lot of regulatory change as well as some economic challenges that we've seen both in Europe and in Asia. Our ability to grow through all of those challenges reflects the benefit of our diversified model.

I believe that our strong performance speaks for itself. Let me spend some time comparing our results to our large and regional bank peers. Our 6% revenue growth in 2012 was higher than any of our larger bank peers and in line with our regional bank peers.

Another way to look at our revenue generation versus peers is to look at asset productivity. What do we do with our size? And this is shown as revenue divided by assets, which demonstrates our success at cross sell. On that basis, you can see that we've produced more revenue per asset last year than our large and regional bank peers.

And if you look at fee income to assets, we also outperformed our peers in 2012. If you look at our performance over the past 10 years, we've generated strong results than our large bank peers and we're at the top compared to our regional bank peers.

This outperformance reflects our focus on cross sell. A lot of people talk about it. We've been doing it for a long time. We achieved record cross sell results across the franchise in the fourth quarter with retail banking cross-sell at 6.05 products for household, our Wealth, Brokerage and Retirement business at 10.27 products per household and Wholesale Banking cross-sell at 6.8 products per relationship.

The remaining focused on meeting our customers' financial needs. We've been able to generate strong fee income growth that was well diversified. This demonstrates that we don't have an over focus on managing our net interest margin. Our strong deposit growth has put pressure on our net interest margin. The increased deposits provide us with many opportunities to meet the other financial needs of our deposit customers and generate strong fee income.

Given our diversified business model, our pre-tax pre-provision profit is how we think about the true operating margin for Wells Fargo. Our growth in pre-tax pre-provision profit was 13% in 2012 significantly higher than any of our peers. Our returns in the fourth quarter as measured by ROA and ROE were among the highest in the industry and were higher than all three of our large bank peers.

Our fourth quarter results were strong but if you look at our results over a longer period of time, they are also less volatile than many of our peers. This slide shows the volatility of our revenue to assets, pre-tax pre-provision to assets and return on assets relative to our peers over the last four years. As you can see, we have less volatility than most of our peers. This consistency reflects the benefit of our diversified business model.

This is another one of my very favorite slides. Our diversified business model resulted in the highest EPS growth rate in 2012 compared to our large and regional bank peers. As I've shown, we've outperformed our peers across a variety of measures and now let me turn to some key areas of interest for all of you.

As I've mentioned already and we've talked about many times, our focus is on growing net interest income not our net interest margin. But I know many investors are very focused on the net interest margin. So we looked at the drivers to the net interest margin compression over the past 12 quarters. Our NIM has declined 71 basis points since the first quarter of 2010. 71 basis points is a lot.

However, two-thirds of that NIM compression was driven by $172 billion increase of deposits over that period. Just think of that, $172 billion. These are valuable new deposits which will help us drive future growth in lending and our fees and we remain focused on cross selling. We believe this was a once in a lifetime opportunity to be able to grow deposits at this rate.

The remainder of the decline was due to repricing and growth of the balance sheet. If you recall my favorite slide on the presentation which showed our EPS growth for 12 consecutive quarters, recall that we achieved this growth during the same period that our net interest margin declined by 71 basis points. This is a great example of why we don't manage to our NIM.

With our diversified model, we have many ways to grow earnings per share. In fact, we were able to grow net interest income in 2012 even with an 18 basis point decline in the net interest margin. Growing net interest income remains our focus and we believe we can continue to grow net interest income even in a slow rate environment.

But while net interest income growth has been challenging in the environment, the rate environment also benefits other parts of our business and in addition, we've been very successful in growing non-interest income. We grew non-interest income by 12% for the full year of 2012 and produced 7% linked-quarter growth unannualized in the fourth quarter.

2012 was a very good year for our mortgage business. We originated over $524 billion in mortgages and we have very strong margins. We love the mortgage business. It's a terrific business for us. But the good news is that we're lot more than a mortgage company.

We have very strong fee growth across a variety of our businesses, including deposit fees reflecting product and pricing changes that occurred in 2012, in trust and investment fees on higher retail brokerage asset-based fees and in investment banking fees and also in other fees which reflected higher investment banking advisory fees.

If you exclude mortgage and card, which was reduced from lower debt card fees related to Durbin which kicked in, in the fourth quarter of 2011, we generated 6% growth in non-interest income in 2012. If you only exclude mortgage, we increased our non-interest income by 3% in 2012 and we had 6% growth on a linked quarter basis in the fourth quarter, demonstrating the strength and the growth in many of our diversified businesses.

But in the environment we're in, we also have to be very focused on expenses and this is an area that we talked a fair amount about over the last couple of years. We believe this continues to be an opportunity for us. As we highlighted in our fourth quarter earnings call, some of our costs has been elevated because of the current environment. We highlight some of those costs on this slide. And in the fourth quarter alone, they total $790 million.

The foreclosure reviews is part of the OCC consent order added approximately $125 million of expenses in the fourth quarter and roughly $500 million of expenses during 2012. The settlement that was reached in December and announced in January significantly reduced the external and internal costs in the first quarter and we will fully eliminate these costs by the second quarter.

In the fourth quarter, we had $221 million of foreclosed asset expenses, which totaled $1.1 billion for the full year of 2012. Sustained improvement in the housing market should reduce these expenses over time. We also had higher cost that reduced mortgage banking revenue. We added $313 million in the fourth quarter and $1.7 billion during 2012 to our repurchase reserve not related to current originations which obviously reduced net gains on sales.

Servicing fees were reduced by $127 million in the fourth quarter and $677 million during 2012 to reflect higher costs to service as well as unreimbursed foreclosure costs as foreclosure timelines continued to extend. In addition, we had a total of $2.2 billion of operating losses in 2012, almost $1 billion higher than what we experienced in 2011. But the good news is that we resolved many significant matters related to our mortgage business.

Our efficiency ratio in the fourth quarter was 190 basis points lower than the prior year. And while we've made progress in improving our efficiency, we still believe their expenses are too high and we will continue to focus on opportunities to reduce our expenses, improve our efficiency ratio such that it doesn't affect our ability to grow revenues. However, we do expect expenses will remain elevated in the first quarter due to seasonally higher personnel expenses as we have every year.

As I mentioned earlier, we've remained focused and have continued to grow cross-sell across our business lines. The chart on the left shows that we have successfully grown cross-sell in our retail bank and household and the longer a customer has been with Wells Fargo, the more products that they have with us. But we also have many opportunities to continue to grow cross sell with our average customer having over 6 products with Wells Fargo while our top region within retail has 7.6 approaching our goal of 8 products per household.

We believe we can continue to grow cross-sell because we have many opportunities to increase the penetration across our product lines. This slide shows the success we've had at increasing the penetration of certain consumer lending products in our retail household base since last year's Investor Day. In particular, we've had great success in our credit cards with new credit card accounts up 46% in 2012 and we increased the penetration rate of our credit cards to 33% which is up 310 basis points since the first quarter of 2012 and we believe this rate is still too low.

We've not only been successful at growing and meeting the financial needs of our retail customers but we've also remained very focused and consistent on serving our commercial customers. This slide shows the success we've had at growing our Wholesale Banking loan portfolio which has generated nine consecutive quarters of loan growth. And the good news here is that our loan growth has been very diversified across all of our product lines.

Investment banking provides another opportunity for our growth. Our investment banking business is a relationship-based business with our investment banking customers in 2012 having an average tenure of 15 years with our Wholesale Bank and 89% of those customers use other Wholesale Banking products. Investment banking fees from commercial and corporate customers was up 30% in 2012 versus 2011. And 40% of wholesale corporate and commercial customers use at least one of our Wells Fargo Securities investment banking products during the year.

As shown on this slide, we've also been successful in helping Wealth, Brokerage and Retirement plans even though the markets have been challenging over the past few years. WBR has an emphasis on leading clients to advisory solutions when that's appropriate for the clients. And you can see that our managed account assets have grown 54% since 2009 and 20% in 2012 alone and we believe we still have opportunities to grow this business.

Advisory account fees as a percentage of total WBR fees have shown consistent growth over the past three years. Advisory assets have grown 16% compound annual growth rate since 2009 and while some of this growth has certainly been market driven, over half of this growth was due to net flows reflecting our success in moving existing customers from transaction-based accounts as well as acquiring new customers.

Considering the strong momentum we have throughout our businesses, we remain confident in our ability to meet our financial targets over time. And we highlight four on this slide. First, an efficiency ratio of between 55% and 59% and while we had good improvement year-over-year in the fourth quarter, we're still at the higher end of our range. An ROA between 1.3% and 1.6% and an ROE between 12% and 15%. Our results in the fourth quarter were in the middle of both of these ranges and our ability to get to the higher end of these ranges in part depends on the interest rate environment.

And finally, a total payout of between 50% and 65% including both dividends and stock buybacks, recall that we increased our dividend to 83% year-over-year and we repurchased 120 million shares in 2012.

In conclusion, we believe that Wells Fargo is very well positioned for the future. We have an experienced management team with John Stumpf direct reports having an average tenure with Wells Fargo of 28 years. We've learned how to work as a team. We disagree without being disagreeable and we challenge our thinking and we do that very frequently.

I've been doing financial analysis and underwriting my entire career and I know it's really hard to build this concept into any financial model, but it's a big part of why we've been successful over a long period of time. As I've mentioned, we have very strong fundamentals and leading market share in cornerstone products for both our consumer and our commercial customers. And we remain focused on returning more capital through our shareholders as we've demonstrated by increasing our first quarter dividend by 14% to $0.25 as part of our 2012 Capital Plan.

Our 2013 Capital Plan request an increase in capital distributions to our shareholder compared to our 2012 plan. But remember that our request continues to be reviewed by the Fed and is subject to their non-objection and we should know more about that in the next week.

Now I'd be happy to answer any of your questions. Keith?

Question-and-Answer Session

Unidentified Analyst

I'll put the first question up. Okay, so the first question is Wells Fargo stock has been traded at CE premium to peers. What do you think is the biggest reason for the relatively multiple contraction today? First, the stock is too big now to grow at an above-average pace? The second is mortgage is just too big a percentage of earnings (inaudible)? Third is there's EPS risk (inaudible) pressure? And fourth is due to other concerns. And as of about now you have 7 seconds to respond. Okay, so, Tim, why don't we (inaudible) when you look at (inaudible) for people on the phone, the responses were -- the number one reason was actually too big now to grow at above average pace, that was 38% of the responses. 36% of what we did on mortgage and 21% (inaudible). So, Tim, I guess the first question to you is now that (inaudible) are you too big now to grow at an above average pace?

Timothy J. Sloan

Well, I guess I did a very good job in my presentation because I think over the last three years, we've demonstrated that that hasn't been a challenge for us. I think clearly there's a concern and I think it's a reasonable concern for investors when you look at size as to whether or not any company, whether it's Wells Fargo and even our peers in the financial services industry or any large company can continue to grow. But I think if you look at some of the slides that are shown, what do we do with our asset base? We've been able to grow revenue to our asset base at the highest level relative to our larger peers as well as our smaller peers. So it's something that I think should be a question on everybody's mind. But I think over the last three years, given the challenges that we've been through as an industry and the fact that while we were going through that, there were some challenges we were putting together to the largest financial institutions in the country and doing that successfully that we can continue to grow at an above average pace.

Unidentified Analyst

And I guess I'm a little surprised that the third response was only 21% on the NIM. I guess maybe that's part of (inaudible) saying there were only about 20 basis points before NIM compression. I guess when I look at the numbers, you obviously show that net interest revenue fell from 1Q '10 of 11.1 billion to 10.6 billion. So if there was only 20 basis points of core NIM compression, why would your net interest income fall? You said one reason for the net interest margin falling was because you had put on 172 billion in deposits actually adding to net interest revenue. So why is net interest revenue falling?

Timothy J. Sloan

Well, because the reduction -- the rate of reduction in the NIM was greater than our rate of asset growth. And remember during the same period, we've been running off our liquidating portfolio and when you think about it, when we put Wells Fargo and Wachovia together, we started with a liquidating portfolio of about $190 billion. We've now cut that in about half. Those assets in particular generated a higher yield than the rest of our portfolio. They also generated higher losses which was one of the reasons why we wanted to liquidate them down. But that was a primary driver.

Unidentified Analyst

Okay. Next question. So we're not going to get Tim to respond to the question. Wells Fargo delivered 12 consecutive quarters of EPS growth. The fourth quarter EPS was $0.91. First quarter consensus was $0.88. So do you think one, Wells is going to break that growth record as the Street expects? Two, Wells is actually going to put up a low (inaudible) that's particularly driven (inaudible). Third, you think that Wells Fargo can continue to grow on a core base and maintain the record?

Timothy J. Sloan

Well, I just take it personally. Whatever the result is, and I think whether it's this quarter in future quarters, I hope you don't ever believe that we're generating low quality earnings and we're going to do anything that doesn't feel right in terms of just reaching some number. It's from our perspective, it's about continuing to build sustainable value for our shareholders over a long period of time. So I sure hope number two doesn't happen.

Unidentified Analyst

(inaudible) breaking the growth record and meeting consensus was 19%, 55%. Thought they were going to put up a low-quality, 26% didn't grow at a core pace. Are there any questions in the room? One of the questions out there was on mortgage and we talked about this last night. In my view, the record results have been driven in part by mortgage, if you're an outside player it has been a great environment. I think it's a really challenging and fundamental environment. So it's just hard to accept that people get their arms around the fact that how are you going to be able to offset these above average mortgage earnings?

Timothy J. Sloan

Sure. Well, I think first we got to make sure that we level set the amount of our earnings that are dependent on the mortgage business. So if you looked at that pie chart, the fiscal was related to fees. The percentage of our fee revenue which was about 50% of our total revenues that came from the mortgage business both from the origination side and the servicing side was about 27% or so. So that was about 13.5% of our revenues. We've been very clear that we've experienced very strong mortgage earnings in the third and fourth quarter and our expectation is that mortgage revenues are going to decline from the fourth quarter to the first quarter not because the business isn't great, it's a great business but because our expectation is that volumes are coming down. We're seeing that in industry data.

And while certainly possible when you look at the margins that we had in the fourth quarter at over 2.5% from again our sales standpoint, as you pointed our they're very strong. But again, that's 13.5% of our revenues. If it was 50, that's a different story. Now think about some of the other examples that I've shown you in terms of how we've been able to grow our businesses outside of mortgage, we've been able to grow credit cards. You saw in the fee growth side that ex-mortgage, we've been able to grow from the third to the fourth quarter, we were able to grow our fees at a 6% to 7% unannualized. So just on the fee side, there's a lot of opportunity there.

And again on the loan side, I think that we feel about being able to grow loans over time. In addition, we are very focused on expenses. We've talked and provided specific examples of some of the environmental expenses that we've been experiencing that have been coming down over time. I can't guarantee you exactly how they're going to come down or when they're going to come down, but you can see that they've been coming down over time. I mentioned that the operating losses that we had last year at $2.2 billion, it was up $1 billion from the prior year. We've resolved a lot of the big challenges that we faced as a company.

And then one other item that we didn't talk about much -- that I didn't talk about much in the presentation and that's the continued improvement in product. When you factor out the impact of the OCC guidance that the industry had in the third and fourth quarter, our loan loss run rate was about 88 basis points which was terrific and we expect our credit cost to continue to come down. So again, it's not only on -- we've got good diversification from a revenue standpoint outside of mortgage which I've given you some examples of but also in terms of expenses in credit, we continue to think we're going to see some good improvement.

Unidentified Analyst

You said the earnings growth, your target -- beating your target over the next few years depends partly on rising interest rates and all banks are expecting to see benefits from rising interest rates. Is that possible as we all can benefit and no one gets hurt from rising interest rates?

Timothy J. Sloan

Well, I think the statement that I made and it's a good question and that is that getting to the higher end of that range, we feel good about being in those ranges even in the current interest rate environment. We think that if we start to get -- going to the higher end of the range that it's more likely we'll be at the higher -- expect to see higher interest rates, excuse me, we'll get to the higher end of the range. But with the speed at which rates increase as well as the slope of the yield curve will have a big determinant on the timing in terms of how it affects everybody's balance sheet.

And then clearly the industry performs generally pretty well when you have a sloped yield curve like we have right now. But we'd all perform a little bit better if the lower end of the curve was a little bit higher. The industry performs differently if the long end goes up but also the short end goes up, so you have a flutter curve to it depends a lot on the slope. So we believe that we're well positioned to be able to take advantage of what will be a likely increase in rates at some point in time. I don't know exactly when that's going to happen.

Unidentified Analyst

Your currently operating at a 8.2% Tier 1 common under Basel III and your guidance I think is 8% and a buffer of zero to a 100 basis points. But how do you balance on your (inaudible) in terms of how much per term if we're trying to get to mixed levels do you think you need to operate it?

Timothy J. Sloan

Well, so again just to clarify -- at the 8.18% at the end of the year using Tier 1 common under Basel III, we've already exceeded the minimums that the regulators both domestically and internationally have set for us. So what we're doing right now is really building some additional level of Tier 1 common equities so that we've got our cushion that we talked about. And we should be able to achieve that cushion over the next year or so. I don't know exactly when, but it's clearly within site.

Our view is that we want to continue to grow. We don't think that we need to get to our 9% level and that continued to increase the amount of capital that we returned to our shareholders. And as I mentioned, our 2013 capital plan which was submitted, and again it's in review right now, requested an increase in capital distribution to our shareholders over our 2012 plan. So we think that we can do both; continue to grow our capital levels and achieve the appropriate level of Tier 1 common equities as we need to operate the firm with the cushion as well as return more capital to our shareholders.

Unidentified Analyst

One of the issues on capital is the MSR (inaudible) wants to get above certain levels. So what is the market like there right now for you -- first of all, is there an interest for you to sell servicing outright or would you prefer to sell kind of excess servicing to keep the relationship (inaudible) financial buyer? What does the market look after foreclosures (inaudible)?

Timothy J. Sloan

We don't feel that we're under any terrible pressure to sell our MSR. We got an adequate level of capital. Capital we believe will continue to grow. We think that a decision that we made in terms of continuing to hold the amount of our servicing which is a very important part of how we think about the mortgage business, we like the somewhat natural offset that you have in the business of being both an originator and a servicer.

But we thought it was a good idea to hold onto the servicing because in a low rate environment like we've been in, which creates a tremendous amount of refinance volume, generally you get the first call as a servicer. So that decision has turned out to be very good. One of the reasons why we do think that it's prudent to have some sort of a buffer from a capital standpoint is just for that. That we could have a spike in interest rates and that could affect the value of the MSR and it could put some pressure on capital.

Again, as we continue to grow our earnings even if we see -- and grow our capital, even if we see an increase in interest rates and it does cause the MSR to be written up, we think that we'll have adequate capital. All that said, if we are pleased that there is a market developing and we've been seeing that now based upon a variety of transactions that have occurred, that there is a market developing in MSRs. And we may from time to time want to test that market but we don't feel like we're under any pressure at all.

Unidentified Analyst

Loan acquisition has been a piece of the pie (inaudible). Do you think there will continue to be opportunities to acquire loans over 2013?

Timothy J. Sloan

I've been in the financial services industry for 25 years and the one thing that's been constant is it's a continuing -- there's always opportunities to make acquisitions. They can tend to come and go a little bit and I don't think that really going to change for the next 25 years. That said, we've been very fortunate over the last few years in particular to be in a position to make acquisitions of loan portfolios, as you mentioned. Now why is that the case?

Well, we've got adequate capital. We've got lots of liquidity we can open for business and want to grow. And so if you use those (inaudible) really haven't changed. So our view is that we'll continue to see opportunities in the market and we want to be very active in terms of making acquisitions that make sense for the company. And I'm hopeful we'll be able to do that. But we don't feel like we need to make those acquisitions to be able to grow or continue to grow as we've demonstrated over the last few years.

Unidentified Analyst

One of the [disconnect] is when you talk to players in the market your name simply comes up as among the most aggressive on pricing, yet your returns are also above peers. So can you try to reconcile those two?

Timothy J. Sloan

I think that we've been able to grow our loan portfolio at a rate that's about twice what's going on in the overall industry. And to be able to be -- to be able to take market share which we've been doing for a long period of time, you have to be competitive. But having said that, you don't build long-term sustainable value to shareholders by just being the lowest price option, you have to offer an entire relationship to a customer.

So when we go out, we want to win business. And sometimes to win the business in terms of providing credit for example, you have to be competitive on price. Sometimes that means you're lower, sometimes it means you're in the mix and sometimes you might be towards the higher end. But the reason that we've been able to demonstrate these returns even if we are very competitive on price is because we have a relationship focus and you've seen what we've been able to do in terms of broadening those relationships over time.

So when I was out on the line or when I think about pricing today, I don't think about it as, geez, this is the loan pricing. I think about what's the total relationship worth? And does it make sense to make some sort of investment to bring the business over so we can get the rest of the products and services over time without [tiring] obviously, but the rest of products and services over time and being able to grow that relationship. And because we have confidence in our team because they've been able to demonstrate to do that, that's an easy bet to make every day of the week.

Unidentified Analyst

You guys have one of the strongest deposit franchise as well as cross franchise gross deposit funds. Do you think you use that as an advantage when you go out to price those in the market?

Timothy J. Sloan

I do think that we take into consideration our overall cost of doing business. And so it's not just the cost of funds but clearly that's part of it. But we also take into consideration how much it cost us to operate in a market and what we have to pay our people and what systems cost and the like. And so I think – the economies of scale that we have at the company give us an advantage relative to a lot of our competitors?

Unidentified Analyst

Tim, you mentioned expenses -- elevated expenses in your presentation, environmental and otherwise kind of more efficiency on the operating side. Is that the main lever to offset declines in mortgage revenue, is that kind of the elevator pitch on how you're going to offset that decline?

Timothy J. Sloan

No, not at all; I mean it's part of it. I think that when you look at the revenue growth that we've been able to achieve just in fees, go back to the slide that I've showed on fees, even though revenues were up significantly year-over-year, we saw growth in deposit service charges, you saw growth in trust and escrow fees, you saw growth in a number of our fee categories beyond just mortgage. So clearly that's going to -- and that demand in the fourth quarter, that's going to continue from our perspective. I don't know what the exact rate will be, but that will clearly be a driver. We do think that over time, we can continue to grow net interest income from where we were.

But then in addition to that, we think that we'll get benefits of an improvement in efficiency and also continued improvement in credit costs. Again, separate the loan loss reserve release and that is going to be whatever it's going to be. But we do think that credit costs are continuing to come down. So I think it's going to be a combination of all the above, which to me gives us more confidence that we'll be able to continue to achieve earnings growth even in this environment.

And remember, this isn't the first or last time we're ever going to face a little bit of cyclicality in the mortgage business. We've been in the mortgage business for 20, 30 years. We saw this somewhat in 2011, we saw this somewhat in 2010. But what happened in '10 and '11, we had record earnings and earnings growth. So we feel confident about our ability to be able to grow through the normal cyclicality that you're going to have in the mortgage business.

Unidentified Analyst

Perfect. We're out of time.

Timothy J. Sloan

Thank you very much. Appreciate it.

Unidentified Analyst

Thanks very much.

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