Wells Fargo & Company's (WFC) CEO Presents at Goldman Sachs US Financial Services Conference 2016 (Transcript)

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About: Wells Fargo & Co. (WFC)
by: SA Transcripts

Wells Fargo & Co. (NYSE:WFC) Goldman Sachs US Financial Services Conference 2016 December 6, 2016 8:45 AM ET

Executives

Tim Sloan - CEO and President

Analysts

Richard Ramsden - Goldman Sachs

Richard Ramsden

Okay. So, we’re going to continue with the next presentation. We are delighted to have Tim Sloan with us, who is CEO of Wells Fargo. I think Tim is very well known to many of you here, given his 29 track record -- 29-year track record at Wells Fargo. He has run many of Wells most important businesses, and he was most recently COO before taking on the CEO role. Tim is going to give a brief presentation before sitting down for a fireside chat. So Tim, thanks for joining.

Tim Sloan

Great. Thanks, Richard. I appreciate it. Good morning everybody. I appreciate your interest in Wells Fargo.

The presentation that I’m going to give includes certain forward-looking statements regarding our expectations about the future number of factors many of beyond our control, could cause actual benefits or results to differ materially from management's current expectation. So please refer to the appendix for information regarding our forward-looking statements where you can find more information about our risk factors, information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures can be found in our SEC filings.

We always began our presentations with this slide, because it's the foundation of everything that we do at Wells Fargo. It's been that way for the 29 years that I’ve been at the Company. Our vision of satisfying our customers financial needs and helping them to succeed financially is about building lifelong relationships, one customer at a time.

The core values Wells Fargo is true today is it were a year-ago and that were a 164 years ago. However, we had problems in retail bank were products became the focus rather than the relationship with our customers and I'm fully committed along with our entire leadership team to fixing these issues in rebuilding trust with all of our stakeholders, most importantly with our customers.

We’ve had six strategic priorities at Wells Fargo, which has guided us through the last few years, putting our customers first, that makes sense given our vision, growing revenue, managing expenses, living our vision and values, connecting with our communities and our stakeholders and of course managing risk in appropriate way.

Last month we added a seventh priority, we will be rebuilding trust. Adding this as the seventh priority underscores that rebuilding trust in Wells Fargo will be a long-term effort, which requires commitment, patience, and perseverance. And I will update you on some of the actions we’ve taken to rebuild trust in the last few weeks.

Let me first highlight our performance through the first nine months of the year. As shown on this slide, we’ve successfully grown revenue with the past two years in an economic and interest rate environment that has been challenging. Our efficiency ratio has been at the upper end of our targeted range between 55% and 59% over the past five years, which is expected and what we expected and told our view in this slow rate environment. And we remain very focused on managing expenses, while we continue to invest in the franchise for future growth. Compared with the same period a year-ago, our pre-tax pre-provision profit increased 3% for the first nine months of 2016.

But our earnings did decline driven by higher credit costs as we had a $350 million reserve build in the first nine months of this year and last year through the same period we had a $450 million reserve release. However, our overall credit quality remains very strong with only 37 basis points of net charge-offs during the first nine months of the year. Returning capital to our shareholders, all of you remains a priority, and we’ve successfully reduced common shares outstanding over the past three years. We’ve also increased our common stock dividend rate every year since 2011.

In the third quarter, we generated earnings greater than $5 billion for the 16th consecutive quarter. Our ability to generate consistent quarterly earnings during a period that is included persistent low rates, market volatility, economic uncertainty reflects the benefits of our diversified business model. We are the largest lender in the country. Our $961 billion loan portfolio is balanced with a slightly higher concentration of commercial loans at 52%.

Our largest concentration in C&I loans -- our largest concentration is in the C&I loans, which is broadly diversified across both industries and geographies. And as you can see our fee generation reflects the benefits that diversify our product lines across both our consumer and our commercial businesses.

Our results continue to benefit from strong growth in loans, which were up 8% year-to-date compared with a year-ago, among the highest growth rates of our peer group. Our average loans have grown a $180 billion -- $180.8 billion over the past five years, reflecting the benefit of both organic growth and acquisitions.

Over the past few years, we've grown -- excuse me, past five years, we’ve grown average deposits by $315 billion. We had a record $1.3 trillion of average deposits in the third quarter, up $62.6 billion or 5% from a year-ago. This included 8% growth in consumer and small business deposits. Our average deposit cost was stable compared to the second quarter at 11 basis points and up 3 basis points from a year-ago reflecting an increase of deposit pricing for our wholesale banking customers.

At our Investor Day in May, we updated our performance targets for ROA, ROE, efficiency ratio and net payout ratio. These ranges are meant to be guidepost for our annual results over the next two years based on our view of the environment, not normalized over the cycle or aspirational ranges. As you can see on this slide, our targeted ranges are best-in-class levels compared with our peers and we continue to generate strong results while efficiently running a very diversified model and returning capital to our shareholders.

I want to make a few comments on some items that have been of interest to all of you. A common question that we received so far this quarter is around the implications for Wells Fargo over the recent sharp increase in interest rates. In general, higher interest rates and a steeper curve are long-term positives for us.

We remain asset sensitive and are in a position to benefit over time from higher rates, including our ability to deploy liquidity at attractive yields. Near-term there are some puts and takes to the -- to this quarter's rate back up and ongoing volatility. While higher rates provides opportunities to deploy excess liquidity, in the near-term there will be a reduction in OCI reflecting the higher rates or the impact that the higher rates have on our available for sale securities portfolio.

In this regard, we continue to balance our investment actions in order to remain conservatively positioned for a range of rate outcomes. From a loan yield standpoint, certain of our portfolio is reprised and short-term rates increased and while reduced -- we reduced some of our rate sensitivity by adding duration over the past couple years, we stand to benefit if the Fed increases rates in December.

On the liability side, we continue to issue long-term debt to satisfy our TLAC requirements. Ongoing debt issuance will continue to have an impact on net interest income and the net interest margin, as we’ve discussed previously. We continue to -- we expect to continue to issue at a measured pace as we move toward the compliant states in 2013 and -- excuse me, 2019, and 2022.

As it relates to our long-term debt, it's important to remember that part of our overall asset and liability management program, we typically swap long-term debt from fixed to floating rate. While this is prudent from an asset and liability management standpoint, the current accounting for these and other similar hedging transactions requires us to measure hedge ineffectiveness every quarter. So quarterly interest rate and currency volatility can impact reported results.

In the first quarter of this year, we recall that a sharp decline in interest rates and foreign currency fluctuations drove a net hedge accounting gain of $379 million in our reported other noninterest income. While we don't know the accounting impact until the end of the quarter, so far certain interest rates and foreign currency fluctuations have moved even more than in the first quarter, but in the opposite direction.

As we’ve discussed in the past, we would expect hedge ineffectiveness to be neutral over our -- the life of the hedge results, but accounting can cause volatility from quarter-to-quarter. Higher interest rates would also impact mortgage activity, which is important to us, particularly, refinancing. But given our strong pipeline at the end of the third quarter, we currently expect origination volume in the fourth quarter to be close to third quarter levels. First quarter originations are expected to decrease due to the decline in refinance activity and normal seasonality in the purchase market.

Turning to loan growth. Commercial loan growth was strong early in the fourth quarter compared with the third quarter, particularly, in C&I and commercial real estate. And we’ve continued to see good growth in credit cards, but auto loans have declined driven by tightening of our underwriting standards.

A couple comments on capital and TLAC. At the end of the third quarter, our CET1 ratio fully phased-in was 10.7% and the strength of our capital levels is one of the factors that has enabled us to return a gross basis of $11.8 billion to our shareholders in the first nine months of this year.

We have performed our own analysis regarding the Fed's stress capital buffer proposal and the potential impact appears manageable and over -- overall changes to the CCAR framework are generally aligned with our expectations. If you also ask us about the impact of the G-SIB surcharge and ours moving from 1% to 1.5%, which was due almost exclusively to exchange rate differences used in the Method 1 calculation and not direct changes to our G-SIB categories.

Our G-SIB surcharge for CET1 is not currently affected as the Fed uses the higher of the two methods in their calculation. So our surcharge is 2% under Method 2, so no change there. But the FSBs increased Method 1 surcharge will impact the required amount of TLAC and our 21.5% TLAC requirement would increase to 22%. So the estimated net shortfall that Neal Blinde, our Treasurer, discussed last week -- last month, excuse me, would increase to $36 billion or $49.8 billion with 100 basis point internal buffer.

Let me give you a couple of few updates as it relates to retail banking customer trends. The slide you see here shows the October trends that we released a few weeks ago. In general what we’re seeing is that existing customers were actually using their accounts in October and valued their relationship with Wells Fargo. As expected, we experienced a decline in new checking account openings and credit card applications, reflecting a full month impact following the announcement of the sales practices settlement and reduced marketing activity.

Average consumer and small business deposit balances were consistent with September and up from a year-ago. The number of primary checking accounts are most active customers was in line with September and also up from a year-ago. Debit card transactions and credit card purchase volume were both up from September and up from a year-ago.

We completed over a 140,000 branch-based consumer surveys -- customer surveys in October and loyalty scores were down from September and down from a year-ago. However, that we're very encouraged that these scores improved from the lows that we experienced in early October. We will be reporting November retail banking customer activity late next week and we currently believe that the November trends will be similar to what we saw in October.

As highlighted earlier, my primary objective is to restore trust in Wells Fargo including rebuilding pride in our Company and our vision of meeting our customers financial needs. In order to achieve this objective, we’ve been focused on outreach to everyone who's been impacted by retail banking sales practices, including our customers, our team members, investors, regulators, elected officials, and of course the communities that we do business in.

There are things that we need to fix within our culture and weaknesses must be addressed. And although the sales practice issues were in retail banking, our entire Company is focused on building a better Wells Fargo that includes surveying team members to understand their views on our approach to ethics and integrity. As part of our view -- review of sales practices across the country, we will be engaging a separate independent consultant, so that we’re going to be looking at all of our businesses.

We are actively engaged with our regulators to comply with the consent orders and taking actions to ensure they were always doing what is right for our customers. We’re reviewing claims regarding retaliation against team members who contacted the ethics line, and we're completing an end-to-end review of the ethics line process.

We are also assisting former retail banking team members who remain eligible for rehire and applying for available positions. I know there is a lot that we need to get right and team members throughout the Company are very focused on the hard work that’s necessary to restore trust in Wells Fargo. At the same time, I’m also very focused on managing all of our diversified businesses for long-term success, which include -- includes making changes like the one that we announced in October with the formation of our new payments virtual solutions and innovation group will be led by my colleague Avid Modjtabai. This new group will bring teams from across the Company together to accelerate our focus on delivering the next generation of payments capabilities, advancing digital and online offerings, and investing in new customer experiences and products. And I'm happy to -- down to Richard and take some questions.

Question-and-Answer Session

Richard Ramsden

Thanks a lot. Some is real close to you, so we’ve a little -- whatever you prefer. So, you being the CEO now, I guess for two months …

Tim Sloan

And 10 hours.

Richard Ramsden

… and 10 hours. So two long months.

Tim Sloan

Yes.

Richard Ramsden

As you settled into your new role, I thought it would be helpful if you could go through some, perhaps the longer term priority, so I think we will understand that near-term rebuilding trust is obviously most important, but as you think out of the next two or three years, what are the milestones you really want to invest to enjoy the success of your leadership on?

Tim Sloan

Sure. So I think that the primary milestone is to measure us based upon our return to shareholders, whether that’s in a form of share repurchase or dividends, we remain very focused on that and notwithstanding the challenges that we have as I mentioned in the first few months of this year we’ve returned $11.8 billion to our shareholders, we're very proud of that. We are very, very committed to that. Beyond that, it's really business as usual at Wells Fargo except for the challenges we have with retail sales practice and I don't mean to minimize them, but to answer your question we want to continue to be very focused on our customers. That’s one of the reason, for example, I mentioned at the end of my presentation that we created this new payments ritual solutions and innovation group. I think we as a Company need to move a little bit faster in terms of the pace at which we introduced new products, introduce new convenience and continue to invest in technology. If you look at the rest of the Company, X [ph] some of the challenges we’ve had in the retail business over the last few months, the third quarter was incredibly strong. So I look at, for example, our wealth and investment management business where we have a terrific management team, they had their best quarter in their entire history in the third quarter, great opportunities to continue to grow including adding technology and offerings like robo-advising. And then the wholesale business, which similar to Wells Fargo is very, very diversified. Saw great growth and had one of their best quarters ever and so you can see across all those businesses opportunities including finishing up the integration of the GE acquisition. And then on the consumer side, when the mortgage business continues to be incredibly strong we had a good quarter in the third quarter. Our expectation is we will continue to be the leader in that industry. I think that’s a place where technology can continue to give us the differential advantage that and improve the product set that we have today and then the credit card business is another opportunity where we’re seeing some good growth. So there is lots of opportunities across the Company. I think we’ve got the right leadership team in place, notwithstanding that we’ve some good headwinds just to measure us by our performance.

Richard Ramsden

So you’ve been at Wells for 29 years.

Tim Sloan

Yes.

Richard Ramsden

How do you ensure that your objective about recognizing what Wells strengths are? Those that are being critical about what needs to change?

Tim Sloan

Sure.

Richard Ramsden

Given that you obviously know that [technical difficulty] as well as anyone else. You have talked about the need to change aspects of that?

Tim Sloan

Yes, I think it’s a very fair question and there has been a number of questions in the media and maybe by others about whether or not somebody who has been at the Company for 29 years can lead the Company, given the challenge we have. And the short answer is I think that’s possible. Having said that, I also and cognizes the fact that because we did make some mistakes, so that’s important because I think I know and I'm confident in the direction that we're going. But I think it's important to bring in third parties to take a look at the Company and be critical of us as many have by the way. So for example, we’re required under the two consent orders with the CFPB and with the OCC to look at sales practices and bring in a consultant to look at sales practices in some of our retail businesses. What I told our team is, look I don’t want to just look at those businesses, we’re going to bring in other consultants and we are going to look at sales practices in every business of this Company. Even though I'm not aware of any issues, but I don’t want ever to be a concern about sales practices in Wells Fargo, I mean that’s just so against the fundamental vision of the Company to satisfy our customer needs. There has been a question about our culture, as I mentioned I think there are some things in our culture that we need to change. I think overall it's fine, but we are going to bring in some third parties to take a look at our culture and give us some very critical advice. So I think it's been open to other ideas and other views of Company and I think with that combination of being open, but also having the experience to run the business I think we can move forward.

Richard Ramsden

So let's talk about the soft [ph] culture a little bit, because I do think it's something that over the years people have actually seen as one of your core strength.

Tim Sloan

Right.

Richard Ramsden

And it's actually something a number of other banks have actually tried to emulate. So as you change sales incentives, how do you ensure that you’re keeping the positive aspects of that culture and that you’re not over reacting to the issues that you’ve gone through? How do you ensure that there is a balance around that? And as a follow-on, you’ve said the cross-selling is an appropriate talking, can you expand on that as well.

Tim Sloan

Sure. So I will answer in reverse order. So first is that there is nothing wrong with cross-selling. And cross-selling is a business model which is a short hand for good relationship management. You bring a relationship into, we bring a relationship into Wells Fargo, we want to provide that customer regardless of the customer type with good service, with good ideas, with good products and over time that relationship broadens. That’s what it is. Unfortunately what happened over the last few months is that inappropriate retail sales practices and cross-sell tend to be used are intertwined in simultaneously and to me I view then as being very different. There is a risk, because we're changing the incentive compensation program within our retail banking business that had been more product oriented, that that there could be an impact and your are seeing that, you see that in the fourth quarter numbers as we transition, but when I think about what the incentive plan is going to be in retail banking, it's going to be focused on service, it's going to be focused on the growth of relationships, it's going to be focused on product referrals to other businesses and all that makes sense and that is very consistent with our model. And I think it is also important to appreciate that while we had challenges in the retail business the rest of the Company is performing quite well and notwithstanding that we’re going to look at practices there. I'm confident that we will be able to continue the growth in all those other businesses.

Richard Ramsden

Okay. Perhaps you can just talk a little bit about the cost components fixing, so I guess two related questions. Where would you say you are in terms of implementing some of the control function changes that you’ve talked about? And secondly, I think you said on the third quarter call the cost of fixing these was going to be in the tens of millions two months after that -- is that still a good estimate?

Tim Sloan

Right. So on the first part, I don’t foresee any significant increases in the cost of implementing the controls -- incremental cost in the controls that were in the process or we’ve either put in place were some of the realignments that we’re doing in our corporate risk function. In fact, maybe over time we can get some efficiencies there, but it's too new [ph] to declare a victory there. I think in terms of the cost of just moving through the litigation and the investigations that we’ve going on, as you mentioned we said in the tens of millions of dollars I think that seems reasonable today based upon what we now. But again we think about it more as being in the upper end of the range from our -- from an efficiency standpoint.

Richard Ramsden

Okay. Perhaps lets switch gears and talk a little bit about how your thought process changed since the election. So there is a lot of debate around how the regulatory cycle could change.

Tim Sloan

Sure.

Richard Ramsden

The Steve Mnuchin, the new Treasury Secretary has said that …

Tim Sloan

Did he work at Goldman?

Richard Ramsden

Sorry, before I joined, yes, but he said that he wants to remove impediments that impact [indiscernible] credit to the real economy, right. If he was to ask you for one or two changes that you think makes sense to change from a regulatory standpoint to kind of achieve that, what would they be?

Tim Sloan

Well, one or two would probably be a few more than that. Again, I think …

Richard Ramsden

You can add to the list.

Tim Sloan

No, there are certain changes that have occurred from a regulatory standpoint that have affected the entire industry and there are others that have had a greater impact, for example on Wells Fargo, ones that I mentioned in my presentation was TLAC. I’m still scratching my head on that one. I think that if he would want to change that, we'd be more than happy about that. I think that when you look at credits that’s available to customers, one great example is FHA lending. When we step back and think about the direct FHA lending business and how pre-crisis most of those lenders were large commercial banks. And now when you look at the top 10, there is not a commercial bank in there and why is that, because the FHA program hasn’t adapted to new terms and conditions like Fannie and Freddie have. I look at another example would be within the local rule in proprietary trading. I mean, we didn’t -- we were not a big fans of proprietary trading at Wells Fargo, never we really did it, but when you look at the cost and the information that’s required to meet the rules today, you’re kind of scratch your head and say it's really a lot of added benefit to that. I look at the CCAR process and the CCAR process again when you step back and think should large financial institutions be stressing their balance sheet, their business model before they decide how much capital to payout the shareholders? Of course they should. I mean that makes a lot of sense in a world, but we move from an objective standard to now maybe it's subject is more important to objective, that would be something that you look at. And then I just look at the absolute levels of capital and liquidity that are required and I look at our Company and I know what we needed to get through the last downturn, which was pretty severe and we were able to do that as well as make the largest acquisition in financial services history without a significant amount of capital. And then I look at the amount of liquidity we needed to get through that period and how much more diversified we are today from a deposit standpoint and say, gosh maybe there was nothing wrong with having capital and liquidity rules, but maybe we’ve gone a bit far. So those would be some examples. And I could go on for about another hour, but I want to be [multiple speakers] time.

Richard Ramsden

Okay. So one of the very tangible things that changed since the election is interest rates and interest rate expectations.

Tim Sloan

Right.

Richard Ramsden

I think you were previously in the camp of [indiscernible]. How was the election process changed your full process around the speed of fed tightening and how are you thinking about changing the way that you manage your liquidity in the light of what’s happened to rate?

Tim Sloan

Sure. So we were in the lower for longer camp because that was the environment that we were in and that was the expectations. In our general view in terms of running Wells Fargo is really not to take any significant interest rates, just try to stay right down the middle of the fairway and not tilt one way or the other. I think to everybody's -- many people's surprise the interest rates put at long end of the curve has changed pretty dramatically and so it -- what we’re now adjusting to is the fact that we’re going to be in an environment where interest rates are going to be a little bit higher than we thought, maybe the yield curve is going to be a little bit steeper, maybe short-term interest rate seems logical that they’re going to go up. Again net-net, I don’t think it really fundamentally changes how we’re thinking about managing our interest rate risk. But as I mentioned, it creates over the medium and long-term real good opportunities for us in terms of a -- being the largest lender and having a good portion of that $961 billion reprised because it is floating. We just saw the benefit that we had when the Fed increase rates about a year-ago, our deposit costs only went up 3 basis points. And so, we’re looking forward to a period as long as interest rates aren't so high, that creates a negative economic environment, I mean, that would be more problematic, but really not going to fundamentally change how we’re thinking about the business. It's just another environment that we are going to have to operate in.

Richard Ramsden

The deposit beta [ph] is obviously one of the critical assumptions, [indiscernible] out your rate sensitivity, I think we calculated for the industry that the deposit better run rate hike in December was around 4% to 6%. For the next rate hike, do you think it's going to be materially different?

Tim Sloan

I don’t think it would be materially different. As long as there is not a view that then the next hike is going to be more than 25% or we’re going to have multiple hikes going to happen over a period of time. I mean it seems logical to ask that the Fed is going to continue to be pretty prudent, which is what they have been in terms of the rate increases. And I think if they do that, then that’s going to allow the market to adjust in a thoughtful way which is what happen. So if you ask me to turn a clock forward, do I think that the impact on the Company for another 25 basis point increase will be similar to what we experienced? Yes, but it's going to be in a different economic environment, so the ultimate outcome could be a little bit different.

Richard Ramsden

Okay. Let me pause there and see there are any questions from the audience. Okay let me -- okay let me continue on. You obviously …

Tim Sloan

You’re doing a good job.

Richard Ramsden

Thank you. So you have a relationship I think with one in terms of small businesses around this [multiple speakers]. How has corporate confidence changed since the election? How is it being tracking over the course of the year and how do you think it shifts in 2017?

Tim Sloan

You know I would say so far the reaction that we’ve got from our customers, I would describe it as being anecdotal because it's been a few weeks. But when I look back at the surveys that we did, particularly for our small business customers. The two issues that they were most concerned about that have been for a number of years are healthcare costs and taxes. And what I’m hearing from the incoming administration is they’re going to address both of those in one which they perform, so that’s created some kind of positive optimism and enthusiasm from our small business customers and that’s consistent with what they said before. We generally are serving them on a quarterly basis, so we will have an update next quarter.

Richard Ramsden

And something on the consumer side, you had seen this re-levering of consumer balance sheet over the course of 2016, actually with an accelerating pace as you look at '17, how do you think again that shifts?

Tim Sloan

Well, I don’t think there will be a significant shift. I think it is likely if overall asset values, whether its equities or commercial -- or residential real estate continue that you could continue to see that trend, but I look at the balance sheets of our customer, our consumer customers today, they've never been better. I mean every quarter when we look at our mortgage portfolio, we will have a -- we will sit down and we will talk about that and we will say oh, it can't get any better than this and then the next quarter gets even better, right. And it's based upon the fundamentals, it's not necessarily based on speculation. So even though we've seen some re-levering, it's not re-levering to the extend at what we saw in 2006 or '07, which was very scary from our perspective and were required us to kind of change the way that we offer products and pull back a bit, but that's now what we’re seeing today.

Richard Ramsden

Okay. So [indiscernible] question from the front.

Unidentified Analyst

You mentioned [indiscernible].

Tim Sloan

I could just wait for the mike.

Unidentified Analyst

Tim as you’ve gone and done your review on the retail sales practice and talked about the intermediate term ramifications, how have you assessed the risks related to CCAR for next year when it comes to return on capital? How are you thinking about what ramifications is good at?

Tim Sloan

Sure. So, one ramification could be just on our expectations related to our current earnings and because that’s a work-in-process, there is more of a question mark there. Second, could be how the reputational risk or legal settlements or a customer remediation plays into our assumptions for operating losses. Our assumptions for operating losses in the last CCAR as it is for the entire industry were very conservative, in fact my recollection is that the Fed's results were a little bit less conservative in the industry. So I don't know exactly what’s going to happen, but I do think that as we have stressed our capital plan for operating losses, we've included some pretty draconian scenarios that would encompass what we’ve seen today in terms of the reputational risk and other related cause related to the retail sales practices.

Unidentified Analyst

[Indiscernible] qualitatively?

Tim Sloan

Yes. You know the qualitative question is just one of a question mark, because it seems like every year the bar is kind of raised a bit and so we’ve been planning for that since we received our last CCAR review from the Fed and we’re continuing to update our plans. I think that one of the reasons why we've gone above and beyond what were required to do, as I mentioned for example retail sales practices or remediation is because we want to demonstrate that we’re not just trying to get to a certain level, we want to try to exceed that level and I think from a regulatory standpoint I think they will appreciate that.

Richard Ramsden

Perhaps as a last question, can you talk a little bit about credit quality?

Tim Sloan

Sure.

Richard Ramsden

I think your charge-off ratio is the low 30s.

Tim Sloan

Yes.

Richard Ramsden

Do you think a normalization of interest rates in growth means that you will see a normalization of credit in 2017 and '18?

Tim Sloan

Yes, it’s a fair question. And as I mentioned, we pull back a little bit in auto, because I think the market was or the competitive environment was a little bit much, but overall I think that in -- if we stay in the interest rate environment we are in and we’re in a 3-ish percent in a GDP level, and again that could be a little bit high and a little bit low, we don’t really see any significant changes within the -- within credit. With the exception that in the energy business which has been the primary driver for the increase in our credit cost over the last year, we’re working through that cycle. So I could imagine a scenario over the next year that if we stay in this kind of economic environment and then energy losses start to come down, which is what our expectation is, I don’t know exactly what that will be or when that will occur that we could see some improvement in credit. If interest rates increased 200 or 300 basis points, it would be a surprise I think from our perspective or we saw GDP and the economy tilt the other way then you could see higher credit losses. But we feel very good about the portfolio today. I don’t know if it's ever been in better shape again with the exception of the energy portfolio, we are working through the cycle.

Richard Ramsden

Okay. Well, Tim, I think we’re out of time. So thanks very much.

Tim Sloan

Great. Thank you, Richard. I appreciate it. You bet.