Q3 2020 Fifth Third Bancorp Earnings Call
Time, all participants are in listen only mode.
Speakers presentation, there will be a question and answer session to ask a question during the session you'll need to press star one on your telephone if you require any further sheepskin. Please press star zero I would now like to hand, the conference over to your speakers today, Chris you may begin.
Thank you Marcella good morning, and thank you for joining US today, we'll be discussing our results for the third quarter of 2020.
Please review the cautionary statements on materials, which can be found in our earnings release and presentation.
These materials contain reconciliations to non-GAAP measures along with information pertaining to the use of non-GAAP measures as well as forward looking statements about that there's performance we undertake no obligation.
No obligation to and would not expect to update any such forward looking statements. After the date of this call.
I'm joined this morning by our President and CEO, Greg Carmichael.
See I thought, which I seem to do.
Chief risk officer games lender.
Chief Credit Officer, Richard Stein.
Following prepared remarks by Greg as I see it wasn't the call up for questions.
Turn the call over to Greg now first on that thanks, Chris and thank all of you for joining us this morning.
Your old we will stay healthy once again, our financial results were strong despite the challenges associated with the current environment.
As the central business, we continue to take appropriate actions for customers our employees and our communities.
Okay.
Earlier today, we reported third quarter net income available to common shareholders of five.
Were $62 million or 78 cents per share reported EPS includes a negative 7% impact shown on page two of our release. Excluding these items adjusted third quarter earnings were 85 cents per share.
But he will provide more details on the quarterly financial results in his remarks, but will share some highlights.
Well reported adjusted return metrics were sold reflecting our strong operating results, including the provision for credit loss performance across.
Credit losses were significantly better than expectations.
35 basis points or third quarter charge offs were the lowest level in over a year with improvement in both consumer and commercial portfolios.
Consumer net charge offs or 40 basis points is the lowest in the past 15, plus years, reflecting our consistently strong approach to underwriting as well as the benefits of fiscal stimulus and payment deferrals.
Our already strong capital position for the improved this quarter or so.
North Sea EG, one ratio of 10.1% is well above our stated target.
Around 9% in our income levels combined with the outcomes from our quarterly stress test continue to suggest that we will maintain our current dividend.
Furthermore, we have grown tangible book value per share for six consecutive quarters.
Or P.P. and all results were better than our previous expectations, reflecting the strength and resilience of our diverse revenue mix in retail commercial and wealth and asset management.
Based on our fee based businesses many of our fee based businesses or generate strong results that are helping to cushion the impact of lower rates.
For instance, wealth and asset management revenue increased 10% sequentially as we generated positive a U.M. inflows again this quarter as we have done nine of the last 10 quarters.
Capital markets revenue was up 8% from last year, it was down slightly relative to the record second quarter on a year.
On a year to date basis. So the commercial banking fee revenue was up 16% compared to last year.
Topline mortgage revenue was up 45% from the year ago quarter.
With the low rate environment impacting services revenue and the MSR valuation.
Deposit fees increased 80% plus a few revenue increased 12% sequentially.
Well better than our previous guidance as we were seeing early signs of stabilization and business to consumer spending patterns.
Well, we continue to streamline our operations and position the bank for long term success, we continue to assess strategic investments in non bank acquisitions in our fee based businesses to accelerate revenue growth for instance, we recently increased our strategic investment and bellwether enterprise.
Hey, National multi products, you already from which we originally announced in April.
This investment provides clients with a broader set of permanent financing solutions.
After the third being exposed to the balance sheet risk associated with longer duration, she or he assets.
Commercial loan production was relatively stable this quarter compared to the second quarter offset by further declines in line utilization.
Total average loans declined 4% sequentially within our previous guidance range, we expect.
We expect near term pressure.
Number four wheel to continue.
Despite the tepid alone Barb.
Net interest income exceeds our previous guidance as we aggressively reduced our deposit cost in excess of our prior expectations.
Well the environment remains uncertain or commercial loan pipelines or begin to improve in certain areas, particularly in technology telecom healthcare and industrials, which should provide support as we head into next year.
Before I turn it over time due to further discuss results and outlook.
Ill review, our guiding principles strategic actions and key strategic parties, which will enable us to continue to generate long term shareholder value.
We have consistently communicated our through the cycle principles disciplined client selection conservative underwriting and overall balance sheet management approach focused on a long term performance or.
Our unwavering adherence to these principles in are bouncing strength.
Gives us confidence as we navigate this environment.
We have executed numerous strategic actions over the past five years in anticipation of the downturn, which we could choose service well.
Reduced our credit risk exposures and build strong reserve coverage we'd be.
We've built long term protection to mitigate the look the impact of lower interest rates.
Decisive actions to reduce our expense base and we successfully invested in and diversified ore feed businesses from a.
From a commercial client standpoint, we continue to focus on generating relationships with clients, who have more diversified and resilient businesses youre.
We are confident in our client selection process and proactive approach to credit risk management.
We continue to believe we are well positioned relative to peers and commercial real estate in area, where we have remained disciplined we have.
We are focused predominantly on top tier developers the track record of resiliency.
Our portfolio is well diversified by geography property type and as we have discussed before we can choose to be at the low end appears as a percentage of total Kathy.
In addition to the CRT portfolio or other lending portfolios continue to do will be well positioned combining our strong retail and regional commercial banking franchises in the Midwest and southeast with our national lending businesses. These portfolios will be instrumental in delivering differentiated credit performance given the likelihood.
Good of an uneven economic recovery.
We are monitoring our exposures across our total commercial loan portfolio utilizing early warning systems through a combination of internal portfolio analysis and third party data are really.
Our relationship teams receive timely alerts, we detect any signs of credit deterioration there so.
This helps us make profit prudent accurate credit rating determinations proactively without waiting for customer statements.
Looking ahead to 2021, we continue expect full year net charge offs to come in well below 1%.
We have also strengthened our balance sheet, but doing long term protection, the positioning of our securities and hedge portfolios.
With a high likelihood of lower rates for the next several years, our prudent interest rate risk management should help preserve our core margin.
Very strong balance sheet liquidity has enabled us to decisively act and aggressively lower deposit rates.
Given the industry wide revenue headwinds, including a strong likelihood of persistently low interest rates, we recently announced an expense optimization point.
We are taking decisive.
And appropriate actions to reduce our expense base.
Both temporarily reflected the weaker revenue environment and also permanently based on loan from structural saving opportunities.
Our four key strategic parties remain intact, leveraging technology to accelerate our digital transformation.
Well, I think organic growth and profitability expanding market share in key geographies.
Maintaining a disciplined approach on expenses and client selection.
We will put the appropriate level of proposition and focus on the areas that have the highest probability of driving strong financial returns and generate long term value for shareholders, nor first emerge from the current environment. He taught performing regional bank.
Our balance sheet strength diversified revenues and continued focus on disciplined expense management will serve us well as we navigate this challenging environment.
I want one we'd like to once again, thank our employees I'm very proud of the way you have responded extraordinary ways to support customers or communities in each other during these unprecedented times what the number.
What could limit to generate sustainable value for our stakeholders.
As evident in our inaugural environmental social and governance report as we.
Also became the first U.S. commercial bank joined the SAS be alliance in the Gi or like can you report in other help disclosures are available for your review on a dedicated yes, you page on our Investor Relations website.
With that I'll turn it which I soon to discuss our third quarter results our current outlook.
Thank you Greg Good morning, and thank you for joining us today I'll let.
Now, let's move to the financial highlights on slide three of the earnings presentation.
Reported results for this quarter were negatively impacted by three notable items 30 million dollar after tax charge related to our previously announced restructuring plan a $17 million after tax negative mark related to the visa total return swap and.
And $4 million after tax from cold it related expenses.
Strong operating results for the quarter reflected solid business performance throughout the bank as well as the impact of provision, which resulted from our best quarterly charge off performance since mid 2019 stabilization in key forward looking macroeconomic indicators compared to the past couple of quarters as well as lower pre.
Food and period end balances.
Although we are seeing relative stability in the key macroeconomic variables used in our reserve calculations, we continue to take a cautious approach given remaining uncertainties related to the pandemic and the economy.
Our base case macroeconomic scenario assumes GDP remains below the end of 2019 levels until the second quarter up 2022, with an unemployment rate worse than the current environment remaining elevated above 8% through 2021.
Our base case is generally more conservative than the fed base scenario published last month.
Our downside scenario assumes that GDP will remain below the end of 2019 levels until the second quarter of 2023 with unemployment further deteriorating from the third quarter exceeding 12% through the first half of 2021 until improving to 11% by the end of 2020.
And reaching 8.4% by the end of 2022.
If we were to assign 100% probability to the downside scenario you would likely require an additional $1.3 billion in reserves based on our current balance sheet exposures.
Reported and adjusted revenues grew 22% sequentially. Despite the generally weak environment as we outperformed our previous fee and our expectations.
Total non interest income excluding the impact of securities gains was up 5% sequentially three percentage points better than our previous guidance.
With respect to the outside securities gains.
This quarter. It is important to note that our unrealized gains in the portfolio at the end of the quarter remained very high at $2.7 billion our.
Our very deliberate actions over the past few years that focused on structuring the portfolio in anticipation for a lower rate environment should continue to give us a strong advantage as a very effective hedging tool to help mitigate the rate headwinds.
Having said that we will continue to be prudent in managing the gains for the best outcome for our shareholders cognizant that these gains will continue to be subject to future volatility, especially to fluctuations in the current prepayment environments.
This quarter, a small portion of our portfolio gains cushioned the impact of the restructuring charges that we incurred relative related to our expense reduction plan, which we believe was a prudent risk based action in light of the current environment.
Reported and adjusted non interest expenses were flat year over year.
On a sequential basis adjusted expenses increased slightly more than our previous guidance of up 2%.
We are in the midst of executing our expense reduction actions announced last month, which will generate annual efficiencies of $200 million starting in 2021 with an additional $1 million to $250 million of annual efficiencies to be generated starting in 2022.
As a result of our strong revenue performance and continued expense discipline PPNR increased regrets sequentially and outperformed our July guidance by approximately $15 million.
Given the strong PPNR performance combined with the credit related improvements we generated strong reported an adjusted return metrics.
We achieved an adjusted ROI of 1.24% and adjusted return on tangible common equity of 18.2% excluding AOCI right. Despite.
Despite growing our regulatory capital 42 basis points during the quarter.
Excluding the security gains.
Our adjusted all the GCG was nearly 17% even though.
Even on a credit normalized basis, our underlying our GC performance is indicative of the strength of the franchise and our ability to successfully navigate a low rate environment.
Moving to slide four.
Total average loans declined 4% sequentially within our previous guidance range.
Hi loan balance trends continue to reflect lower revolver utilization rates, which declined by 15% from the mid April April peak to 33% at quarter end and declined by 5% since the end of June.
The decrease in average loans was partially offset by an increase in average auto loan balances.
Due to the uneven nature of revolver utilization rates and the impact of PPP loans, we are providing period end loan balance performance.
Revolving line of credit balances decrease in excess of $3 billion, which constitute approximately three fourths of the end of period balance quarter over quarter decline.
Line utilization trends so far in the first two weeks of the fourth quarter indicate continued low utilization levels, which we expect will likely persist at least through the end of this year.
C N I find pipelines remain generally soft, but have somewhat improved relative to last quarter.
Average and period end CRT loans decreased 1% sequentially as.
As we discussed before we believe that the commercial real estate sector is particularly vulnerable to the current economic environment and potential changes in the post pandemic economy, which continues to favor our low exposure and focus on high quality borrowers in this sector.
Average total consumer loans increased 1% sequentially.
Revenue growth in the auto portfolio was offset by declines in home equity and credit card auto.
Auto production in the quarter was strong at $1.8 billion with average FICO scores around 780, and lower advance rates higher internal scores better spreads and a higher concentration of new versus used autos compared to recent quarters.
Most of the other consumer loan categories continued to reflect the generally subdued borrower demand.
Our securities portfolio of around $35 billion decreased 2% compared to the prior quarter, reflecting the impact of the sales as well as continued pay downs.
Unless the market environment changes, we are unlikely to use any of the excess liquidity to grow our investment portfolio in the near term.
The underlying risk return profile of many of the investment options is not attractive in light of the impact of the aggressive monetary actions that the fed is executing.
Average other short term investments, which includes interest bearing cash increased $10 billion compared to the prior quarter and increased $27 billion compared to the year ago quarter.
The significant increase in excess cash is the outcome of the ongoing decline in loan balances combined with record deposit growth over the past six months.
Moving on to slide five.
Compared to the prior quarter average core deposits increased 4% with growth in all deposits captions, except other time deposits.
Average demand deposits represented 33% of total core deposits in the current quarter compared to 31% in the prior quarter.
Average commercial transaction deposits increased 6% and average consumer transaction deposits increased 3%.
The deposit growth came from improvement in every line of business and was very granular across product types and customer sites.
Overall, the deposit performance reflects our strong longstanding client relationships and our customers desire to remain liquid.
In addition to growth in deposit dollars. We once again generated consumer household growth during the quarter, reflecting strong production as well as limited attrition.
As shown on slide six we have continued to take proactive steps, which are predominantly focused on the right side of the balance sheet to mitigate the impact of lower rates, which should provide additional support in the coming quarters.
Compared to the second quarter, we lowered our interest bearing core deposit rates 14 basis points more than our expectations, while continuing to generate strong deposit growth.
As a result, our September interest bearing core deposit rate is now just 11 basis points with total core deposit costs, just seven basis points, both well below the floors from the previous rate cycle.
We expect fourth quarter interest bearing core deposit costs to benefit from our actions and decline and other few basis points.
Our loan to core deposit ratio improved to 72% as our short term investments predominantly interest bearing cash or approximately $31 billion at quarter end.
Excluding PPP loans, our loan to core deposit ratio was 69%.
Currently there are no strong indications that the liquidity profile of our balance sheet is likely to change soon.
As loan growth continues to be elusive and investment opportunities relatively unattractive. We will remain we will maintain our short term cash balances at these levels until further notice.
Turning to slide seven.
Reported and adjusted NII decreased 2% compared to the prior quarter.
The decline was primarily attributable to lower cnine balances and the impact of lower market rates.
These impacts were partially offset by the reduction in deposit costs, the full quarter impact of PPP loans day counts and the favorable impact of previously executed cash flow hedges.
As you can see on this slide the hedges added an incremental $10 million to our third quarter Eni for a total contribution of $72 million during the quarter.
Purchase accounting adjustments benefited our third quarter net interest margin by three basis points this quarter.
Our adjusted NIM decreased 16 basis points sequentially, driven by the unfavorable impacts from elevated cash balances, which created an approximate 15 basis point drag on NIM compared to the prior quarter lower market rates and lower see an i. balances, partially offset by benefits from our actions.
To lower deposit costs and the previously executed cash flow hedges.
As we have been highlighting all along our interest rate risk hedging strategy has two pillars, the structure and composition of our investment portfolio and the size and duration of our derivative portfolio as I.
As I stated earlier, our swaps and floors contributed $72 million this quarter.
Our portfolio of premium amortization was only $1 million and our portfolio yield declined only seven basis points you can easily see that our investment portfolio does not erode the protection provided by the derivative portfolio like it has for many of our peers as.
As importantly, we have protection in both portfolios longer than our peers.
Excluding the impact of excess cash relative to historical averages and the lower yielding PPP loans normalized NIM was approximately 3.03% for the third quarter we.
We expect that we will continue to be able to generate a normalized NIM of around 3% for the foreseeable future health by our interest rate hedges and investment portfolio composition.
The fourth quarter and I are men are both expected to remain stable our guidance has no accelerated benefits from PPP loan forgiveness.
Moving on to slide eight we.
We once again had a strong quarter generating fee revenues that offset the pressure on interest income.
The resilience in our total fees continues to highlight the level of revenue diversification that we have achieved.
Adjusted noninterest income excluding the benefit of securities gains increased 5% sequentially exceeding our previous guidance by approximately $20 million.
The strong performance reflected another solid quarter in capital markets strong performance in wealth and asset management and rebounds in deposit service charges card and processing revenue and in the leasing business.
In our commercial business the strong capital markets revenue was down from the record set last quarter, but was up approximately 8% from the year ago quarter.
Mortgage banking net revenue decreased $23 million sequentially, primarily driven by an unfavorable MSR net valuation adjustments and an increase in MSR decay, resulting from higher prepayment speeds.
Current quarter mortgage originations of $4.5 billion increased 32% compared to the prior quarter.
Asset management fees increased 10% sequentially.
Benefitting from stronger market conditions improve brokerage fees and the continuation of positive AUM flows.
The strong wealth and asset management performance over the past several quarters reflects our prioritized investments in this business both in talent upgrades as well as acquisitions to improve the our OE profile of our company.
Card and processing revenue increased $10 million or 12%, reflecting increases in credit and debit transaction volumes, resulting from the continued normalization in consumer spending patterns.
Deposit service charges increased $22 million or 18% with improving commercial deposit fees, reflecting a partial normalization of treasury management service volumes and lower earning credits as well as elevated consumer deposit fees compared to the prior quarter, which included hardship related fee waivers.
We expect processing revenues and deposit fees to be stable to slightly higher in the fourth quarter.
Moving on to slide nine third call.
Third quarter reported pre tax expenses included restructuring charges of $8 million intangible amortization expense of $12 million and cold and related expenses of $5 million.
Adjusting for these items and prior period items shown in our materials non interest expense increased 3% sequentially and decreased $1 million compared to the year ago quarter.
As we discussed first in September during the Barclays Conference in light of revenue headwinds, we are taking action to reduce our annual 2021 run rate expenses by approximately $200 million.
We have started taking appropriate actions in September and expect to finalize all actions by the end of this quarter.
We will share with you the full set up details in January during our fourth quarter earnings call. When we will also give you an outlook for the direction of our expenses in 2021.
With respect to personnel decisions, we expect to generate the full run rate savings beginning in the first quarter of 2021.
In addition to the staffing optimization, we remain on track to deliver the remaining savings through a combination of process reengineering rationalization of certain smaller non core businesses vet.
Vendor renegotiations and corporate real estate rationalization, which are all progressing as well as the savings associated with the reduction in our branch network.
While we will continue to open branches in our existing high growth South east markets to generate household and revenue growth. We expect to further optimize our network by closing an additional 37 branches in the first quarter of 2021 predominantly in the Midwest.
As we have discussed before the recent acceleration in customer digital adoption trends raises the returns in our technology investments made over the past several years. This.
This gives us increased conviction that we can continue to optimize our branch network, while also expanding our presence in high growth markets.
Also our investments and focus on process reengineering and the other areas of our operations will allow us to permanently optimize our expenses in our middle office and back office functions.
We believe that approximately 20% of the 2021 savings our environment dependence windows.
When the market rebounds, and sustained economic recovery, we will readjust these resources accordingly.
In addition.
Mission to a near term savings target, we also announced a longer term expense strategy, which will help us achieve an additional $100 million to $150 million in run rate savings starting in 2022 through investments in lean process automation.
Slide 10 provides an update on our coal that high impact portfolios. The amounts on this page represent approximately 10% of our total loans and are down 8% from last quarter, excluding PPP loans.
As you can see the paydowns during the quarter, we reduced our balances relative to the second quarter in all subcategories, except for leisure travel, where we have a rather small overall exposure all to larger operators.
The total balances on this slide include approximately $1 billion from our leverage loan portfolio, which remains below $4 billion and has decreased 7% sequentially. The info.
The information on this slide lays out the reasons why we believe that our client selection in these portfolios has been very disciplined with a focus on larger companies that have access to capital in stressed environment, and where we have the appropriate credit mitigants in place to limit the ultimate loss content in these portfolios.
On slide 11, we provide an updated view of the consumer and mortgage portfolios.
The FICO scores clearly indicate the high credit quality of the portfolio with over 57% containing FICO scores of 750 or higher on a balanced weighted basis.
Approximately 90% of the consumer portfolio is secured and as you can see by our FICO band distributions. Our portfolio is heavily weighted in the high Prime Super Prime space.
As we have previously discussed we have taken proactive steps to enhance our underwriting standards, specifically on minimum FICO scores and maximum LTV levels. In addition to increasing our efforts and collections.
Turning to credit results on slide 12.
The net charge off ratio of 35 basis points improved nine basis points sequentially.
The sequential improvement reflects favorable outcomes in both portfolios with the commercial credit favorability coming from better resolution as well as extensions and consumer credit continuing to exhibit results that are more commensurate with a stronger employment environment.
Borrowers have been clearly helped by the stimulus and corporate related relief programs and.
And those who request an additional 180 days of mortgage payment assistance as provided under the cares Act will benefit into next year.
Npis remain generally well behaved at 84 basis points. This.
The sequential increase was entirely in commercial with growth coming predominantly from our coated high impact portfolios and some credits in the energy portfolio, which we believe will ultimately result in low loss content.
Our Hcl ratio declined only by one basis point sequentially to 2.49%, reflecting the stability in both the current Mike macroeconomic environment as well as the drivers of the forward looking scenarios.
The low level of net charge offs combined with a $116 million decline in the allowance, reflecting the lower period end loans resulted in a net $15 million benefit to the provision.
Slide 13 provides more information on the allocation of our allowance and the composition of the changes this quarter.
In commercial higher reserve coverage was warranted due to ratings migration during the quarter.
This was partially offset by lower end of period balances compared to last quarter.
Consumer the change in reserve coverage reflects improvement in the expected loss content in the portfolio.
Including the impact of approximately $150 million and remaining discount associated with the MB loan portfolio, our Hcl ratio was 2.62%.
Additionally, excluding the $5 billion in PPP loans with virtually no associated credit reserve, the Hcl ratio would be approximately 2.75%.
Our reserves to reflect the current macroeconomic expectations embedded into scenarios that we deploy in this exercise.
If the outlook does not further deteriorate there should not be a need to increase our reserve coverage beyond the current levels.
Turning to slide 14.
Our capital and liquidity positions remain strong during the quarter.
Our cetone ratio ended the quarter at over 10.1% above our stated target of around 9.5%.
Given the dynamics during the quarter, we are providing you a CD one reconciliation between net income.
It's weighted assets and the impact of dividends.
As you can see dividend payouts constitute a very small portion of the change in CPT one.
We expect to have adequate capital and trailing reported net income to maintain our current dividend for the foreseeable future.
We will be resubmitting, our stress test in early November with the rest of the SEC our backs we.
We have been very consistent in stating our view that given our very strong capital ratios balance sheet strength earnings power and relatively modest Pico the dividend payout ratio, we expect to fare well.
We believe that our performance in this downturn ultimately will prove the resiliency of our model.
Our tangible book value per share was $23.06 this quarter up 9% year over year.
At the end of the quarter, our unrealized pre tax gain in our securities and hedge portfolios was approximately $3.8 billion, which is not included in our regulatory capital ratios.
From a liquidity perspective, we have over $100 billion in total liquidity sources.
Slide 15 provides a summary of our fourth quarter outlook.
We expect a decline in total loan that average loan balances of approximately 2% on a quarter over quarter basis, with a 4% to 5% decline in commercial loans and a 1% to 2% increase in consumer balances.
The decline in commercial balances as a result of expected pay downs and commercial credit lines.
Net interest income and NIM are expected to be stable to last quarter, assuming no benefits from accelerated amortization UPB fees.
We expect non interest income to increase 7% to 8% sequentially, including the recognition of our Trs income of approximately $70 million.
We expect our expenses to be flat to slightly up.
Total net charge offs are expected to be in the 40 to 50 basis point range.
In summary, our third quarter results were strong and continue to demonstrate the progress we've made over the past few years, improving our resiliency diversifying our revenues and proactively managing the balance sheet.
We will continue to rely on the same principles disciplined client selection conservative underwriting and focus on the long term performance horizon, which gives us confidence as we navigate this environment.
We fully intend to preserve the optimal level the efficiency of our operations in this weak revenue environment, while we maintain the investments that we believe are vital to preserve the earnings power and the operational resiliency of our company.
With that let me turn it over to Chris to open the call.
Thanks, Stephen before we start Una as a courtesy to others. We ask that you limit yourself to one question and a follow up and then return to the queue. If you have additional questions we will do.
We will do our best to answer as many questions as possible in the time, we have a lot of this morning.
Marcellus Please open the call for questions.
Again, if you ask a question please press star and the number one on your telephone keypad. Your first question comes from Ken Zener from.
Morgan Stanley Your line is open.
Great. Thank you.
In terms of your expense initiatives, just given that most of that falls to the bottom line is is it possible that we see expenses down on an absolute basis and 2021.
Ken This is Greg.
First off will provide 2021 guidances for our fourth quarter earnings were not call. We'll talk more about that as we talked about our expense optimization plans, a 200 million that we expect to get up by the end of the first quarter, 75% of the actions necessary to accomplish that objective has already been completed so we're highly confident ability take out the two.
Hundred million dollars, but ended the first quarter and then we mentioned another 100 to 150 million that will show up in 2022. Once again focus mainly on automation on investments we made in our technology platforms. So we're very confident but we'll provide guidance as far as our expense numbers on as we get through the fourth quarter.
Yes, I think and the other point that I want to make about the program is and we stated that the composition is 80 20 between permanent savings and environment related savings of 20%, but that environment related saving number is really how we see 2021, so the other lever.
We have here is if things actually look worse or will be worse next year compared to our assumptions. We still will continue to adjust those numbers. So we take that part of it.
That part of it is going to be variable and it does have more potential depending upon upon economic environment, obviously, our preference would be that the economy would be stronger and we don't have to necessarily go back to that well, but we still have that availability to us.
All right Great and then just one follow up.
And you mentioned that you don't expect to invest the excess cash.
So just help us understand why like why not invest in Santo something very short term securities with little risk that would generate a lot more than or at least a little more than cash returns.
Can we don't believe that the trade off between the small and III incrementality versus the Mark to market exposure is worth taking a at this point it really does not from your perspective, our ability to invest the money in the short term doesn't really add much to the long term performance to come.
Revenue so because we believe that that cash is going to ultimately leave the company over time. So therefore, we are more interested in shielding ourselves from a mark to market exposure because the market volatility continues to be a concern for us related to all investments.
All right great. Thank you.
Ken Lewis from Jefferies. Your line is open.
Hey, Thanks, guys good morning.
A follow up on the loan side. So obviously you guys have I think been more forthright than others about the declines in loans that you're expecting and the quality of the commercial book can you.
Can you just give us some thoughts just as you look across the footprint of where if at all you see activity starting to change from a pricing perspective and at what point would you see the loan book, especially the commercial side CN I starting to bottom out.
This is this is Greg first off on the on the loan side on commercial.
You look at our pipelines were seeing some some growth and positive of forward progress in the area of healthcare tell.
Telecom and technology would be to other areas that we're seeing some good growth and then also the industrials would be the areas that were most.
That we're most encouraged by on as we look ahead here. So we feel pretty good as we mentioned on the consumer side, we expect growth when the 2% next quarter.
And that business continues to perform well so that's one.
That's where I think we have the biggest opportunities.
Okay got it and then in terms of the deposit side, you've got so good growth and you mentioned some opportunities this still reprice, what or when other offsets do you have on the right side of the balance sheet if any tick.
To continue to roll down the either the fixed term fixed short term borrowings long term debt footprint.
And enter in addition to deposit pricing.
We don't really have a lot of long term debt opportunities other than just running the maturity schedules at this point so.
Yeah, we've pretty much exit.
Executed to what was available to us we're looking at some small items, maybe that you know that that be securitized in the past, but those are small opportunity. So there's not a whole lot remaining there.
Okay, and then last quick one Tayfun you mentioned that you're not really interested in in building. The securities portfolio. Other banks have started to put some of their liquidity to work. In contrast can you just walk through your philosophy on that and how you expect to just manage overall balance sheet size than if you're not net reinvesting again.
Again, as I mentioned revenue and can ask the question.
At this point, we don't believe that the tradeoff between.
Between incremental and <unk> associated with me.
Marginal investments and continuing to expose ourselves to an unattractive mark to market environment related to those investments is as attractive. So at this point, we will continue to watch now those decisions are made on a week to week month to month basis, if we find opportunities we will.
We'll be in the market, but at this point given what we know today.
We are currently choosing to be on the sidelines.
Understood sorry, I missed that one.
Mike now from Wells Fargo. Your line is open.
Hey.
Yes, I have a while on the positive side and allowed on the negative side that said the while on the positive side would be.
Only 35 basis points of loan losses, and a lower lowest consumer charge offs in 15 years.
So thats quite.
Quite noteworthy, but the Wow on the negative side is a negative provision seems like an outlier on do you really want to set a town at this stage of the cycle.
Taking a negative provision I mean, you might be right like you might be wrong, but we don't really know how this is going to play out so I guess.
My questions are you said, if you had your downside scenario at a 100% that would be 1.3 billion of additional reserves how much overlay do you have for that downside scenario now that that's number one number.
Number two when you mentioned that there were commercial extensions.
What does that mean is that delaying some of the inevitable and you did say that loan losses would go up from here and then.
And then third just that the whole town per se.
Perspective, like it sets a tone that hey, things her aro okay.
So Mike this is taken let me take the first part of that and then I'll turn it over to Jamie for his comments look I mean, I think as you know at the end of the first quarter at the end of second quarter, we came out and much more aggressively in terms of building reserves relative to the peers and when you look at our coverage ratio.
But if you take the 2.49% whether you take the 2.62% or 275, we are still and above the median levels of our peers and internally obviously when we look at the risk profile of our loan book, we feel very good about it and two we really did not take the coverage ratio down it was only it's only down.
From 252 to 49.
And the balance is obviously are lower at the end of the quarter, which had an impact in terms of wading did that to the the scenarios, we actually increased we lowered the way.
The weight of the base scenario, an increase to the weight of the down scenario. This quarter. So we are quite cognizant of potential downturns in the economy, but look I mean, the underlying profile credit profile of our.
The balance sheet and the outstanding balances.
Resulted in that release, and we have to abide by certain accounting principles and do the right thing. So that's from ISI, Jamie any comments from your side, Yeah, and Mike. Thanks for the question.
When we looked at the net provision it really is an output and when you break it down into the two inputs with the.
The Cecil reserve.
Right there with the release was $116 million in the quarter and as we said, it's driven primarily by the payoffs and pay downs.
The commercial loan book.
And this type and mentioned the economic outlook did improve during the quarter both from unemployment in GDP perspective.
Which does lower our loss expectations in the portfolio, but given the uncertainty in the environment, especially related to additional government support.
We increased the weightings on the upside and downside in the scenarios from 10% last quarter to 20% this quarter and those scenarios really haven't asymmetrical profile. So it ultimately increases the required Cecil reserve.
And essentially offsets the benefit from the improvement in the economic outlook.
And to your other question then if we were to run a scenario, where it's there are no upside or downside scenarios and we just set a 100% as base than the reserve requirement would be $250 million less.
Than what it is today so to your point the downside scenario.
Does result in a higher seasonal reserve and roughly 250 million or so range.
And the other part of the other part of the question I mean, it's it's your job to work with the borrower or try to bridge the gap between the pre and post cobot economies.
But when you have commercial extensions I think thats, where a lot of people are focused on.
To the extent that you extend you drop covenants you leasing covet I don't really there's a hall, let me have things that you can do to make the life for borrowers easier in some.
In some cases, probably most cases that will make sense, but in some cases that might not make sense. So what are you doing when you.
When you mentioned commercial extensions earlier.
Hey, Mike It's Richard I'll take that one it really is as you described working with the borrowers trying to understand.
Their cash flow needs their cash flow availability the collateral that's available that maybe we don't have as part of the security package. So it's really just reworking the transactions, making sure that we're being thoughtful about things like maturity dates and extending maturity date so that.
[noise] or re amortizing transactions that fit with the cash flow. So it's really part of the workout process to make sure that we can be as accommodative as we can within the risk appetite support our customers and minimize losses over the over the long term.
All right. Thank you.
Matt O'connor from Deutsche Bank. Your line is open.
Hi, good morning, sorry, if I missed it but did you guys say how much of the $200 million of savings.
In the third quarter run rate.
In the fourth quarter annuity or third quarter.
I guess one thing is that there is nothing there is nothing in the third quarter.
Matt and the.
The large majority of the savings will come in the first quarter of 2021.
Okay. So not now and most of the 200 will be in one Q on average and then.
Second quarter, <unk> Directionally Thats correct.
That's correct, Okay, and then looking ahead to the kind of most of that has already been identified.
I think you're talking earlier comments and then looking ahead to the 100 150 million remind us what some of the drivers might be and when you think you'll have those identified.
No. The opportunity. This is Greg I'm really focuses on our investments in technology artificial intelligence you look at our operations. We've done a really good job would be a very efficient, but we still have more opportunities over there too to reduce or people related costs in really automate a lot of functions and processes and create more resiliency and higher quality out.
So we are we are very focused on process reengineering automation, we've identified those process opportunities. We've got teams working aggressively on them and we fully expect that we will achieve those objectives.
Going forward, but there would be the they'll show up more.
More in 2022, then we'll 2021 given time it takes to put some of these processes. These reengineering exercise is in place.
Okay. Thank you.
Scott Cyphers from Piper Sandler Your line is open.
Morning, guys. Thanks for taking the company Scott.
Hey.
I appreciate you taking the questions.
You guys are one of the few guys that had an offer to charge off assumption for next year and you said a few times, while below <unk> percent. So I guess in that vein curious how you guys are thinking about how this cycle will end up trajecting in other words, we'll be taking care of most of the losses from this cycle next year or will they.
Okay.
Bleed into 2022 at a higher.
Higher rate as well and I guess that part and part of that question is because you guys have such a strong reserve that if if losses, indeed stay well below <unk> percent I guess I am curious on your seasonal at what point is it becomes more challenging even too.
Substantiate today's reserve in other words, you don't just look kind of adequately reserved but potentially very over reserves I'm I guess I'm just curious about how you guys think about those dynamics.
So there's a lot of moving pieces Scott as you think about what's occurring right now with the amount of students that was throwing at all depends I make when do we get the cures Act next iteration of that how is that going to be distributed.
With respect to the PPP potential on consumer stimulus opportunities. So there's a lot of variables involved here, but what we have visibility of right now as you think about the consumer side, we can see forward looking a roll rates and we think we're pretty good shape because she was a pretty good shape as we get into that until we get to the second half of next year just been dependent some the variable.
As I just mentioned some of the actions that are that have been taken so more to come there that's probably more of a second half of 2021, when we start to see the those losses creep up if we don't get second next generation of the carriers that on the commercial side. Once again, a lot a lot a lot of challenges with respect to how we think about this.
Sector, because it really gets back to when do we see a vaccine out their health sector. This is held to be distributed you know certain portions of calm.
Certain portions of calm year reopening quicker than other parts of the economy southeast quicker right now we're seeing positive more positive outcomes. There from a production standpoint, so there's a lot going on right now, which you can shoot yourself is we're going to be very cautious. We're gonna we came out with a with aggressive reserve levels, we're going to be very thoughtful mindful.
About how the national environment looks going forward and what the expectations are and what's happening with some of these governments.
Jim if you want to get a little more color on that and thanks for the question the.
As we look out to 2021, and we say well below 1% that for US our models would indicate loss rate in the 70 to 80 basis point range and.
And that's as we sit here today with obviously a lot of uncertainty between them.
Between the path of the virus in the path of stimulus.
And when we look at and analyzed a lot of data, especially the consumer.
The consumer portfolio as Craig said, a little bit easier to predict that model, but we go through all the data really the simple answer when you boil. It all down is that if you were delinquent going into the pandemic, you're going to be delinquent coming out and if you're healthy going and you're going to be healthy coming out and that's what we're seeing and internally we call. It the a wind chill effect so if its.
50 degrees outside and it could be you get a pretty big tailwind and it feels like it's 30 degrees outside really from an unemployment perspective, the wind chill. It was reported numbers are 14% and now were sitting around 8%, but the the wind chill because of all the stimulus program.
And hardship relate it's actually behaving a 3% level and that's why you see such good.
Loss rates from Us and you know our forecast assumption for next year has.
Some stimulus.
Round, two baked into it but if we get more than what we've assumed than those numbers could continue to improve from there.
All right that's perfect. Thank you guys very much for your thoughts.
Gerard Cassidy from RBC Your line is open.
Good morning, everyone.
We are.
Thanks, and can you share with us.
Any touched on the capital position in your prepared remarks.
In CE tier one ratio now is over 10% can you remind us what your ideal ratio would be in terms in the most capital you want it carried to run the company in the second.
Obviously, the fed has suspended buybacks for all the large banks, including your own what's your view that once the gain is lifted assuming it will be how quickly would you go back into repurchasing your stock.
Gerard we are at 10.14% of CP, one today I suspect that as we move.
Go ahead.
At the end of the year, we will be approaching 10.5% likely.
And we entered this year coming out of 2019 with a capital ratio target of 9.5%.
That was actually elevated relative to our 9% target just about a year ago before that and we.
We think that even then back in 2017, and 18, and we were making comments that we can run this company with an eight handle capital ratio, but we are very cognizant of where the peers are and what you know and the regulators are so we said OK, 9%, probably and then as we saw the probability of a recession going up.
We lifted that Tonight, and a half percent so from 10.5% to 9.5% assuming that we look ahead to and normalize the economy, that's 1% of capsule that we either consume Oh I growing low.
Growing loans or we return to shareholders.
Tough to predict the timing of the regulatory change and their current position, but I.
But I suspect that when we see the results of this C car run and when we find out what the regulators are going to do if the gate opens.
I don't know why it would take us a long time to go back to a buyback.
Environment.
Very good and just follow up your.
Your comments about extending out on.
The securities portfolio or the cash flow, Oh, and your preference not to do that.
Understandable would that.
Would that suggest to you.
You are all thinking that interest shrinkage own liking rise from Ron.
And Steve see and policy through yield curve.
So our perspective on the interest rate outlook is that we will be in this environment for two or three years. You know I think we it's hard to disagree disagree where the market is pricing. The next rate moves are concerned about I mentioned are concerned.
Around you know not exposing ourselves to a mark to market. We're also very concerned that in the current environment. The spreads do not reflect the actual risk return profiles, but they are very skewed by the feds aggressive actions and they turn the credit spreads upside down and in this environment.
With that kind of uncertainty.
Despite the fact that we are expecting this low rate environment to continue for a while we're choosing to be on the sidelines. We also expect that you know down the road here, whether it's going to happen in 2021 or 2022, once they sort of fed and starts either stepping back a little bit slowing down their aggressiveness.
And once the market builds a certain level of expectation, whether it's about inflation or about the other end of this rate cycle. The yield curve will start to steepen, we're not necessarily expecting that to happen in the near term.
So a combination of the fact that a portion of these cash flow cash we'll leave the bank and also we believe that weighting out until a better investment environment.
Is the better better alternative for us that's why we're sitting out.
Very well thank you.
Saul Martinez from FBR Your line is open.
Hey, good morning.
What weighted average remaining maturity.
In calculating sensors.
Sorry can you repeat that question again, yeah, what what is the weighted average remaining maturity of your loan book that you're using.
Oh the basis for your Cecil calculation.
I don't necessarily have a number ready.
To give you right now, but I suspect that number is between three and five years.
Okay. So.
Yeah, and I would think a portion of your scene I book is much shorter because it is based on contract.
Based on contract I'm sure you do have a fair amount.
Revolvers annual revolvers is in that I mean is one way to think about it and sort of.
Sort of what's implicit in the loss content, if we do where do you see a four year say soon we would imply that the 2.5% reserve ratio.
Implies an average annual loss ratio or charge off rate of about 60 basis points I mean to that.
And you know you will be higher than that during the peak and maybe lower than that when the credit cycle.
Revolver really.
Go back to normal we cannot.
A fair way to think about it for three and five years would applaud depending on what number you use it does have a pretty material difference in terms of what the underlying assumption is for annual loss content. So.
So I guess I mean is that a good way to think about sort of what's interesting here, yes, I think so.
So I think Directionally. Your comment is logical if you look at page 13, and look at the different Sep portfolios within the commercial book you see that the commercial mortgage loans the coverage ratio for that 1% to 3.4%, whereas the for.
Or forward to see an ibook, it's 2%.
It appear again.
For.
Question and that the logic that you are using is reasonable it gets a little bit skewed in this environment because you know the Oh, we are.
Within four to commercial book.
Bigger impact comes from the reasonable in support of a period, which is driven solely by the economic outlook. So the reason why im hesitating to say you are correct is because that relationship does not necessarily readily ill translate to a reasonable annual loss costs.
So I just want to make that comment on that.
Got it.
Well understood, but I guess my point is that we did.
The weighted average remaining maturity is arguably the most important input into this calculation and this isn't a coming off the third the general comment and we we received virtually no information on that from from any bank. So it is it is little bit of a disconnect now.
Yeah, we can actually important we can provide you that information and we can do that you know what it's Scott portfolio basis, which will give you a little bit.
Yes.
Yep Yep.
One one additional question.
I want to ask on expenses.
I mean, the 200 million.
5% current expense base and I think in the past you guys talked about.
The jury to that flow to the bottom line.
And then you have the additional expense saves I mean is it fair to say, we should what often done expect your.
Your your run rate expenses to be lower than what they are now and can you just give us a sense as to the timing I know you are not going to get to when you're going to wait to get 21 guidance, but you know next quarter you see it costs, a little bit flat to up and then first quarter has some seasonality. So we're likely pushing closer to one $2 billion in expenses that one.
By the first quarter, potentially maybe im wrong, but isn't that large.
Isn't that market right that we should expect expenses lower on a dollar basis, you know at some point in 21 versus where they're at.
And any color.
Any color on timing and magnitude of that.
So we will maintain our disciplined and not give you color on 21 today.
Okay.
But so what goes against that $200 million expense save is going to be some natural built and inflation, whether it's related to merit increases other compensation related situation and two is going to be investments in our company. We will continue to make investments in our company and the technology.
Energy line item for all the right reasons is.
Is going up what we feel good about it though is that we have made we have now established discipline. The company to look at those investments at our technology related with a very disciplined return requirements. So whatever to built and expense growth is not going to be driven by head count increase it's going to be driven by very reasonable.
Investments in our business that have a return profile that we all feel comfortable with and that we believe is prioritized based on our corporate objectives.
Yeah Okay.
Thank you very much.
Eric and measure ran from Bank of America. Your line is open.
Hi, just one follow up question I know, we're almost every time.
As we think about that adjusted Manlove to 55.
Having no impact from PPP and also.
And also you know assuming a static balance sheet, how close are we to the trough.
I believe we are close Erika as we look.
Heads we.
We believe that we.
We have now a level of stability that we're comfortable but could it be done within 234 basis points, yes, it could be and obviously the margin itself. The margin itself today is probably less meaningful metric than it has ever been because it's the influence of the cash balances that we were sitting on.
But I do believe that's a with an assumption that we will live in this highly liquid environment for a while.
We are now pretty close to achieving stability here, even if we sort of maintain the level of cash and the faster we get out of the cash position the faster we're going to start moving towards that 3% number.
We believe.
Yeah.
But what what gives us confidence there when you think about it we have $35 billion in the investment portfolio, our sort of normal level of earning assets is about front at $50 billion, So and we have I been.
I believe it's going to take US two three years to get down to where our peers are in their investment portfolio in.
In this low rate environment, we have a huge advantage there and then we have a significantly longer due to portfolio compared to most of our peers those to give us a pretty reasonable confidence that once we get out of this liquidity liquidity environment.
We will actually show you a pretty decent margin performance here.
Got it thank you.
Bill Carcache from Wolfe Research your line is open.
Good morning, Thanks for squeezing me in if we said hedging benefits aside could you discuss the impact of rates at the long end of the curve remaining low.
Much are you receiving each quarter on loan and securities portfolio pay Downs from your back book and whats the yield differential between what's coming off and what you're putting on across products.
Then that should also give us a sense for how much you would benefit from from curve Steepening.
Yes on the investment portfolio, you know you have seen our.
Yields went down by seven basis points, and we're not investing anything.
And you know the cash flows are reasonably small so that's this step down in and portfolio yields should be relatively small compared to the <unk>. So that's what I will say about that in terms of the other fixed portfolios in the.
In the auto portfolio, which is really the portfolio that is growing right now.
We are probably the current coupons are probably about 20 basis points or so below the portfolio yield. So when you think about that that really is the portfolio loan portfolio. That's the only one that's exposed to a fixed rate repricing.
Thanks, everyone.
Yep.
John Kerry from Evercore. Your line is open.
Good morning.
Just a couple on the credit front. Your do you have what your criticized or classified assets did in the third quarter.
Yes, it's hey, it's Richard.
Had a slight uptick in the third quarter, we will give you the details in here.
It was it was really around the things that you like.
Salary and leisure as the as the cycle continues to extend.
Okay, all right and then the other thing on the credit front, but it's on the.
It's all on the loan side.
I know commercial mortgage backed securities make up a larger percentage of your securities portfolio than peers, and I know you indicated that type.
Typhoon you indicated the commercial real estate is particularly vulnerable.
Do you have any concerns around how that credit dynamic within commercial real estate could impact your bond investments.
We don't I think.
Yeah, I think and we have the commercial real estate the non agent commercial I'm, sorry, non agency commercial real estate book that we have is a smaller portion it's about $3 billion or so in the portfolio and it's all a superstar.
We are conscious so you know.
The built in.
Credits or content of that portfolio does not give us any color and John its Jamie I guess since I bought a lot of those bonds I can tell you that.
Keep an eye on him in the delinquency rates.
Our like high single digits in the book and the credit enhancement as approaching 40%. So we are a long way away from having any credit issues in that portfolio.
Got it alright, Jimmy Thank you that's helpful. If I can ask just one more question on.
I know you mentioned that you're prioritizing investments in your asset and wealth management, including acquisitions, and we actually have seen some asset manager deals larger ones in the energy industry recently is that something you would consider as a potential acquisition of an asset manager for your for your business there yeah.
Yeah. This is Greg first off we as I mentioned in my prepared remarks, we've invested heavily in our.
In our fee businesses and diversification of our fee businesses that's going.
That's going extremely well wealth and asset management is one of those areas that we were we were.
Very focused on but with respect to additional opportunities, but from an acquisition of an entity of an issue or speaking of or counting them in that business.
As you've seen that business has grown really well for us over the years up 10% sequentially.
So we'll continue to look for those opportunities and yes that would be included in that.
Central Opportune Eaton Vance was slightly larger than our size. So appetite. So we just let you know when we looked at one right I got it.
All right. Thank you appreciate it.
[noise] Christopher Marinac from Janney Montgomery Your line is open.
Thanks, I had a similar question to John Thank already asked about classified and criticized so when you have the commercial extensions to those get picked up a special mention or did something else has to happen before those would migrate.
It's Richard again.
The two are separate when we think about.
When you think about workouts the rating is the rating and then the workout strategies to workout strategy now I think when we think about things that impact or reduced charge offs, clearly that's going to be and criticized category, whether its special mention or substandard, but.
But we don't have the details about round the breakout between those two remember if you think about special mentioned that as a potential weakness and there's a ton of judgment of what a potential weakness looks like it's effectively means higher probability of default substandard again, another step down in terms of default probability.
But again, that's a place where were mid against like collateral start to come into play.
Great. So some of the extensions could be there now, but others could transition later insistent that absolutely and as I said before we start thinking about extensions were also looking at structural rather mitigants like structural enhancements guarantees collateral Ah theres other ways, we can work with the borrower to help them and protect the bank.
Gotcha sounds good Richard Thank you very much for the insight. Thanks for all the information this morning.
Thank you.
Your last question comes from the line of Vivek Jain Jeff.
P. Morgan your line is open.
Yeah for squeezing me in just a couple of questions.
Jamie I think you mentioned, if you're healthy going in yield to be healthy going out for your referring to consumers corporate.
Hello.
And how are you thinking about what the pandemic does change in the economy and the way things work.
Yeah, I was referring to the consumer portfolio, where we have.
We have.
A litany of information and then you just trying to make it as simple as possible.
The data.
Bottom line is yeah, and there was such a big focus on hardship relate and hardship programs and re default rates re deferral rates all of those things, but no matter how you slice. It it really just comes down to something as simple as your healthy coming in you're going to be helping coming out from a consumer perspective, and that's why that consumer.
Formants.
Really does reflect frankly credit losses and credit projections as if unemployment we're in the three person. So we feel very very good about that I think to your point about how this ultimately plays out in the economy.
It really is the competing.
Forces of the path of the virus versus the path of.
Further stimulus so if we get into additional round of stimulus. We think the loss curves continue to flatten perhaps elongate, but again you know the peak charge offs are going to be.
All that high relative to the great financial crisis, especially for a bank like that third where we've put a lot of thought and effort over the last five years to position the company as well as we have so that we.
So that we think our loss rates or you know.
Fourth of what they were in the great financial crisis. So we feel good about that.
So that wont, even with existing posts pandemic, even if unemployment runs at a higher run rate do you think it will be fine as what you're assuming.
We do but again, the stimulus and what that looks like will certainly be a big swing factor in those last projection. So for example on the consumer side. We also ran different modeling efforts, where we took out stimulus altogether and so.
The model that as a 20 basis point change in our outcomes if that were to be no stimulus. So just to put a guard rails on you know what these outcomes might look like.
[laughter].
One more if I may completely different topic, what are you seeing in terms of you know.
Deposits and appeared on basis a flattish.
But more if you think about consumer and corporate deposits Tiphone, Jamie wondering on seeing in terms of the trends there.
Slowing long standing still drawing any color on that.
Did that we are seeing stable consumer deposits, they're not going down, but we're not seeing.
Any noticeable increases.
Deposit balances are.
Balances are at very healthy levels, there, but we're not seeing further increases the commercial balances have continued to pick up.
And I suspect that's.
We will continue in the fourth quarter, you know, it's an election quarter and there's a lot of hesitancy on the corporate side to do anything different at this point.
I do believe that come early 2021, hopefully we will see some more.
More emerging signs hard to predict yet which side it will go up but.
But you know that will be dependent on the economy. So for the foreseeable future, we see maybe small upticks in corporate balances and stable consumer balances.
Thank you.
There are no further questions at this time I turn the call back to Chris Nagel for closing remarks.
All right. Thank you all for your interest in fifth third Jimmy follow up questions. Please contact.
This concludes today's conference call you may now disconnect.
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