Q3 2021 Bank of America Corp Earnings Call
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Yeah.
Good day, everyone and welcome to today's Bank of America earnings announcement at this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. Please note this call maybe recorded.
I'll be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Lee Mcintire. Please go ahead.
Thank you Catherine.
Good morning, Thank you for joining the call to review our third quarter results hopefully you've all had a chance to review the earnings release documents.
As usual there available, including the earnings presentation that Brian and Paul will be referring to during the call. They are available on the Investor Relations website of bank of America.
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I'm going to first turn the call over to our CEO, Brian Moynihan for some opening comments.
And then Paul Donofrio, our CFO will cover the details of the quarter.
Before I turn the call over to Brian and Paul Let me just remind you that we may make forward looking statements and I would ask you to refer to non-GAAP financial measures during the call regarding regarding various elements of the financial results.
We're looking statements that we make are based on management's current expectations and assumptions and they're subject to risks and uncertainties factors.
Factors that may cause the actual results to materially differ from expectations are detailed in our earnings materials and the SEC filings available also on our website.
Information about the non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in our earnings materials and those are available on our website. So with that let me turn it over to Brian its all yours. Thank you Lee and good morning, Tal and thank you for joining us.
This quarter the economy continued to make solid progress and our clients continued to perform well having adjusted to the operating environment.
Many companies are making healthy profits and our research team.
Another strong quarter of profits by American businesses.
We reported $14.0 billion in net income or <unk> 85 cents per diluted share in the third quarter up significantly from the year ago period.
Now earned over $25 billion through the first nine months of the year.
This quarter's strong results include some themes I want to highlight ahead, Paul going through the details on the quarter.
So prior to the pandemic Bank of America was growing and creating operating leverage quarter after quarter after quarter.
As I said last quarter, the pre pandemic organic growth machine is kick back in.
Do you see that this quarter and is evident across all our lines of businesses.
In addition, this quarter we saw the return of operating leverage we also saw another quarter of solid loan growth.
The good news is that the nature of this growth has broadened in the third quarter.
Kurt that's even as commercial banking utilization rates have improved somewhat.
NII has improved significantly reflecting the many quarters of growth in deposits and now loans. It also reflects a steady management of interest rate risk and deployment of cash from our core deposit growth at.
At the same time, we still have a high level of asset sensitivity.
We invest in our core deposits and that supported stability and I over the last year as rates in loans decline.
What that did is bridge as to where we are now.
This quarter, where growth in loans and other factors that led to an improvement in NII and NIM.
Strong fee growth is complemented that NII improvement.
And with the expenses moving sharply lower we saw notably turned up operating leverage year over year I read was up 12% and the expenses were flat.
Our efficiency ratios improved to 63%.
As I've done in a paas I wanted to spend a moment on what we see in our consumer data.
Let me hit a few slides beginning first on slide three.
The improvement in the vaccination of hospitalizations all the things you know about have you seen in the U S economy continue its reopened reopening trajectory following a modest slowdown from the surge in cases caused by the Delta vary.
Well, there's been some discussion around a slowdown I would just note that the U S economy is now as large it wasn't pre pandemic.
Our own research team not being in transit at all expect so U S economy to grow five 5% plus this year and 5.2% next year. These growth rates are more than twice the growth rates that many of the that occurred in a pre pandemic decade or longer unemployment rates continue to fall back to pre pandemic levels, while the U S still has issues around.
Labor supply and supply chains of materials the economy is moving along.
Looking at our own customer base and consumer spending I'd offer you a few insights.
Third quarter total bank of American consumers spend and you can see it in the lower left hand part of this slide.
Payments were robust they reached 937 billion up 23% over 2019 for the quarter and a similar percent of growth over 2020.
September was the best month of the year and we've seen that spending rates continue through the first part of October.
Combined spend on total on debit and credit cards, which is a subset of this total about 20 odd percent of it.
And that at retailers and services remained strong in third quarter 21, we continue to see spending shift towards traveling and in person entertainment as well as fuel driven by both increased Houston higher fuel prices.
Year to date as you can see in the charter total payments of $2 eight trillion dollars by our consumers are 22% of the 2019 levels.
In the chart on the right you can see how fast the groceries occurred this year and that's another economic sign a signpost to this steady recovery.
Now as we turn to loan growth on slide four you can see this chart that we've been presenting to you for last several quarters why do we show you. This we wanted to show you that as we hit the bottom the inflection point and what happened to a couple of quarters ago.
And this chart gives you a sense of the daily progression across those quarters. As you can see every loan category has seen improvement and if I showed you. This by our lines of business you would see similar progress across each one of them.
Overall, ending loans, excluding P. P P loans, which are in the forgiveness process as you well know.
Overall, those loans increased $16 billion linked quarter.
And if you look at the commercial portfolio, they grew $11 billion quarter over quarter compared to growth in Q2 growth. This quarter was broad base across global banking and global markets in the commercial space.
Growth was driven in part by improved calling efforts from commercial relationship managers that we deployed across the world, including in addition to a growing demand for credit as you might note.
We've invested in hundreds of relationship managers in our commercial lines of business and they're now those investments now bearing fruit.
Loans with our wealth management clients continue to grow this quarter as these customers borrow for the reasons, they bar for liquidity and asset purchases and other things.
Interesting in our small business area, we are seeing the business stabilize and start to grow one of the areas that our practice solutions group, what that group does as latest lends to medical dental and veterinary practices they've.
They've continued to see momentum and are on the pace of the best year they've ever had.
Turning to consumer loans, the American consumer continues to bear from Bank of America card loans grew 7% annualized from quarter two levels with increased spending.
But as you all know repayment rates trends remain hi.
All products in the consumer side, except to home equity balances had higher balances for the quarter.
The decline in home equity balances understandable, given the prepayments and mortgage loans et cetera, but still we saw $6.0 billion in originations this quarter up more than 50% from last year's third quarter.
Now I'll turn your attention to slide in appendix not to cover it now, but you should take a look there and you'll see the true loan lending business on the bottom left hand side of that slide and you'll see without the volatile P. P. P in and out that's occurred there because the program design the loans this year and those lines of business are basically within 1% of where they were last year and we can grow up.
I'm here.
Moving to slide five we want to show that the continued re emerge that pre pandemic growth machine of Bank of America. We give you a few highlights our depart on the deposit side. We grew net consumer checking accounts, which are the primary transaction account for our consumers, 92% being primary for the 11th consecutive quarter.
This drove the continued growth in deposits and our leadership position in U U U S retail deposit market share, reaching one trillion dollars of deposits in our consumer segment alone.
On credit cards, who cross back back over a million new card production.
That's the same levels, who are pre pandemic new investment accounts have increased 9% during the pandemic digital progress has occurred across every business and you'll see that in Paul's slides later, and that's increased increased sales of products and high use of digital platforms, just bodes well for future sales levels and for future efficiency.
Sales of banking products in Merrill Lynch and the private bank have remained strong with a return to in person meetings, we should see them, even see them grow stronger.
We have seen year to date asset under management flows grow and then nearly tripled compare to year to date 19.
In markets and banking, we had record or near record quarters in both investment banking and equity trading revenue.
So these are just a few examples of the customer growth we see.
A point or two on capital this quarters level of profits coupled with our excess capital allowed us not only to pay higher dividends to shareholders.
But also to buy back $10 billion in shares in total we returned $12 million to our shareholders through these actions proving that we can support our customers in a growing economy support our teammates with great pay and benefits and support our community says, although scribe in a minute, but above all and returning capital to you our shareholders and drive good.
Turns for Ya.
Going to slide six with regard to how their teams are delivering more broadly in our communities. We gave you in slide six an update on our 1.25 billion dollar commitment to date, we have directly funded nearly $400 million about one third of that commitment. This includes $36 million.
Completed in equity investments in M. D. I N C. D. F is $300 million in equity investment commitments to minority focused funds to support minority and women entrepreneurs and businesses is $70 million of directed at Atlanta philanthropic, giving directed at the priorities shown on the slide in addition to the amount we usually give on a yearly base.
No.
Now it's worth noting that in addition to the equity investments, we have $3.0 billion in deposits and Cds and M. D is the largest in the U S.
Doing that.
If you go to the next slide slide seven this is what we're doing with our customers to help them live their financial lives even better at.
It highlights the products and services targeting the financial well being of our retail clients, particularly in a low to moderate income areas. We serve this includes our commitment to our pathways program, where we hire teammates from our local communities to serve our communities and be successful in our company as a company of opportunity for them.
We recently, we got to hire another 10000 teammates from those communities from our communities over the next five years, that's because we completed the first 10000 a year early.
The unified ways in which our teammates in local markets do a spectacular job of approaching both banking from a global scale in both banking from a local community or is unique and delivers every day for us.
It's been a great job by our team this quarter and I want to thank them now I'm going to turn it over to Paul but as you know Paul has been our CFO. Since 2015 has done a spectacular job with our company he's going off to help US do some interesting things in the company and I just want to congratulate and thank Paul for his support and now I'll turn it over him to take you through his last earnings call Paul.
Thanks, Brian.
Hello, everyone.
I will start on slide eight.
By adding a couple of comments on revenue and returns.
On a year over year basis revenue rose 12%.
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And a nearly one $5 billion increase in non interest income.
By the way every business segment produced year over year improvement in noninterest income.
Expenses declined from Q2 and were flat with Q3 'twenty, despite the year over year improvement in revenue and related cost.
Solid revenue growth, while holding expenses flat created 12.100 basis points of operating leverage and resulted in $11.0 billion of pretax pre provision income up 40% year over year.
With respect to returns our return on tangible common equity.
Was 16%.
And ROA was 99 basis points, both of which improved nicely from the year ago period.
Moving to slide nine the balance sheet expanded modestly versus Q2, two a little more than three trillion.
After funding 9 billion of loan growth deposit growth of 56 billion generated excess liquidity that was placed any mixture of securities and cash.
Our liquidity portfolio grew to $1 one trillion.
Or one third of the balance sheet.
Shareholders equity declined $11.0 billion from Q2 as capital distributions outpaced earnings this quarter.
With respect to regulatory ratios.
C. T. One understand it is approach was 11.1.40 basis points lower than Q2, driven primarily by a reduction in excess capital through share repurchases and to a lesser degree higher or to be away as a result of commercial lending growth.
The ratio was 160 basis points above our minimum requirement of 95%, which translates into a $26 billion capital cushion.
Given our deposit growth, our supplementary leverage ratio declined to five 6% versus a minimum requirement of 5%, which leaves plenty of capacity for balance sheet growth.
Our T Lac ratio remained comfortably above our requirements.
Turning to slide 10, I will focus on average loan balances because they are more closely linked to NII.
Note that loan growth over the past two quarters has begun to show signs of improved demand and I would refer to quarter over quarter improvements on an annualized basis.
Also note that these charges include P. P P loans, which have been moving lower driven by forgiveness.
Foot notes.
From a peak of $25 billion last year P. P loans have declined through forgiveness to little more than 8 billion on an ending basis.
Focusing on the linked quarter change in loans and excluding PPP loans.
Total consumer and commercial loans grew on an annualized basis by 9% with.
With commercial growing 11% and consumer improving 6%.
<unk> continued to benefit from security based lending as well as custom lending while mortgage continues to perform solidly and global markets. We again looked for investment grade opportunities with our clients as a good use of liquidity.
And global banking, we saw utilization move past stabilization this quarter, but utilization rates are still 700 basis points lower than 2019, representing a $30 billion gap from current loan levels and consumer we saw credit card grow as new accounts.
To build across the quarters and credit spending continued to rebound and importantly in mortgage as Brian noted, we saw growth as prepayment volumes slowed.
With respect to deposits on slide 11, we continued to see significant growth across the client base, adding accounts across all with deposit taking businesses.
Combining both consumer and wealth management customer balances I would highlight that retail deposits grew 28 billion from Q2. These deposits. These clients now and trust us to manage more than 1.3 trillion in deposits, which is more retail deposits than any other.
U S bank.
We also saw strong growth of 28 billion with our commercial clients.
And remember the deposits, we are focused on and gathering or the operational deposits of our customers in both consumer and wholesale.
Turning to slide 12, and net interest income.
On a GAAP non FTE basis NII in Q3 was 11.1 billion $13.0 billion on an FTE basis.
Net interest income increased $965 million from Q3, 'twenty driven by deposit growth and related investing in liquidity as well as P. P. P loan activity.
These drivers were partially offset by lower loan levels.
Now I versus Q2, 'twenty, one was up $861 million there were several positive contributors to the quarter over quarter growth.
First.
We had an additional day of interest we also benefited from the continued deployment and growth of liquidity.
Average loan growth also contributed to NII again this quarter.
And we experienced an acceleration in the forgiveness of PPP loans, which improved NII quarter over quarter by a couple of hundred million dollars.
Last but not least we had lower bond premium amortization expense, which declined from $7.0 billion to a little more than $5.0 billion.
With respect to PPP loan forgiveness, I would emphasize that this was an acceleration or pull forward of NII into Q3 from future periods.
And as a side note I would point out that the revenue from the PPP program has helped to defray some of the enormous cost of administering this assistance program on behalf of the government.
Our net interest yield improved seven basis points from Q2 to 1.68% driven by the improvement in NII.
Importantly.
Given continued deposit growth and low interest rates, our asset sensitivity to rising rates remain significant highlighting the value of our deposits and customer relationships.
As we move to Q4 and assuming no significant interest rate changes, we expect benefits from expected loan growth liquidity deployment and lower premium amortization expense to more than offset the expected reduction in P. P. P revenue I mentioned.
Assuming the forward curve materializes, and given Q3 NII growth as well as expectations for Q4.
And assuming we see any loan and deposit growth next year, we would expect NII in full year 2022 to be well above full year 2021.
Turning to slide 13 and expenses.
Q3 expenses were $18.0 billion, an improvement of more than $600 million versus Q2 higher revenue related costs were more than offset by the absence of the prior quarter's contribution to our charitable foundation as well as lower cost of unemployment claims.
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Compared to the year ago period expenses were flat as improvements in net COVID-19 costs. The absence of elevated litigation in Q3 'twenty.
As well as digitalization benefits and other initiative savings were offset by higher revenue related and other costs.
As we look forward.
We continue to see investment in technology and people at a high rate across the businesses and we are adding new financial centers in certain growth markets.
Turning to asset quality on slide 14.
As I've reported for several quarters. The picture is very good here.
Charge offs this quarter fell again.
Two $463 million or 20 basis points of average loans. This is the lowest loss rate in 50 years.
Net charge offs were 22% lower than Q2 and more than 42% below the same quarter in 2019.
Our credit card loss rate was one 7% and several loan product categories.
Still in recovery position this quarter.
Provision was a $624 million net benefit driven primarily by asset quality improvement.
Lincoln CS and reserve a bull criticized commercial loans continued to move lower.
We had a reserve release of $2.0 billion split roughly 80% in commercial and 20% in consumer.
Our allowance as a percentage of loans and leases ended the quarter at one point.
Four 3%.
Which is still well above the level of following our day, one adoption of Cecil, especially considering the mix of loans today versus then to.
To the extent the macroeconomic environment and asset quality improved further and remaining uncertainties dissipate, we expect our reserve levels could move lower.
On slide 15.
We show the credit quality metrics for both our consumer and commercial portfolios. The only point I would make here is just to note. The continued low level of late stage delinquency loans, which drives expectation that card losses could decline yet again in Q4 before leveling off.
Turning to the business segments, and starting with consumer on slide 16.
Before I touch on the financials I want to highlight.
What a great job. This team has done in turning this business around since the pandemic.
All of our businesses of all our businesses.
Consumer banking was the most heavily impacted by the pandemic, which at its worst drove quarterly profits to a very narrow level before rebounding.
We incurred heavy cost to protect the health of our associates and customers and we added contractors and other resources to support the governments in our own customer assistance programs. We added billions to credit reserves depressing profits as worries mounted with respect to potential credit losses net interest syndrome.
Find as interest rates fell quickly and significantly.
Fast forward to this quarter.
And the segments rebound has accelerated as earnings rebounded to more than $3 billion.
Net charge offs are at historic lows and NII has rebounded reflecting not only deposit growth, but also the value of their deposits and customer relationships.
The business alone has now crossed over one trillion in deposits up 16% year over year.
Our point here is that.
Years of investing and operating under responsible growth.
<unk> to us to not only deliver for everyone during the pandemic.
But also rebound quickly to organic growth and operating leverage.
We were never down and we never stopped investing them. All this is true of every segment the rebound in our consumer banking earnings is just a great illustration of the resiliency of our business and our people.
The segment earned 3 billion in Q3, 48% higher year over year as revenue expense and credit costs all showed improvement.
Revenue improved 10%, reflecting higher card income an increased purchase volumes and higher service charges due to client activity.
Net checking accounts grew more than 700000 year to date and 93% of our consumer checking accounts are primary accounts with an average checking account balance of more than 10000.
Expenses moved lower by 6% as a result of a continued reduction in COVID-19 costs mitigated by higher costs from minimum wage increases and other operating costs.
On credit.
We had a $242 million reserve release this quarter. However, the more direct indicator of improved asset quality as the decline in net charge offs.
Net charge offs of 400 and.
$89 million were down 26% year over year and 22% lower.
Quarter over quarter.
Yeah.
Our credit card loss rate for the quarter was 1.7% pre pandemic it was over 3%.
On Slide 17, you can see the increase in consumer deposits loans and investments.
We covered loans and deposit growth earlier with respect to investment balances, we reached a new record of 353 billion growing 32% year over year as customers continue to recognize the value of our online offering.
Yes.
Balance grew.
As market values increased but we also saw a 21 billion of client flows.
An important element of this growth has been the 9% growth in the number of accounts over the past year to more than $3 million.
On slide 18.
Let me highlight a couple of points regarding the continued improvement in digital engagement.
As all of you know enrollment is important but usage is key we now have nearly 41 million customers actively using our industry, leading digital platform. This quarter, 70% of households use some part of our digital platform within the past 90 days.
Again in more than $8.0 billion times.
And while Erica and Zelle users has been tremendous what I would draw your attention to is the digital sales growth, which is up 27% year over year.
Lastly, while not reflected in this slide I would just add digital engagement has become foundational to maintaining our customer satisfaction at historic levels.
Turning to wealth management, the continued economic reopening.
Client flows and strong market conditions once again led to not only record investment balances in asset management fees, but also record levels of loans and deposits all contributing to a record pretax margin in Q3.
In fact, this is the 46th consecutive quarter of average loan growth in this business.
Merrill Lynch and the private bank contributed to the improvement and are driving digital engagement to deliver products and services to clients. You can expect this to continue as we drive towards a modern Merrell, which is advisor led powered by digital.
Growth in our new households at Merrill and the private bank continued as we continued to build pipelines and move back towards pre pandemic or pre pandemic pace.
Net income of $3.0 billion improved 64% year over year, driven by the strong revenue performance with respect to revenue record of M. P's, which grew 19% year over year complemented higher NII on the back of solid loan and deposit increases.
Expenses increased in alignment with higher revenue.
Client balances rose to $3 seven trillion up 20% year over year, driven by higher market levels as well as strong flows of 91 billion.
Let's skip to slide 21 to highlight our progress in digitally engaging wealth management clients.
The clients of this business continued to lead the franchise on digital adoption utilizing not only digital tools access their investments, but also other banking needs like mobile check deposit and lending.
More and more clients logged in.
To easily trade check balances and originate loans all through one simplified sign on.
And through leveraging Erika based AI capabilities and to use a webex meetings and secured text messaging, we are making it easier and more efficient for clients to do business with us.
Wherever and however, they choose.
This creates additional capacity for our teams to spend more time advising existing and potential clients.
Moving to global banking on slide 22.
Segment had very strong performance with near record investment banking fees, another solid quarter of deposit growth and an uptick in loan demand strong deposit growth helped to improve NII, which complemented the continued strength in investment banking the business earned $7.0 billion improving one point.
6 billion year over year, driven by both higher revenue and lower provision cost provision expense reflected a reserve release compared to builds in the year ago quarter.
Revenue grew 16% and included an 8% improvement in that and I, while firmed firm wide investment banking fees were up 23% to $4.0 billion down only modestly from the Q1 record level.
This I B performance resulted in a number four ranking in overall fees with a pipeline that remains strong we ranked number one in leveraged finance and investment grade with strong market share improvement compared with the year ago period. We also had record M&A results.
It is worth noting that we continued to see strong momentum in investment banking with our middle market clients. As many of you know we have been investing in our investment banking capabilities with middle market clients clients for a few years now over that time, we have executed transactions for nearly.
301st time, I B clients and we now have investment bankers in 23 cities across the U S.
Noninterest expense increased 7% year over year, primarily reflecting higher revenue related costs and continued investment in the franchise.
Yeah.
We've already covered much of the balance sheet on slide 23, so lets skip to digital trends on 24.
Digital investments strategies and tactics are an enterprise effort.
Learning in one segment benefiting another that has been particularly true in global banking and as we continue to invest we continue our investments in digital solutions.
Our client adoption and usage continues to grow.
Enhanced banking solutions have helped us capture greater market share as wholesale clients do more with banking partners.
That are.
Are the most stable and secure and have the capabilities to invest in new technologies that will provide better data and global integrated solutions.
Switching to global markets on Slide 25 results reflect solid sales and trading activity led by our equities business.
I, usually do I will talk about the segment results. Excluding DVA. This quarter net DVA was a modest loss, but the year ago quarter had a higher $116 million loss.
Global markets produced four excuse me cobot market produced $941 million in earnings on par with the year ago quarter, focusing on year over year revenue was up 3% driven by sales and trading.
Sales and trading contributed $9.0 billion to total revenue improving 9% year over year.
<unk> declined 5%, while equities improved 33% recording one of its stronger strongest performances ever.
FIC results reflected a flat yield curve and range bound interest rates for much of the quarter with continued tight credit spreads.
With interest rates moving late in the quarter, we saw an improvement in activity and revenue opportunities.
The strength in equities was driven by growth in our client.
Our financing business as well as a strong trading performance and increased client activity in both cash and derivatives.
The increase in expense year over year was driven by increased activity related sales and trading costs.
On slide 26.
We note year to date revenue trends across the last few years as you can see while our performance was elevated in 2020 during the pandemic 2021 remains well above the pre pandemic years presented driven by continued elevation of client activity and volatility.
And in the markets as well as investments made to extend more balance sheet to clients.
Finally.
On slide 27.
We show all other which reported a small net loss revenue.
Climbed by $109 million year over year, reflecting higher partnership losses on ESG investments.
Spence was lower year over year, driven by the absence of litigation accruals in the prior period, our effective tax rate. This quarter was 14% excluding the tax credits driven by our portfolio of ESG investments our tax rate would have been roughly 25%.
We would expect the tax rate in Q4 to be between 22%.
Absent any tax law changes or unusual items.
And with that we can go to Q&A.
To register to ask a question. Please press star and one on your touch Cheung phone you can remove yourself from the queue at any time by pressing the pound key well take our first question today from Glenn Schorr with Evercore. Your line is open.
Hi, Thanks very much.
Lots of detail I loved the forward leaning commentary on NII.
US bigger than a bread box size it on the expense side.
Obviously expenses go up a little bit with all of this market related and activity related revenue. So maybe if we could think about it ex whatever market's going to do over the next couple of years.
You've produced great operating leverage, but as you still invest so maybe you can give us an idea of what to expect even if it's just over the coming years as you invest yet eke out further.
Further efficiency gains thanks.
So I think Glenn you might take you back a little bit in history to.
Yeah, 15, and 16, when we started seeing the efforts in D C and the operating excellence kick in and what we said as we bring the expenses down and then we'd expect them to grow.
You sort of have a 3% inflationary between.
Raises and leave aside that the market's going up as you said and could drive.
A moment in time and et cetera, but if you had sort of 3% you know sort of embedded CPI type of increases in merit and rents and things like that and what we said is through our efficiency, we could when we got to the sort of floor, which was.
The 19 year, the idea was that and manage that to sort of 1% net growth in and we've been able to keep working at that.
The P P P and whether COVID-19 related costs and stuff, that's kind of throw it all around for the last 12 months, but you'll see that start to mers came out the other side. So the idea would be to grow revenues faster.
The economy and grow expenses at a rate of net 1% maybe 2% of the.
Revenue growth is stronger and you know that's the operating model and you saw that come on quarter after quarter of operating leverage I think for basically three years, plus 14 quarters or something like that in a pin debit pushed out around it as we stabilize after after the pandemic a couple of quarters ago, you are seeing it come back to this system.
That's great. So it sounds like no change in in cell operating efficiency cool, but Brian while we have yet.
I think there was like a seven page press release announcing all of the leadership changes.
It's a lot and so I think a while we have.
Can talk about what's happening how are you is this all natural succession next level stepping up type changes, maybe just put the right perspective around at all.
You know we that we have.
The teammates are retiring them you know I've been CEO. This is 40.
<unk> 48 quarterly earnings conference calls so it's been a long time, but and I would rather never have to have seniors leaders moved because but they have a choice in life and when they retire we have to adjust to it but what we tried to accomplish if you go back to last summer, we put a lot of our senior executives onto the management team. What has happened now with Ann's retirement, Tom's retirement and Andrew's retirement is there.
As executives now are reporting directly to me and that's really the effort. So we were a younger more diverse three women running eight lines of business same philosophy of how we run the company and now with a group of people will have.
Five to 10 years ahead of them and then we have two international colleagues on the management team for the first time, and and and and Bernie and Kathy Kathy as needed to help us in the European context, as Brexit came through it's it's different than that so she's going to help us in that and be a great help to us Bernie has international does a great job for us, but the idea was to.
People, who and also focus on it.
People, who are thinking 10 years out as opposed to you know one or two in retirement and so that's really the genesis of it yet.
People retire them and end up and we make reactions and you know, Tom and Anne and Andrew have been tremendous teammates, but the best thing They did force and develop a bench behind them that is extremely strong that can step into the jobs and frankly, we're running a lot of the businesses as they have over the last few years as we all spent more time on driving our brand in the market and other things.
At the company level.
Thank you Brian Thank you.
Yeah.
Our next question comes from Matthew O'connor with Deutsche Bank. Your line is open.
Good morning.
I was hoping to circle back on from when I net interest income commentary, which was clearly positive overall, but I think you had been talking about 14 noninterest income to be up 1 billion in person as the first quarter level on prior calls.
And I think the guidance implies maybe similar to you know better than that and we're just hoping to get a little bit more of a appointed.
The update for our fortunes that II.
Sure.
So relative to Q3.
We will have less PPP loan forgiveness. However.
We think we should be able to overcome this decline and produce modest.
Growth in NII in Q4.
Through a combination of our loan growth liquidity deployment and modestly lower premium amortization expense.
Okay, which I think does get you I guess to that up 1 billion versus the 10 three.
Yes, it's modestly would imply that Matt we tend to tell you what we could do and we do it. So that's how we run the company so yes.
I understand okay.
Then separately on the expense question, you talked about kind of 1% to 2% growth long term, but as we think about next year. You. Obviously had some kind of COVID-19 and I think from one time costs in the first quarter. How would you help frame 'twenty two costs versus 21. Thank you.
Sure the way I would think about 'twenty, two we're not going to provide specific guidance, but.
You know.
As a quarterly base for 2020 to just start with a rough estimate of Q3 or Q4 here.
You know Q4 should be.
Flattish to potentially modestly lower than Q3, so just start with that as a base.
And add to that the.
Seasonally higher payroll tax in the first quarter, which is roughly $250 million and then as Brian said, you know add in inflationary costs.
Which you know we've been it's.
As Brian said targeting at around 1%, but given the war for talent right now maybe you want to add a little bit more than 1% next year and then lastly, you know.
It just that base for any assumption you make around higher or lower revenue expectations in the areas that are closely linked to compensation.
And exchange fees.
If you do that math, you're going to come up with I think a pretty good estimate part for 'twenty two.
Okay, and anything that we can kind of back out in terms of COVID-19 or the triple P costs going away.
We think about next year.
Yeah look COVID-19.
There's still a couple of hundred million dollars of net COVID-19 and our cost is down modestly.
From Q2.
We're seeing some reduction in COVID-19 costs.
But we incurred some new costs as people return to the office.
While there is.
Not a lot left it does create I think a modest opportunity over the next year or so to get those costs out.
Okay. Thanks for all the clarity.
Yeah.
Our next question comes from Mike Mayo with Wells Fargo. Your line is open.
Hi, My question relates to attack.
The front office and back office.
That's the front office I you have the slide number five.
Net new consumer checking accounts up by half over the last two years.
How much of that is directly or indirectly related to digital banking and then my my back office question.
Which we don't really see is what are you doing as it relates to the cloud and your relationship with IBM, what sort of efficiencies do you think you can get.
And I you know I think you indicated you don't plan to go 100% to the public cloud like some of your other peers have targeted so if you could elaborate on your tech strategy. Thanks.
So Mike on the on the first.
Yeah.
The production of net new checking accounts and remember Mike This is not.
You've been around us a long time and these are core checking accounts are the primary it keeps going up it actually went from 92% to 93% of our last year of primary accounts. So the production hit this.
This quarter was I think a 10 year high in terms of net.
Counts and that's coming both from the digital is 50% of sales round numbers in the end. We now have to your point over the last three years devote full digital execution in terms of account opening for core accounts in terms of auto purchases in terms of mortgage origination et cetera, which now allows a fully digital practice takes off.
Half the sales are digital the good news honestly is that as the branches reopened over the last feed them and people.
<unk> went up you know you saw the account.
It accounts sold rise because it takes both high Tech high touch and high tech to be successful. So the percentage of sales of digital came down, but that's because overall sales jumped up and obviously, they're more branch dominated but you got it exactly right. We think that that is a more efficient method.
Our method of accumulate customers, we think we have about 17% market share in the Gen. Z area that is heavily digitally originated a lot of college a lot of other things going on but the key is to realize the net balances per account have gone from 7010 thousand over the last couple of years, So youre seeing a bigger and bigger core position.
When you go with it and that's one thing to keep in mind is when we give you our 40 million digital customers. These customers our core customers with big balances. So Merrill edge. For example, I think we're up to 70000 or something average balance per account not three or 4000, but anyway just on the cloud. The cloud is a complex question, so as you're well aware over the deck you're the last.
810 years, Kathy and her team led the effort to internalize, our cloud, which made us a lot more efficient.
And so we look at we run the percentage of our business outside due to certain executions and things like that.
We have 500 different software programs that run and a S. A SaaS basis, which is the question of cloud can be.
Leading is can you get to the.
All the product types of capability types, you can get out there because of the new companies that develop them on to cloud based systems and we can get to them all the IBM as an effort to internalize a cloud that we can use as a financial service industry in ibm's working on that but these things have to be done carefully for purposes of security and trust and an understanding of our businesses and in so far.
We've come to the judgment that we're continuing to internalize and saving a lot of money and we continue to add modest amounts to the cloud, but importantly, there's no restraint on our ability to tap innovation and ingenuity based on you know, whether it's running internally or externally.
Yeah.
Next question please.
Our next question comes from Gerard Cassidy with RBC. Your line is open.
Yeah.
Hi, Brian how are you.
Good drug how are you guys.
Can you guys share with us you've had an incredible deposit growth as you pointed out the retail consumer areas over a trillion dollars when the fed ends QE sometime next year can you share with US what you think will happen to deposit growth in second your loan to deposit ratio similar to your peers is very low.
How do you see growing that over the next two or three years and where can you get it to do you think.
Paul wants to add a few comments on.
The.
On the.
Change in monetary policy, and I'll talk a little bit about sort of some of the other thing yeah.
So look we expect deposit growth to continue.
Although it's gonna be likely at a slower rate than what was experienced.
So far this year.
And we expect our growth to continue in line with or slightly better than the industry.
You've got to remember that we're entering a phase of tapering taping is still QE.
So deposits are really not likely to decline until.
You know many quarters if.
If you look back at historical data after QE ends if they ever do because as the economy expands.
You know the multiplier effect, we could see growth in deposits even though.
You know my supply is coming down so.
We'll just have to wait and see but what we do know is as QE starts we're still gonna, it's still gonna be stimulative.
<unk> standpoint.
And then as I said, if deposits to decline it'll probably many quarters couple of years, maybe after QE ends.
George just a couple of things.
You know when looking at the consumer deposit base.
Sometimes I think it's deja vu all over again.
Classic statement because it didn't you know 15.16 17 was all about you know the fed's going to normalized rates and you're going to have to raise prices and we didn't have to because we the reason why we don't have to is these are core transaction accounts and a large part noninterest bearing and so you'll see some of that same dynamic apply again as as the rates normalize.
The monetary supply has changed but in the consumer business, 56% of the balances are checking so that would say those are core transaction accounts money move in and out very little Cds, I think 50 to 60 million bucks or something like that so the trillion dollars is all basically in checking in.
And money markets. So can it move around yeah. If you look one of the things that bodes well and.
You know for for the economy is that if you look at it checking customer it has maybe two or $3000 in balances with us either sitting with three to four times three times, what they had before the crisis.
That's good news they will spend some of that I assume but interesting enough that has been growing month over month for the last few months, so its not going down even though the stimulus payments to customers and large part other than the childcare stop so one of the things that bodes well for the economy and this isn't because China, causing you to some viewpoint about it is the consumer still has a lot of money in their accounts.
And they're going to spend it going back to the deposit question could that mean, those balances come down a little bit, but it would be overcome by the new accounts coming on in a million dollars a year that carry $10000 average balance et cetera. So we feel good about long term deposit growth and it's all driven by the checking and core transactions.
On to deposit ratio.
You know, it's our customers driving it so and the usage by you know the auto dealer lines is down to.
25% of what it was because of inventories being down of course, they want to borrow we want to lend to them because that means they have the inventory to sell to the consumers. So you know this is a customer driven business and so the 900 billion odd of loans against two trillion of deposits is largely driven by the customer activity. The good news is you can see in those charts that I can.
The smile charts on the loan growth page there that you had the other half to smile is coming up meaning that the customers are starting to draw on credit and use it and that that'll bode well for you know the customer growing their businesses and stuff, but importantly, I'm thinking about you have just the economy generally.
One of the things I just want.
I'll remind you of Gerard as you know, we break out consumer and G. Women a lot of people talk about retail deposits that is 1.4 trillion when at 1.3 trillion. When you combine them together. So it is a big machine and it's all transactional and we just don't think that moves us much on monetary supply questions is obviously, an institutional side.
Very good thank you.
Our next question comes from Betsy <unk> with Morgan Stanley. Your line is open good.
Morning Betsy.
Hi, Good morning, Hey, Brian I wanted to ask you know we've got a set up into 22 that looks pretty positive, especially when you think about the top down GDP growth you were mentioning earlier.
How are you leaning into that with regard to your footprint, where do you see the biggest opportunity for share gain across your business platform.
So I'd say, there's a couple of areas one.
As you're well aware, we've expanded the balance sheet in the markets business and they're seeing the returns on that it stronger in the equities business and good and Jimmy Tomorrow and attainment to under Tom's leadership continue to do it but strong in the equities business in that so deploying balance sheet against that recognizing activity level sustaining et cetera.
And then if you go in the lending business.
It's customer selection. So we were out with those 100 extra relationship managers banging away at that at the at the world getting more customers the hard way and you're seeing net new customers and are in the business banking small business segments and stuff growing and you see that in the wealth management business. So what.
What you'll see is that the balance sheet deploy the markets as a capital and balance sheet question everywhere else, it's going to follow the customer, but it's the core customer growth and that's why it but those statistics in.
That you see me my Merrill edge is over $300 billion in becoming a fairly significant enterprise on its own and you know you see some of these other aspects. So we feel good about it and you know like you said.
Kansas and the team on a great research platform and yeah. They they basically are 5% plus this year and 5% next year, which sets up well.
So is there an opportunity that's you know even larger outside the U S. I'm. Just wondering you know thinking about your franchise outside the U S. Borders is that an engine of growth for you potentially here.
Right well relative to what you've been doing yeah. We're investing will continue to expand our we have more loans in the global car or investment banking segment outside the U S than we do inside the U S and we continue to expand that Matthew coda and team have done a good job Lisa Klein attainment of corporate banking area are doing a great job. So yes, we're going to invest in that and then a G. T. S says mednet team.
And that continue to develop our capabilities there and we're getting you know high single digit revenue growth off of deposits and fees combined together and you know we continue invest that real time payments and it's just one thing after another so we're doing that but outside of it and I don't if the question is are we going to change and go into them.
Our consumer business, our wealth management business outside the U S. The opportunities in our consumer business or just.
In the wealth management business in U S are staggering to think about we we just opened our 15th branch in Indianapolis, United would've been talking for years ago, and it didn't I don't see it any maybe it's five.
Now you know seventh market share moving up strong you'd look at it in Columbus, and Cleveland, Cincinnati in Salt Lake City and Minneapolis.
We're seeing this move in the top five seven from zero, you know in in that growth and the new households.
Running a multiples of 2019 in Maryland, and the private bank.
Just so much opportunity to distract ourselves.
It would be not the time to do it went into war with the competition and we're winning.
Okay, and then just lastly.
Paul you were mentioning how you've got bigger than a bread box on you know growth in NII as you look into next year and you outlined the drivers I'm just wondering embedded in that is a forward curve.
What about the opportunity here for the foreign curve shift higher yeah, when you're thinking about the increase in NII. If we had you know inflation come through stronger rates rise sooner you know would that be an opportunity for you to take even more duration than you've got in the book or would you keep just curious duration, where it is today.
We'd look we have a lot of excess liquidity right now so there's always an opportunity.
Deploy some of that in the future.
Were always balancing liquidity capital and earnings and it.
Rates rise.
I think we probably would have to study whether we want to deploy some of that liquidity at higher rates.
You you we've got are.
You know interest rate sensitivity disclosure, which is probably the best way to talk about the opportunity if rates were to rise it sits today.
Cause of our <unk>.
<unk> ability insensitivity, the value of those deposits and customer relationships or Brian just.
<unk> talked about that sitting at $14.0 billion for a parallel shift.
70% of that is on the short end. So that gives you a sense of maybe the the opportunity here as rates rise.
Thanks.
Our next question comes from Jim Mitchell with Seaport Research Your line is open.
Hey, good morning.
Maybe just a question one of your peers. This morning talked about the impact of soccer adoption I think <unk> disclosed that standardized anyways could grow 7% to 10% is that a similar impact for you just trying to get a sense of how you think about the adoption of that.
We already adopted the succor, I think and that was a benefit for us in markets.
Oh really.
Yeah, Lee can come back to you with the with the details we were the first to adopt.
Okay, well, that's great and then so when we think about the buybacks the 10 billion and the acceleration of buybacks this quarter.
Is should we just expect that acceleration continued to until you get towards your target of around 10 to 10, 5%.
Yes, I mean simply put we manage it dynamically the board manages it.
Anticly that dynamically on a quarterly basis and what's happening is if you look at the you know what we where we thought we'd be we're ending up with more capital because we are in a more money.
And then we clean up a little bit here and there, but we're you know we're working towards over.
Multi quarter period towards where they get back towards our target.
And we'll continue to focus on that.
Okay, that's great. Thanks.
Our next question comes from Charles Peabody with Portales. Your line is open.
Actually my my question was asked but you know on the NII.
Hi.
Just extrapolate.
The third and fourth quarter kind of guidance here, you're looking at a mid single digit rate of growth year over year in 2022, and I think he used the word modest NII growth is expected for 2022.
Uh huh.
Matt.
What sort of yield curve or nominal rate environment are you assuming.
So again you know.
Above all towards that level.
Let me just correct because.
I think you do.
Misunder didn't hear us right or we said something wrong, but we're expecting modest NII growth from the third quarter to the to the fourth quarter.
Oh, okay.
We gave some perspective in that.
The initial comments that I made about.
'twenty one versus 'twenty two.
You know, we're not really providing specific guidance on 'twenty two but.
Yeah.
Just to give you a couple of reminders and qualifiers that it's going to depend and it's going to depend on loan and deposit growth and we expect both of those you.
To continue to grow consistent with a growing economy.
We also are expecting lower premium amortization expense over time, consistent with the path of poor rates.
All the guidance we ever give you is always dependent on the forward curve at that moment.
So assuming that the current forward curve and given our expectations around improvement in NII in the second half of this year, we've already booked.
The third quarter I've, given you guidance on the fourth quarter.
That you know one could expect I think robust improvement in NII.
<unk> the full year 'twenty, one versus the full year 'twenty two.
By the way I want to correct. One thing I said earlier I mentioned that our asset sensitivity.
100 basis points rise parallel shift to the curb was $7 seven it's actually 7.2, so sorry for that.
Yeah.
So on.
On the interest rate structures, but what I'm thinking about in and please tell me here.
There's a significant amount of liquidity and on bank balance sheet, that's being put on a waiting to be put to work and I'm wondering if that doesn't put a somewhat of a cap on how much rates can rise and then youre going to have some decline and treasury issuance because of a declining budget deficit.
And then you're still going to have to at least through the first half of next year. So you got you know a lot of demand for a shrinking supply on the treasury side. So that's why I'm curious what sort of rate structure, either nominal or curve wise, you're you're anticipating.
Going forward.
Oh.
All the factors should talking about go into it.
We use the curve and so all your market participants in all of the debate, we don't use some internal estimates, but we've always used the curve I would tell you that for.
A long long time going back a couple of decades. So that's how we had is how we build that estimate of the asset sensitivity based on the forward curve at the time at the end of the quarter whenever we calculate.
Alright, thank you.
Okay.
Our next question comes from Stephen Ju back with Wolfe Research. Your line is open.
Hey, good morning.
Thanks for taking my question. So wanted to start off with one just on the tax rate guidance and Paul you've always provided helpful color on how to think about some of the potential fee income drag as well associated with those ESG related investments recognizing that the impacts are intended to be P&L neutral.
I was hoping you could help size just how we should be thinking about the other income drag.
Related to the guidance for for Q1, and whether you guys would consider a potential change to the accounting or just given all the noise and volatility that that creates and the income statement.
Yeah look we we expect our ESG activities to increase over time, so as we go into 'twenty, two and 'twenty three and as we've long talked about.
You know the fourth quarter is generally the highest for that.
Or that you know that pretax put that other that that loss that we booked in other income for entry into these partnerships I do think it's important to remind everybody I know you know it but I'll remind everybody that.
These partnership losses are booked in other income.
But there are more than offset.
In the tax line.
So as we grow these activities in the future there will be a small headwind to revenue growth, but not to net income growth given the tax benefits of these investments.
As you think about modeling.
Everybody out there we expect the fourth quarter loss to be you know.
$800 million on the other income line from these tax investments or even perhaps a little higher reflecting.
You know both that's sort of typical seasonal increase in the fourth quarter in partnership investments.
As well as there were a few deals in the third quarter that got delayed because of all the logistical stuff and we think theyre going to pop into the into the fourth quarter.
Beyond that putting the fourth quarter side, a good modeling assumption for the.
The normal three quarters of.
22, I would say you know absent unusual items.
It'll be a quarterly loss of kind of 400 to 500 or four those ESG investments again in the other income line more than made up for in the tax line.
Thanks for that color, Paul and just for my follow up I know you guys are reluctant to give some explicit expense guidance for next year, just given the sheer amount of like inbound that we've gone. After you made your remarks I just wanted to provide some ranges and just see if we're thinking about things appropriately it does sound like the 14th.
4 billion, we saw this quarter annualize that as the jumping off point that gets us to 57, six you have the $250 million of additional incentive.
Expenses are seasonal expand sorry that you spoke to that gets us to 57 nine and then that's the starting point for thinking about how much incremental growth somewhere in that range of 1% to 2% is that the right way to think about it.
You've got <unk>.
Some but not all the components because you've got to you got the COVID-19 related expenses and what happens next year, but I think the leading thing for everybody to focus on is.
You watch the head count because the other day, if you think about the expense base, it's dominated by people.
And buildings and equipment, they operate on and positioning them for success and that head count now is drifting down as it has because the impact of the.
Runoff of some of the special programs that we had a half million PPP loans. Two main customer deferral applications are the unemployment payments all that stuff its going down and and we and that's coming down some client facing investments in technology stuff that goes up but we continue to engineer the back office of <unk>.
That number I think it was 209.400 this quarter for 11, if I got it right down for the quarter down for the year manage theirs are down about 1000 in the company round numbers at this point and we just continue to manage that down so you've got the component parts.
I'm clear with you know sort of brought the run rate back down to flat year over year and will continue to work on it yeah. The only other thing that I would add Brian if I may.
We're clearly focused on.
Managing expenses, well, but what we're really focused on is creating operating leverage.
And that.
That you know you saw that this quarter and that's how we really think about.
The business model, we've got to grow revenue.
And then in terms of expense growth, we've got to grow expenses slower than we're growing revenue and we've given you the sort of 1% ish framework.
Okay, that's great and just one quick follow up if I may just on the securities Yellow do you guys actually saw some nice expansion there I know that's going to be reflective of at least in part of some of the premium and benefit that was cited but I was hoping you can maybe help frame.
How large could that benefit be from premium am if prepay speeds really start to normalize in earnest somewhere closer to pre COVID-19 levels and then separately just where are you reinvesting along the curve and how you're thinking about duration of risk appetite.
Given the size of your MBS portfolio.
Yeah, I mean, if you think about premium amortization expense over time, it's going to depend on the path of rates and I just would remind you that you know.
Prepayment lags movements and mortgage rates when people kind of focus on the 10 year, it's about mortgage rates and they lag that by a little more than two months.
And I would also just remind everybody.
That.
You know as you think about premium amortization expense. It's also important to really remember that the size of the sorts of securities portfolio has increased a lot year over year. So all those things sort of have to go into your into your modeling.
Understood. Thanks for taking my questions.
Our next question comes from Ken <unk> with Jefferies. Your line is open.
Hi, Thanks, Good morning, just a quick.
Or do you want on card.
Interesting to see that your you know purchase credit card volumes continued to grow really nicely and debit.
<unk> come down a little bit so did the overall interchange fees I'm. Just wondering if you can talk through what youre seeing in terms of the underlying trends there.
And as you know is that stimulus starting to change as far as them and it was at Delta variant and just you know what do you see in terms of the forward outlook for in terms of your views of spend trend then.
And balances in cards. Thank you.
Sure.
Well look in card income just a couple of points to makes us when no. One is confused when you look at our.
Sort of consumer banking.
Card income fees, they were up very nicely year over year.
At about 8%.
Driven as you said by the you know the purchase volume increases. Despite the fact that you know payment rates are still relatively high but when you look at the consolidated line youre not going to see that.
It's up only slightly versus Q3 'twenty.
Cause of the decline in our card income associated with processing unemployment claims which sits in global markets. So just just for some clarification there.
In terms of balances look where we're expecting card balances to continue to improve with the balances grew 7% quarter over quarter on an annualized basis.
Including some small growth in revolving balances.
And we opened over 1 million, new accounts, which now matches pre pandemic levels I think bounce growth reflected higher spend in the re initiated marketing efforts that we've talked about including promo offers.
I'll again payment rates remained elevated.
We we expect higher Q Q4 seasonal purchase volume and that's going to drive additional AR balances in cards.
Just a couple of things.
You've got the balanced question on cards, but yeah.
You always have to look at spending side of it and we say yes.
Debit and credit cards, only about 20 odd percent of the way consumers spend money other accounts cash all the Atms checks written zelle is taking off and becoming a meaningful amount of the payments. So you know.
I think.
And Beth cards are.
Uneasy form of payment, we're already seeing cat tap cards.
Things that 12% of the spend at 12% penetration already so but the good news is.
No matter, how you cut it and how you look at it.
Two good message card balances are growing but.
But there's still tremendous capacity for the consumers to borrow if they want to do things.
Second thing is that the spending levels are growing.
Growing at 10% growth rates and in.
An economy in the U S, which is led by the American consumer that has a tremendous amount of spending thats going on and it's accelerating.
Even as the stimulus is not.
As you know in the rearview mirror by quite a many months so as people get back to work and higher wages and things. There's just more money to spend so I think the focus on card.
Spending vehicle versus a borrowing vehicle, you'll will be something we look at but we like the we like the business. We continue to generate a million new cards as Paul talked about and it will break down about who needs to borrow and what and the asset quality is unbelievable that NIM as high as it's ever been and that's a good business.
Great. Thanks, a lot guys.
Our final question comes from Chris Kotowski with Oppenheimer. Your line is open.
Good morning, and thank you.
I'm trying to kind of disaggregate the strength in net interest income and if I just wanted to make sure I have all the moving parts right. So so the.
P. P P revenues were up.
166 million and amortization was down 200, it's still kind of implies like a 500 million dollar or roughly 5% kind of the linked quarter.
Growth in NII up against say, one 5% average loan growth.
If I have that right and is there an explanation for that strength is it the securities you put on or is it.
How did it become quite that strong.
You've got to add an extra day.
Extra day, Okay, that's 1% more.
And then what you get is what you're left with I think is on the loan growth for two quarters now.
And you know, we we took in a lot of deposits.
Quarter over quarter, we put some of those towards the loan growth we put some of those in cash when we put some of those in the securities portfolio.
Okay, and if you if you had to guess if you if it's with the size of the securities portfolio that you had now if you were in say 2017 kind of rate environment. The 1 billion for an amortization currently what what would that go to if you can say.
You can look at that but just tracking the C. P. R C.
Make your estimates you know the size of the portfolio.
And the basis, but.
Just backing up a little bit as loan growth.
In the first quarter, we said we thought.
We're seeing the stabilization and there was a lot of people fulminated against that saying you know what how can that be true. The second quarter. We said in the second half of a quarter, especially we saw growth all.
All of that loan stayed on the books plus we grew it on top of that as we said earlier I think $60 million, excluding the PPP, that's what's going to build into.
The NII projections going forward, because that's you know 200.5300 basis point spread stuff and remember we're funding it with zero cost deposits to the tune of two or $300 billion up year over year. So that's what drives that's what will drive it long term short term it'll be all the things you talked about but that's going to stabilize somewhere point and then take it and then.
It's really going to come back down to what we do on the banking side of the balance sheet make loans take deposits and make the spread between them and the best news is the NIM.
You know the NIM percentage actually started moving up and that shows you that that the stabilization leads to that coming true as we grow the loans.
So it was an awesome quarter. Thank you that's it for me thanks.
What do you agree with that.
That's all alright. Thank you all for your attention just to close the quarter out are I can just take Christmas comment and say you know we returned to organic growth trends seen pre pandemic.
Solid loan demand good revenue grow 12% year over year expense flat year over year for great operating leverage at 12%.
Turning to that you know that.
For it to try to drive that quarter by quarter to make the great investments to drive the franchise at the same time, having expense discipline.
12, $12 billion of catheter went back to this quarter and will continue to return the excess capital and all the current earnings because frankly, we can grow without.
<unk> capital because of the core way, we run the business on a risk basis.
We continue to do what we need to do in our communities outside at the same time and just didn't close I want to thank Paul for his service as CFO and we look for Dallas and her team are taking over the next quarter. Thank you.
Hi.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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