U.S. Bancorp. (USB) — Q3 2015 Earnings Call Transcript

Thank you, Melisa, and good morning to everyone who has joined our call. Richard Davis, Kathy Rogers, Andy Cecere and Bill Parker are here with me today to review U.S. Bancorp’s third quarter 2015 results and answer your questions. Richard and Kathy will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation as well as our earnings release and supplemental analyst schedules are available on our website at usbank.com. I would like to remind you that any forward-looking statements made during today’s call are subject to risks and uncertainties. Factors that could materially change our current forward-looking assumptions are described on page two of today’s presentation in our press release and in our Form 10-K and subsequent reports on file with the SEC. I will now turn the call over to Richard.

Thank you, Sean, and good morning everyone. Thank you for joining our call. I will begin our review of U.S. Bank’s results with a summary of the quarter’s highlights on page three of the presentation. U.S. Bancorp reported net income of $1.5 billion for the third quarter of 2015, a record $0.81 per diluted common share, a 3.8% increase year-over-year. I was particularly pleased this quarter by the continued momentum in our payments business, specifically our retail card and merchant processing services, the stabilization of our net interest margin and a returnable linked quarter loan growth to our typical range of 1% to 1.5%. During the quarter, we returned our student loan portfolio from held-for-sale to held-for-investment. Subsequent to recognizing a market adjustment on the portfolio, related to disruption in student loan market. Excluding these student loan balances, total average loans grew 1.3% on a linked quarter basis. In addition, we continued to experience strong growth in total average deposits, which included consumer net new account growth of 3.1%. Credit quality continues to remain strong. Total net charge-offs and total non-performing assets both declined on a year-over-year basis and on a linked quarter basis. And finally, our capital position remains solid. We continue to generate significant capital this quarter and were able to return 80% of our earnings to shareholders in the third quarter, through a combination of our dividend and repurchase of 16 million shares of common stock. Slide four provides you with a five-quarter history of our performance metrics, and they remain among the best in the industry. Return on average assets in the third quarter was 1.44%, and return on average common equity was 14.1%. Moving over to the graph on the right, you can see that this quarter’s net interest margin of 3.04% was essentially flat with the previous quarter margin of 3.03% as expected. This reversed a declining trend in linked quarter margin that has occurred over the past several quarters and which is principally driven by a shift in the mix of our loan portfolio. Our efficiency ratio for the third quarter was 53.9%. We expect this ratio to remain in the low 50s going forward as we continue to manage expenses in a challenging economic environment. During the third quarter, we expanded our prudent FTE management focus and introduced a renewed emphasis on other discretionary spending. We anticipate our efforts related to these initiatives will begin to reflect positive momentum as we move through quarter four and into 2016. While we anticipate our non-interest expense will be higher on a year-over-year basis in quarter four, we expect the increase will be lower than the year-over-year increase reported in the last several quarters as a result of our actions we’re taking to reduce discretionary spending using technology to reduce certain traditional expenses and focusing our spending on more productive activities. This is being accomplished through FTE actions as well as programs that will reduce travel cost by effectively using video and teleconferencing, increasing our use of airfare and hotel discounts and eliminating most discretionary travel. We’re also expanding the use of electronic communications internally and with our customers to reduce spending in printing and postage. Additionally, we began to evaluate professional service and contract labor arrangement and we expect to see improved efficiencies as resources are more appropriately allocated. We’ll continue to leverage this efficiency effort to drive further opportunities for more prudent and efficient spending as we move through 2016. While prudent expense management remains a priority for our Company, we also continue to focus on revenue growth, which includes investing in businesses and products that will yield a high level of return. This philosophy is and has been a strength on how we manage our Company and this focus will continue going forward. Moving onto slide five, I want to highlight some notable impacts to our earnings. The third quarter of 2015 included several previously disclosed unrelated items that combine relatively neutral to earnings. Specifically the Company recognized a gain from the sale of Visa Class B common stock of approximately $135 million. This was partially offset by a $58 million market valuation adjustment to write down the value of our student loan portfolio that was previously held for sale. The quarter also included approximately $60 million of elevated expenses due to the mortgage related compliance and the company-wide talent upgrade. Turning to slide six, the Company reported total net revenue in the third quarter of $5.1 billion, a 1.6% increase from the prior year excluding the impact of this quarter’s recent sale and the student loan market adjustments. The revenue momentum we are seeing is primarily due to our growing balance sheet and growth in a number of our fee-related businesses, including payments.

Thanks Richard. Average loan and deposit growth is summarized on slide seven. Average total loans outstanding increased by over $9 billion or 3.8% year-over-year and 1.3% linked quarter excluding student loan. Again this quarter, the increase in average loans outstanding on a year-over-year basis was led by strong growth in average total commercial loans of 9.5%. Total average revolving commercial and commercial real estate commitment continued to grow at a fast pace, increasing year-over-year by 8.9%; line utilization remained similar to the previous quarter. On a linked quarter basis, consumer loans have begun to grow at a pace stronger than wholesale loans driven by growth in our residential mortgage portfolio and continued strength in our home equity and auto lending businesses. This mix of loan growth is a key factor in the stabilization of our net interest margin. Residential mortgages were relatively flat year-over-year and increased 1.4% on a linked quarter basis, reversing a declining trend recognized over the previous quarter. Average credit card loans increased 1.1% year-over-year and were up 1.9% on a linked quarter basis. Total other retail loans grew 5.6% year-over-year and 1.9% over the prior quarter excluding the student loans. The increase was mainly driven by steady growth in auto loans and continued positive momentum in home equity loans which grew 0.8% linked quarter. We would expect loan growth to continue in a 1% to 1.5% range in quarter four. Total average deposits increased almost $19 billion to 6.9% over the same quarter of last year and 1.4% over the previous quarter. Growth to non-interest bearing and low-cost interest checking, money market and saving deposits was particularly strong on a year-over-year basis, offsetting the run-off of maturing large dollar time deposit. Turning to slide eight and credit quality, total net charge-offs declined 1.4% on a linked quarter basis and 13.1% on a year-over-year basis. The ratio of net charge-offs to average loans outstanding was 46 basis points in the third quarter. Non-performing assets decreased by 0.6% on a linked quarter basis and 18.5% from the third quarter of 2014. During the third quarter, we released $10 million of reserves compared to $25 million in the third quarter of 2014 and $15 million in the second quarter of 2015. Given the mix and quality of our portfolio, we currently expect total non-performing assets to remain relatively stable in the fourth quarter of 2015 and the level of net charge-offs to increase modestly in the fourth quarter of 2015, principally due to the expectation of a lower level of recoveries. Slide nine gives a view of our third quarter 2015 results versus comparable time period. As mentioned, our diluted EPS of $0.81 was 3.8% higher than the third quarter of 2014 and 1.3% higher than the prior quarter. The $18 million or 1.2% increase in net income year-over-year was principally due to higher net interest income and non-interest income offset by higher non-interest expense. On a linked quarter basis, net income was higher by $6 million or 0.4%, mainly due to increases in net interest income and non-interest income, partially offset by higher non-interest expense. Turning to slide 10, net interest income increased year-over-year by $73 million or 2.7%. The increase was a result of growth in average earning assets of 6.6% partially offset by a lower net interest margin. The net interest margin of 3.04% was 12 basis points lower than the third quarter of 2014. The decline was principally due to a change in loan portfolio mix as well as growth in the investment portfolio at lower average rate and lower reinvestment rates on investment securities. Net interest income increased $51 million on a linked quarter basis, primarily due to higher average total loans and an additional day in the quarter. The net interest margin of 3.04% was 1 basis-point higher than the second quarter. The increase in net interest margin was principally due to growth in earning assets including a shift in loan mix weighted more to consumer loans and continued deposit growth partially offset by an increase in lower rate investment securities along with lower reinvestment portfolio rates. We currently expect that the net interest margin will be relatively stable in the fourth quarter. Slide 11 highlights non-interest income which increased $84 million or 3.7% year-over-year. The year-over-year increase in non-interest income was primarily due to the third quarter 2015 Visa gain of approximately $135 million partially offset by the $58 million student loan market value adjustment. The remaining increase in non-interest income was principally due to higher commercial products revenue, trust and investment management fees, credit and debit card revenues, and merchant processing services. Partially offsetting these favorable variances was a $36 million decrease in mortgage banking revenue primarily due to an unfavorable change in evaluation of mortgage servicing rights, net of hedging activity. Momentum in our payments business was reflected in our third quarter results. Credit and debit card fees grew 7.2% on a year-over-year basis, principally driven by higher volume compared to 2.7% growth year-over-year in the second quarter. We would expect that credit card fees in quarter four will continue to grow in line with volume. Merchant processing revenue increased 3.4% year-over-year, 8.5% excluding the impact of foreign currency rate changes. This increase compares to year-over-year growth of 7.6% in quarter two. The growth was driven by higher transaction volume, account growth and equipment sales to merchants related to new chip card technology requirement. We would expect that quarter four year-over-year growth in merchant fees will be modestly lower than the growth recognized in quarter three as equipment sales related to the new chip card technology requirements will begin to slow. On a linked quarter basis, non-interest income was higher by $54 million or 2.4% principally due to higher other income in commercial product revenue as well as seasonally higher corporate payment products revenue and deposit service charges partially offset by lower mortgage banking revenue. We currently expect mortgage fees to be down 5% to 15% on a linked quarter basis in quarter four due to typical seasonality. It is very early in the quarter and we’ll update guidance as the quarter progresses. The other income increase was due to higher equity gains including the Visa gain offset by student loan market adjustment and lower trading gain. Moving to slide 12, non-interest expense increased year-over-year by $161 million or 6.2%. The increase was mainly due to higher compensation expense, reflecting the impact of merit increases and higher staffing for risk and compliance activity, higher employee benefits expense mainly due to higher pension costs and higher marketing and business development expense. On a linked quarter basis, non-interest expense increased by $93 million or 3.5%. As expected linked quarter expense increased due to the seasonal lift in tax credit amortization included in other expense, and an increase in expense related to the quarter two partner reimbursements that did not repeat in quarter three which are principally reflected in printing and supplies expense. The remaining increase was primarily due to increases in other expense related to mortgage servicing and talent upgrade costs and compensation expense principally reflecting the impact of an additional day in the quarter and increases in variable compensation. As we look to quarter four, we do expect an increase in linked non-interest expense as seasonally higher tax credit amortization will be partially offset by a reduction in expense related to the elevated mortgage servicing and talent upgrade costs that were included in quarter three expense. The normal seasonal increase in tax credit amortization expense is expected to be in a range of $65 million to $75 million, slightly higher than trends observed in the same period of last year.

Thank you, Kathy. I’m very proud of our third quarter results. We reported a record EPS, maintained our industry leading performance measures and reported a 19% return on tangible common equity in the quarter. We’re operating from a position of strength as we grow revenue, as we manage expenses, as we seek to exceed customer expectations, and as we create value for our shareholders in the demanding marketplace. As we head into the final quarter of the year, we remain focused on delivering consistent, predictable and repeatable financial results for the benefit of our customers, our employees, our communities and our shareholders. That concludes our formal remarks. Andy, Kathy, Bill and I would now be happy to answer your questions.

Richard, just a question for you; just take your temperature on loan growth and how are you feeling about the outlook. You’re right down the middle this quarter, just wonder if there is anything out there that makes you any more or less optimistic as you look to Q4 and to 2016 in terms of loan growth.

I would say just more of the same which is not pessimistic but it’s not overly optimistic either. I mean we’re seeing a nice transition to consumers getting more steady in their spending patterns. I think we’ll see a nice seasonal lift in credit cards in the fourth quarter. Auto loans, as you know, remain strong. Our Bank has benefited from a strong home equity growth of portfolio and not having some other run-offs that other portfolios have had. So, you will continue to see I think all cylinders on consumer growth. And that will be a nice challenge to probably an equal growth we’ll continue to see in C&I and CRE as well as small business. So, what you saw this quarter is probably the optimal work here for a while which is a nice 1% to 1.5% linked quarter probably even on both commercial and wholesale which gives us a nice blend for the margin. I would say the competitiveness on the rates are pretty steady and we’re not seeing an undue amount of pressure except in the middle market C&I space; everything else seems to be managing itself pretty well. The one area that we’re not growing right now is CRE. I certainly mentioned this time we talked that it’s an area that we think has some undue risk in it; it’s a pretty overheated market in not just certain locations but tenures and the terms and the recourse non-recourse decisions that some banks are making and we’re not going to participate in that. So don’t be disappointed if you don’t see commercial real estate grow a great deal. We’ll probably hold our own and keep our market share but that’s an area we’re going to keep particularly close eye on. And then finally areas of real opportunity, the small business category still looks good especially under the $350,000 level. Real small businesses feeling that they’ve got some real value now or some real cash flow either from their own personal circumstances or from their own business. And we’re starting to see a higher percentage of take up on that, both SPA and traditional small business. And I think our market share continues to reflect the growth in the last couple of quarters. So, a lot more of the same; the catalyst I think is I’ve said before will be the real movement in interest rates. The first mover impact which I think will trigger quite an impact on these C&I and the larger company space for the one and not miss the opportunity to lock in rates before they start moving up at whatever speed, but until then it’s just kind of more what you’re seeing. We’ll get it out in the marketplace with prime only quality loans at a pricing advantage that I think we continue to be able to benefit from.

And then just a follow-up on what you just said, this is the first time we’ve seen loan yields relatively flat and earning assets yields relatively flat. How are you feeling about just pricing in the competitive environment?

I think as Richard mentioned, in the large corporate space, I would say pricing is relatively stable; middle market can be aggressive because fewer competitors can make a difference there. And the other area on the retail side of the equation is auto lending, continues to be fairly competitive in terms of pricing. Other than those categories, everything remains relatively stable.

Just wondering on the expense side, Richard, is there any way to size the potential opportunity from the increased focus on the non-FTE expense?

Yes. You got the question too. Listen, first of all, we’re going to be very careful on not heading where we shouldn’t. And I am not -- we’re still a long-term company, so we’re not going to make big mistakes here and over manage this. But I will tell you that this discretionary addition to our otherwise prudent FTE impacts is going to start showing itself for the first time in quarter four and we’re going to get that a range of $10 million to $15 million benefit that we wouldn’t have had if we’ve not started this effort. 2016, we’re in the middle of the planning process; so it will obviously be more than that but it’s going to be thoughtful. And I think you all know that we’re giving you our efforts to get back to positive operating leverage on an annual basis. Then as you look into plan next year, that’s our goal is to make it a positive operating leverage. But at the same token, I don’t want to starve the future and find out that we over manage something and got this company back to really where it was 10 years ago where we were just investing. So, we’re going to be thoughtful about it but it’s got real impact but not huge in quarter four. And then we’ll have a better idea to give you since later this quarter as we look to 2016 and see what kind of impacts the cumulative facts of all that can be. But I assure you, we’re going to continue invest in places we need to and where the ROI is good. I don’t see an expense; I’ve seen investment and we’ll continue to be thoughtful on that distinction.

So, don’t want to box you into a corner to really on next year, but just want to kind of get sense of your conviction level on the ability to deliver the positive operating leverage without rates. Back in September at the conference you kind of said, hey, now I don’t care. Is it something you feel like pretty good about being able to deliver or really going to depend a lot on the environment still?

What I said was I care less, not I don’t care, I do care. The fact is that we’re going to put into our plan an expectation for very, very nominal number and size of rate increases which much less we’ve had in the years past, so nominal that it’s very small that to the extent that that occurs and in case nothing happens, we will struggle to get positive operating leverage. To the extent that anything happens, we’re going to build a plan to give it very close to that, so that we can approximate revenue growth and expense growth to be somewhere near the same where revenue slightly outpaces it. And there is a reasonable amount of increases or sooner than later, then we’ll have much bigger opportunity to provide much more positive operating leverage. But we’re building it to be right at the line so that we can deliver back to what we committed, start growing the Bank that way again and then any benefits we get will be a bonus. But do we need one or two, John, over the next 15 months but we don’t need much more than that; we don’t need them all right now and they don’t need to be big.

And then just on the idea of if rates stay low, revenue environment stays challenging, does the idea of bank acquisitions get more attractive for you Richard? And can you just elaborate what you said about kind of statute of limitations and kind of legal risks as a barrier to you are doing deals?

Good memory. I told you that I think the statute in our head kind of ends in ‘17. So I don’t think ‘16 is going to be a year where you’ll see us jumping into big bank deals or big branch deals. But we do love the non-capital, the business of fees and trust. And you saw recent acquisition we made of the Auto Club card portfolio, there are more where that came from John and those are very attractive deals; they are bolt-on; they’re low capital. But for the provision, you need to put in front of them. And the small conversion task is a good way to grow the balance sheet and we’ll continue to see opportunities there. So, I think ‘16 looks like the tail end of the last four, five years and then ‘17 probably becomes the time we’ll start looking at more traditional bank deals. And frankly, we don’t really feel we need them right now. Our deposit growth is steady; our customer growth patterns are steady; our relationships are getting deeper and we’ve always said wanted double down where we are; more than grow where we aren’t. And so far that’s working for us. And I don’t feel like we’re starved at all by not being able to do that.

Are there other things that you need to get to that in terms of before you can do deals in terms of regulatory checklist and things like that?

I don’t think we -- we don’t think there is an environment where that’s going to necessarily impair our interest. I think we have to watch for the trailing risk that I mentioned before especially inheriting it from that you didn’t create yourself and you also want to spend time making sure that everything you have in your houses in good order, but I don’t see anything new on the horizon or any new information that would change our appetite.

Where are you at on -- I know on acquisitions and what do you see out there; are things loosening up a little bit or some of the improvement -- and what type of size you think you can go after at this point?

Paul, I don’t know that they are any more attractive than they have been in the last few years. I think there are certain boards sitting around boardrooms saying at smaller sizes are we going to make it at this level, can we afford with our scale to be profitable; that might change a little bit. But we’re not seeing an intensely different environment that we’ve seen in the last eight quarters, not more players, not higher quality players, not more desperate players. And our attraction, our interest is low. So maybe that’s because we’re saying we’re not interested, we’re not getting a lot of bites. But we’re not denying anything that we think is too good to pass. And I actually don’t think -- I am not attracted to other banks right now. I just for all the reasons you mentioned -- I mentioned to you before, this year positioning in this moment in time. It’s enough to carry your entire balance sheet across the goal line when interest rates are low and deposits don’t have value, but they are going to be valuable one day again and you’re going to be glad you have all of those deposit gather in place. We have 3,186 right now; that’s probably quite enough for us. I am just not -- we’re not seeing an attraction on our part and no one is coming out for us with a different or better story.

Are you seeing any communities or some of the small areas struggling with the low oil prices especially in some of this -- some areas you’re in with the -- couldn’t get it out, the frac, I couldn’t get it out?

There are markets that we have business like Lewiston and Williston and those parts of the Dakotas, which is like the old gold rush; things start slowing down; the town moves downstream. We don’t do much business there anyway; we didn’t set up any locations; we didn’t create infrastructure because we didn’t think it was sustainable. And for the most part becoming mostly a Midwest and West Coast company, we’re outside of the Texas Panhandle and down of the Gulf Coast. And so that’s for a few customers that might have some tension tertiary impacts to energy, we really don’t have anything at our gun sites and none of our communities are struggling in that category either based on the consumer or the small business.

Just following up on the fee side, just want to ask you guys to remind us, you’re getting towards better comps on a year-over-year basis in some of these fee areas. Can you kind of walk us through in addition to mortgage in the fourth quarter to be mindful of what are the plus and minus seasonalities and where are you seeing kind of better comps versus still some challenges to face on the fee side?

Hi Ken, this is Andy. In the fourth quarter, I would expect to see continued strength in our merchant processing, a little lower on a linked quarter basis because as Kathy mentioned, we have very strong equipment sales in the third quarter that will continue at a lower level in the fourth quarter. But the year-over-year comps will continue to be very favorable. Card is always positive in the fourth quarter. Corporate Payments is down a little bit because the third quarter is the big quarter for that one. Trust is going to be dependent a little bit upon the markets, so there is the market impact to that, the S&P market impacts fees overall. And then mortgage fees I would expect to be modestly down in the fourth quarter. Typical seasonality in the fourth quarter is down 5% to 15%.

So, when I think about all of that, is it kind of just naturally just going to be a little bit tougher for fee growth just given those couple of normal fourth quarter seasonalities plus mortgage?

I think if you take out the couple of unusual items that we had this quarter, the Visa gain and the student loan impact, I would expect moderate growth on a linked quarter basis.

On the margin, got your guidance for fourth quarter for stable. On 2016, just want to see if you can give us a little bit of color there. Do you expect that the margins should hold relatively stable through ‘16 as well or do you think pricing competition can still have a bit of effect on that?

John, we’re guiding into the fourth quarter and I would be hesitant to guide out past that. But what I would say is if we continue -- the loan mix of our portfolio growth with consumer growing a little bit higher at higher spreads and we see on the wholesale, I think that coupled with just our reinvestment rate impact on securities is kind of starting to narrow a bit. There is similar or those things continue as we move into 2016, I would think that we would have similar type expectations. But at this point we’re looking quarter-to-quarter and as we said probably stable into quarter four.

So, if it’s a qualifying mortgage Freddie or Fannie, we will sell that. It is a better financial decision from our perspective to originate and sell those mortgages. If it is a jumbo or non-sellable mortgage, we’ll put down on the balance sheet; we’ve been a little bit more aggressive with that particularly with our own customers have talked about that. So, that would be our expectation. We’ve gone from about 21st in terms of size to fifth or sixth and I would expect us to continue to be in that range. Our particular emphasis is to put more branch distribution as a focus in terms of our core growth. And that is something that we continue to drive and are successful and increasing. So, I expect to see us grow aftermarket grabs little bit above the market particularly focused on branch and if it’s sellable, we will sell it.

Bill, do you want to take that? Sure, I can take that. So, we’re getting to the point where our reserve release has been de minimis really and we have to weigh the balance of continued improving loan quality versus loan growth. So, we’re looking at a point now where we -- we’re probably flattened out to seeing some increases in the wholesale area and the one area where there is still some potential for credit opportunity, reserve opportunities in residential mortgage. But we’re just about at that point where those -- that mix isflattening out, and I expect that will eventually have to provide for loan growth.

Hi, couple of questions for you folks. Firstly, the equipment sales in merchant processing that you were talking about, how much of that is due to the new EMV adoption by merchants and when does that get done?

Vivek, this is Andy. So the acceleration, the increase is principally due to that EMV. We always sell equipment in any particular quarter, it’s higher in this quarter and last quarter, I would expect it to continue at least for quarter or two, perhaps not at the levels we saw in the third quarter, but it is principally due to that acceleration because merchants are buying chip enabled terminals.

That’s what I thought that it probably accelerated. And the card portfolio you acquired from Auto Club, what was that was in this quarter and how much were the receivables on that Andy?

It was $525 million right at the end of the quarter. So, no impact in quarter three; you’ll see that impact in quarter four.

The portfolio looks exactly like our portfolio. I mean from charge-offs to revolve, average spend; it’s right down the fairway and it’s a complete continuation of the kind of service that we provide that quality of customer.

Is it like a private label type portfolio Richard or is it just a regular or co-branded or is it going to be more -- given that it says Auto Club; I would think or is this some kind of affinity type?

It’s an Auto Club branded card that is with our support and backing. So it’s on our balance sheet, our processing but Auto Club has the rewards that go along with it.

So Vivek, consumer banking is the most impacted business line by the low rate environment in terms of their earnings as we sit today. So, they have a lot of deposits. Those deposits on a relative basis are below the typical spreads and value that we have on a long-term basis. And that impact is what’s driving their efficiency ratio. So as rates start to move, you will see that business line more than any other start to improve in terms of efficiency ratio.

That’s why we could be wrong but at least we’re going to have the luxury of deciding later. But branch closures look very attractive now because they’re not only not very profitable, they’re actually going in the wrong direction as this long interest rate stays low and deposit values are much less than they will be in the future. But there will be a time when rates go back up. I know you and I are old enough to remember and deposits will be the governor on how many loans you can make. And that’s the benefit we’re always going to have on these interlopers who are coming in with these great lending ideas. They don’t have the deposits and we shouldn’t give up the one thing we have which is deposits which will be the key driver. So for us, we have been rationalizing our branch system a lot. We don’t look for headlines on it. We’ve been retooling what happens in the branches all the things that you would expect us to do and closing where they’re necessary and opening when they’re necessary. But we’re by and large a believer in the branch network. We think it’s the best core deposits; it’s best quality customers we get from a branch referred loan or credit line. And yet right now, it’d be a bad time to evaluate their value because at this point at the end of a long recession, they’re not very attractive.

I hate to do this to you. I was on another conference call that was running at the same time. Would you remind me hashing just briefly your opening comments about expenses and the kind of initiatives you’re looking through?

I think I’ll just repeat it for everybody. What we’ve been doing for a year now is watching our FTE assets and be very prudent about where we add them. We’ve recently gone through a rationalization program where our lower performers that were not performing just not the highest level given the importance of an FTE, we’ve now used a company program to do a talent upgrade and effectively use people out of the company. And on top of that, in the last quarter, we added this discretionary expense review which is the other half of the expense categories and started looking at where we don’t need to be spending money at this point in time until rates move. And that’s some we gave some color around. I said that in the quarter four it will be a $10 million to $15 million net benefit that we wouldn’t have had if we hadn’t taken that extra action. For 2016, it will obviously be more than that but we’re not ready to size it because I am also not going to necessarily give you guys a sense that all expenses stop because we’re just reallocating the right things and in some cases we’re going to be investing in places we have been in the past. So too early to rate for ‘16 but definitely net positive and our goal is to get to the positive operating leverage at the minimum annual level starting next year.

Yes, I would say it’s up from a reported number and that’s principally driven as we said by the fact that our tax credit amortization expense is -- quarter four is our seasonally highest increase related tax credit amortization expense. And we said that that would probably go up in the range of about 65 million to 75 million, similar to what we saw in previous trends.

Thanks, everybody.

Thank you.

Thank you for listening to our review of third quarter results. And please contact me this afternoon if you have any follow-up questions. Thanks.