U.S. Bancorp (USB) Earnings Call Transcript & Summary

Well known to everybody here who is Andy Cecere, who is Chairman and CEO of USB; and Terry Dolan, who is the CFO. Obviously, USB needs no introduction. It's been a phenomenal performer over the last 2 decades. And between the 2 of them, Andy and Terry have almost 6 decades of experience at USB. They've also presented this conference for 13 years in a row. So thank you very, very much for attending. I think, Andy, you're going to give a brief presentation, and then you'll join us for a fireside chat. So thank you very much.

Great. Thank you, Richard. And it's great to be back in person in New York. I appreciate it. Terry and I are going to spend some time today. I'm going to just give a brief presentation of the company and talk a little bit about some of our priorities, both what they have been, historically, but also as we go into 2022. And then Terry will give an update on the fourth quarter. If you look at Page 2, we may be referring to some forward-looking statements. So I'll remind you of the safe harbor that's listed there. Let me go to Page 3 and talk about the company overall. As a reminder, we're in about half of the United States, where you'll see on the red on the left, our branches and ATMs. We're a national company on a commercial banking, our wealth management and investment services as well as aspects of consumer across the country. Nationally, you'll see our mortgage loans, our auto loans as well as our credit card. And then finally, internationally, on the right, we have 3 businesses: Elavon merchant processing, Fund Services and global corporate trust. On the next page, Page 4, you'll see that we are one of the largest non-GSIBs, which gives us a great spot to be in. We have sufficient scale to invest, which is so important in this time as we'll talk about here in a moment. But at the same time, we don't have some of the same strict rules around capital and liquidity that the GSIBs do. So we think we're in a good spot. If you think about the company from a business line perspective, we have 4 pretty simple, diverse -- diversity from the both perspective of economic cycles but also from the perspective of fee income versus net interest income. On the left-hand side, you'll see the more traditional banking businesses, which are about half of our pie; on the right side, some of the more unique businesses of payments, 28% of the revenue of the company; and on the lower right, our Wealth Management and Investment Services, which includes a very large corporate trust business. If we think of our priorities on the next page, I would say that we're focused on 3 things. Number one is the digital infrastructure. That's so important this day and age, and we'll continue -- we've been investing in that. We'll continue to invest in that, and that is a critical key to success in the go-forward banking -- perspective from our bank and from any bank, frankly. Second is the payments component, and I'll talk more about that, but payments is becoming more and more important in the home payments' ecosystem in terms of acquiring customers, and that's true of business customers as well as corporate customers. And finally, rationalizing our distribution system. That's both optimizing the current branch distribution as well as partnering to expand our distribution. So let me talk about payments on the next page, Page 7. Payments is actually 3 businesses, which are highlighted in the upper left of this chart. And it's interesting, since April of 2020, each of those businesses have -- actually have spend levels above pre-pandemic levels, which is very positive. And we're very positively inclined in terms of the payments businesses as we go into 2022. The fact that we have low unemployment, the economy is strong, credit is all-time positive and good and customers, both consumer businesses, are sitting on a lot of cash. So there's a lot of dry powder for continued strength and spend that we see as we go into 2022. The digital transformation on the next page is certainly embedded. So consumer behaviors were changing pre-COVID. If anything, they accelerated during the COVID time period. And right now, over 80% of transactions occur in a digital fashion. We've invested a lot in digital, which is a real positive. In fact, our app was just rated #1 by Keynova. And so those are the investments that we paid -- that we made that are paying off right now. But I will tell you that branches are still an important part of the equation. And the way we think about it is we want to be the very best at digital while also having a human interaction. And that combination of those 2 aspects is how we think we'll be successful going forward. Let me give you one example of how we do that, and that's what we call co-browsing. It's the ability to actually have our banker connect with our customer in a digital fashion to help them through technology, sales processes, consultation or advice. And we've had over 1.5 million co-browsing sessions since we started this, and that's growing very rapidly. So again, it's an investment. It's an optimization of both digital and the human interaction. We spend a lot of time talking about the business ecosystem and the payments ecosystem, and that's critically important. So one of the unique aspects of our company is we're 28% payments. So we have this great set of payments capabilities. We have this great set of banking capabilities. And what we've been very focused on is [ we bring ] together those capabilities into a comprehensive product set, a dashboard, if you will, to help companies manage their payables and their receivables, and that's a tremendous focus for us. We have over 1 million banking customers and about 1/3 of the banking customers have a payments relationship. About half of the payments customers have a banking relationship, but we think there's a tremendous opportunity to grow those relationships in the 25% category or so and to grow revenue across this category 25% to 30% over the next few years. And it's an area of tremendous focus for us, not only organically, but also through acquisitions. So you'll see on the chart 2, recent acquisitions: talech a couple of years ago, Bento more recently. They manage both the receivables and the payables side of that business and offer a dashboard to do that. Fundamentally, we're trying to make banking, payments and helping them run their business comprehensively and offering in terms of a dashboard and a product set to help them manage their cash flows. And that is also true, corporate and commercial banking. It's a little different, but it's the same concept, this concept of payments and banking really woven together. And on this one, I would highlight 2 things. We've just announced, in the last few weeks, the acquisition of TravelBank, which help corporate/commercial businesses manage their expenses and travel expense again in this dashboard concept. And we also have a number of initiatives on RTP. Real-time payments is a game-changer, I believe, for banking. It's the first new rail in banking in decades. It's going to offer speed, convenience, security and, importantly, information. And I think a lot of things that were historic in banking, checks, ACH and wire, are going to start to migrate to the real-time payment network in a positive way. We want to be at the forefront of that. And we have actually a couple of initiatives underway already with our customers, one of is same-day funding for our merchant customers, that's 365 days a year, 24 hours, 7 days a week that they can get their funding immediately. And the second is our indirect auto offering, the ability to, 7 days a week during holidays and weekends, buy a car, get it funded at that point in time. But I'm a firm believer that payments is a new way to acquire customers, particularly banking, business, corporate/commercial customers. We, at U.S. Bank, want to be at the forefront of that, and our decades-long history on payments, I think, position us well. I talked a little bit on the next page about the branch system. So 2 things on branches. As I said, customer behaviors are changing. They use branches for a different way, but they still use branches. So you don't need quite the density of branches. And because of that, we actually reduced our branch size by about 25% over the last 3 years. But at the same time, we've expanded our distribution through partnerships. And best example of that is State Farm, which has expanded nationwide through 19,000 agents across the country, and those agents are offering our products and services. And for example, our deposit growth is principally outside of our footprint, 55% outside of that red part of the map that I talked about. Deposit growth represents 1 MSA from our State Farm partnership. The credit card is 4 large MSAs. So this partnership allows us to expand our distribution in what I would argue is a more efficient and effective way while, at the same time, rationalizing and optimizing our branch structure and footprint. On the right side, you see another partnership, completely different topic, and this is providing custody services for cryptocurrency with our partner. And again, this is a demand item that came up from our Fund Services group. We've created a partnership and offering the service, and I think this has the opportunity for further growth. I don't want to leave the dais without talking a little bit about the acquisition that we announced in the third quarter, which is Union Bank. This is a real positive deal for us on a number of fronts. First of all, I talk about the importance of scale and I cross whatever measure you might want to think about. It increases U.S. Bank's scale about 20%. Think about loans, deposits, customers and so forth, that offers 1 million new consumer banking customers, just under 200,000 business banking customers and expands our reach by increasing our market share in the California market from about 11% to about 5%. So makes us a real player in the fast-growing, high-net worth business banking density that is California. At the same time, it's a very positive financial transaction in that we're able to achieve about $900 million in cost savings principally through those technology investments that we made. It's really a lift and shift of their technology to our technology and offers tremendous savings. So increased scale, increased [ rates ] and a positive financial transaction. On the right, we've also mentioned a couple of other recent acquisitions. Again, these niche acquisitions, expanding our current capabilities, the one that was just announced yesterday was PFM. And then finally, on the next page, Page 13, I talked about some of the initiatives we have underway, which are important, but I also want to make sure that you know one of our focus areas. It's not just doing the right things, but doing it the right way. We just made a number of commitments with regard to climate on ESG that are highlighted on this page continues to be a focus for U.S. Bank. So in summary, 2021 has been a good year as the recovery has started to certainly strengthen, and I see the same thing for 2022. And our combination of the digital initiatives that we put in place, our focus on that payments ecosystem and really thinking about how to acquire customers via technology and then finally, the rationalization of the branch process together with the large Union Bank acquisition, I think, positions us well as we move into 2022. And with that, I'm going to ask Terry to provide an update on the fourth quarter, and it's pretty similar to what we talked about in our earnings call about 2.5 months ago. Terry?

Yes. Sure. Thanks, Andy, and good morning to everybody. So when we ended up looking at the outlook for the fourth quarter, as Andy said, it's pretty consistent with what we talked about in October. Let me just kind of touch on a couple of different things. So if we start with net interest income, one of the things that we mentioned is that with the Paycheck Protection Program, or PPP, starting to wind down, we do expect that the net interest income is going to be impacted by about $60 million to $70 million because of the lower fees in the fourth quarter relative to the third quarter. The -- if you end up excluding the effect of PPP, we do expect that net interest income is going to be relatively stable to the third quarter. We are seeing, from a loan perspective, a little bit better growth. And just maybe as a reminder, in the third quarter, our loan growth was 0.8%; on a linked-quarter basis; about 1.8%, if you end up excluding the impact of PPP. We would expect it to be slightly better than that in the fourth quarter. One of the things with respect to the net interest margin, again, the PPP wind-down will end up impacting the margin or decreasing the margin by about 5 to 6 basis points in the fourth quarter. In addition to that, we are seeing very strong deposit growth. And as a result of that, our cash balances are going to be a bit higher in the fourth quarter maybe than what we expected. So that'll put a little bit of pressure on the margin as well in the fourth quarter. The -- if we go to fees or noninterest income, the payment business is growing nicely and in line with what our expectations are. The holiday sales have been relatively strong. But just maybe as a reminder, when we look at year-over-year growth, it's going to be a very nice comparable, strong comparables, to 2020. And certainly, as Andy said, the sales volumes have been higher than 2019. But on a linked-quarter basis, we typically see a seasonal decline in our payments business revenues. And so on a linked-quarter basis, just kind of keep that in mind. When we think about other categories of fee income, mortgage revenue, we would expect simply because of the refinancing activity that is winding down in the industry that mortgage banking revenue will be 30% to 35% lower than a year ago. On the expenses, when we talked in October, we had said that we expect to -- that -- continuing to manage expenses prudently. But on a seasonal basis in the fourth quarter, our tax credit amortization expense is higher, and we would expect it to be about $60 million higher than the third quarter. In addition, we guided that marketing and some business investment costs would be higher in the fourth quarter. And as a way of kind of maybe framing the business cost, we are closing on Bento, TravelBank and PFM all in the fourth quarter, and there will be some costs kind of associated with that. Credit quality continues to be very strong, and I think it'll be consistent with where we -- with what we saw. And then our tax rate will be 22% on a taxable-equivalent basis. So that's my guide.

Okay. Great. That's very helpful. So that was very helpful. Thank you for the presentation, and thank you for the update. So maybe I can just start off with a broad question, and I think you touched a little bit on this, which is your expectations for the economy heading into next year. What's your base case? And maybe you can talk a little bit about some of the perceived risks. I think the market's focused on like supply chain disruptions, the risk of inflation remaining higher for longer, and the risk that interest rates could end up going -- going up much faster than the market's currently pricing in and how you're thinking about those heading into next year.

Yes, Richard, I think you articulated it well. So first of all, our base case for next year is assuming continued trends from what we're seeing this year, continued strong spend in our payments business, moderate -- increased lending activity, as Terry talked about, that is strengthening across many categories, credit card activity is actually strong. Payments rates are at least stabilized and starting to moderate, which is good for the balances out there. And as I talked about, the payments activity, I think, will accelerate. We do expect 2 rate increases in 2022. That's what's been baked into our plan in terms of -- consistent with market expectations. And I think, again, we'll continue to see strong credit quality. We are targeting positive operating leverage as we think about our plan for 2022, and that's what we are striving for and what we're committed to. And then finally, you talked about the risk, and I think you articulated it well. So certainly, the inflationary pressures are real. We're seeing them in our customer base. We talk -- when we talk to our customers, that is a factor. It's a factor in changing some of their behaviors in terms of buying upfront to making sure they have the supplies to fulfill their business needs. And while there's expectation there will be a moderation in that supply chain pressure, I'm not sure how quickly that happens, but that's something we're very focused on. Inflation certainly is something also that we're focused on. We just did an inflation scenario analysis for the bank and understanding the puts and takes on how that might impact our balance sheet as well as our income statement. And it's partly the pace of inflation but also the level and when and how that moderates. And so that's something we're very cognizant of and watching. And it's starting to get baked into components, into pricing, into longer-term wages and so forth, which I think increases the risk. And finally, as we talked about credit quality, it's good, and we would expect it to continue to be good going into 2022.

And then maybe you can talk a little bit about some of the trends you've seen in payments over the holiday period. It sounds like it's very positive.

Yes.

But since then obviously, we've had the concerns around Omicron. I know it's very, very early, but did you see any changes in terms of engagement, either by consumers or corporates over that time period?

Yes, let me take that. Generally, in terms of the Omicron variant, we haven't necessarily seen a significant impact, and that's probably a little bit too early to know and understand. But just kind of coming back to what we are seeing in the payment space, again, the cyclical recovery continues to strengthen. I think that, that has been very positive. We end up looking at kind of November as an indication of holiday sales, very strong on the card issuance, debit sales side of the equation, compared to 2019, up about 25% to 27%. So it was a strong month.

I think that's credit sales, right, Terry?

Credit and debit sales. Yes.

Okay. Right. Okay. So you talked briefly about your strategic priorities. So maybe we can just delve down into them and maybe talk a little bit about how those have evolved over the course of the year. I mean when we were sitting here last year, focus on vaccine effectiveness, economic recovery, engagement with customers and engagement with employees, what is top of mind today from a strategic standpoint? And what are the milestones you'd really like to achieve when you think about the next 2, 3 years?

Yes. So it's focused on those couple of areas of investment, the digital evolution and the payments ecosystem. And let me talk about the payments ecosystem because I do think this is a little bit of a change from what banking has historically been. If you think about how banks acquired customers, it was typically through a lending transaction or perhaps a depository transaction treasury management. I think in this new environment, customer acquisition is principally through a payments component. And having strong payments capabilities is critically important. So what we're focused on is, again, simplifying our banking, our payments into a comprehensive product set that helps businesses run their business, manage their cash flows. And it's interesting because that's true of small businesses, $25 million or less, midsized and large. And that payments component, including the acquisitions that we've made, payables, receivables, travel, expense management and RTP, all those things are tremendous focuses for us because we believe that is going to be the way, the method to customer acquisition. And it's interesting, Richard, because I think -- I know we have better banking capabilities than some of the fintech players. And I would say that we have comparable payments capabilities, and we're developing. What they're better at and what we're focused on is simplifying those offerings and the navigation and simplification around how customers can use them. I think that's where we, U.S. Bank, and we, as an industry, can continue to get better. And then on the consumer side, this digital evolution, this isn't going to change. And again, weaving together the best of the digital capabilities with a human element is a focus for us and how we think we went.

Okay. So maybe let's talk a little bit about that because I think it's a very important theme and those are themes that were coming up yesterday. So can you talk about your small business initiatives specifically? I know this is something that you've been talking about for a while. I know that you have goals of increasing both the number of customers and growing the revenue in that space. Can you talk about what you're trying to achieve? And then can you talk a little bit more about that whole question around disintermediation amongst small businesses, about the fact that a lot of the first point of contact with small businesses are with payment companies? What are you doing to counteract that, both at USB and across -- and what do you think the banking industry needs to do in terms of a coordinated response?

Right. So a couple of things there. Good question, first of all. But -- so we've always had a merchant acquiring business, which was principally focused on a number of industries, but small business is one of the areas of focus, right? So we have a large number of business banking customers over $1 million, as we talked about, right? But only about 1/3 of those payments (sic) [ business ] customers use a banking (sic) [ payments ] product, and only about half of the banking (sic) [ payments ] customers use a business (sic) [ banking ] product. So we have a lot of opportunity to expand. And our focus is to increase the overlap of both of those pies on a go-forward basis with the end objective of increasing revenue in that 25% to 30% range. So how do we do that? It's by combining those offerings into a comprehensive offering, similar that you might see for some of the fintechs like a PayPal or Square and now Black. And leveraging what we're really good at, which is banking, together with payments in a comprehensive product set, often software-driven, tech-led that helps them run their businesses, helps them run their cash flow, their payables, their receivables, their travel, and, at the same time, have lending capabilities that help them when the cash flow is insufficient and they need additional support. The way we're going to measure it is by increasing the size of that pie and the revenue that comes out of that pie. And this is the combination of, again, the banking payments as well as the technology. And RTP is an important component of that because, I think, as I said, it's a new rail for banking. It has important components that I think will effectively allow the banking industry and certainly U.S. Bank compete more effectively with some of the fintech players.

I mean just specifically on that, I mean, again, there's a lot of views around this, but the absence of a level-playing field from a regulatory perspective between payment companies and banks, how much of an issue do you think that actually is on...

Well, certainly, banks are more highly regulated than fintech, but I'm not going to use that as a crutch. I think we can effectively compete even with the regulation that we have. I mean I believe -- I firmly believe -- I know we have better banking capabilities. I know we're better at lending and deposit-taking. I know those things are strong. We've been doing it for decades. Our underwriting is just better. We have better processes. We have strong payments capabilities. I think our gap has been the simplification of all that, and that's where we're focused on.

So do you think a shift towards real -- RTP, real-time payments, solves that gap? And how far away are we from that? And is it something that you can do independently? Or do you need the rest of the banking industry to do this concurrently with you?

RTP is a component but in and of itself, it doesn't solve that problem. Again, we have to weave together our products and services, one of which is utilizing the RTP rail for the likes of some of the use cases I talked about. And I think the banking industry is coming together on that. It's important that we're united in that and that we're comprehensive in the way we're thinking about it. And I do think it's going to offer an advantage for the banking industry versus some of the fintech players because of the unique characteristics that real-time component, the information flow, the safety and security.

And Richard, one of the things that I would add to maybe what Andy has been talking about is if you talk to small business, what's really important to them is convenience, simplicity and ease of being able to do things. I mean they don't want to have to deal with software and how to put all these things together. They just want it to be easy to do. So some of the acquisitions that we've done, if you think about talech, if you think about Bento, the goal or the objective or part of the how is really those connect to the critical software that these small business owners use to run their business, whether it's inventory management or sales or dealing with the payments side of the equation or what might be the case. So if you think about what we are creating, we're trying to create something that kind of sits in the center and really enables those small businesses to be able to tie all that software together and to be able to connect what they do in their business to the payments capabilities. And I think we're differentiated in that because we have those payment capabilities and some of the investments that we have made really do help simplify and make it easier for small business owners to be able to run their business, and that's important.

And I agree, Terry, and it's changed our behaviors on what we're focused on. Terry and I go through financial reviews on a monthly basis. We've been doing this for years and years. It's a great way to stay on top of what's happening in the company. And we've always looked at things like loan growth and deposit growth and fees and so forth. But now we're looking at transactions, customer acquisition, activity. And I think those are things that you need to look at in this environment because, again, you're trying to acquire a larger customer base. It may not initially start with loan volume or deposit growth, but it starts with customers, and it starts with their using the transactions and the payments capabilities that we have.

Great. So let's segue to talk about the Union Bank acquisition. Obviously, you did mention, a very important acquisition for you. Can you talk a little bit about how it fits into your long-term growth strategy? And talk about how the strategy has changed as a result of that acquisition relative to what you would have done stand-alone.

Yes. So it allows us to be a larger player. It increases our scale, as I mentioned, 20%. It increases our reach and makes us a much more significant player in the California market. We go from about 11th market share to 5th on the chart. So wherever we leverage, the presence we have, the technology, the investment that we've made, it's a tremendous financial transaction, as we talked about. And it's all about leveraging the technology investments we've made. Union Bank outsources a lot of capabilities, and we're able to put them on our platform at a much lower cost. So that's a positive. And finally, I think it's going to be good for the customers of Union Bank as well as the communities. Union Bank has terrific folks, individuals, employees and terrific relationships but doesn't have quite the technology capabilities from a digital banking standpoint, and that's true of both business banking as well as consumer. And I think we're going to offer a more robust set of products and capabilities and better digital capabilities. And I think it's good for them, too. So it's kind of unique to have a deal that's good for communities, customers, employees, financially accretive and increases scale, and that's why we're so attracted to this deal.

Yes. One of the other things that I would just add is kind of tying it back to our small business strategy. It comes with 190,000, almost 200,000 more small business customers immediately that we can bring those capabilities to and to help drive some of that growth. Then if you think about the California market, it's the largest market in terms of small businesses. So it definitely fits into that particular strategy. And then I think that what Andy talks about in the sense that our ability to bring our products and capabilities, our digital capabilities, it really will move their customer base several years forward in that evolution. And I think that, that's a real opportunity for them.

So I talked about customer acquisition as a measurement. So 1 million customers, consumer 200,000, just under 200,000 business banking customer. It is a customer acquisition machine.

So 2 follow-on questions around the transaction. The first is this deal gets you quite close to the $700 billion mark. I don't think we've seen a bank actually grow through $700 billion. So can you talk about the ramifications of going across $700 billion? Are there investments that you need to make? Are there changes that you need to make in terms of how you think about capital and liquidity? And then secondly, there have been a number of changes to the agencies. I know they're not still finalized. But as you think about the expected timing of closing this deal, which I think you said first half of next year, does that, in any way, change your thought process around when they...

Let me start with timing, Terry, and then you do the $700 billion. So first of all, as you might expect, we talked to both -- all our regulators in advance of announcing this deal. So we had a good discussion, and that's why we announced the deal. We had confidence. We still expect the deal to close in the first half of 2022 as we talked about, so that's consistent. We have a large team working on the integration efforts, both Union Bank employees as well as U.S. Bank employees. And I think it's going well. It's been positively -- from my perspective, a positive set of findings during the process that we've undergone thus far in terms of the strong relationships they have. Some of the unique capabilities they have in serving certain multicultural clients has been very positive, and I think it's a good deal. Because it's good for communities, because it's good for customers and employees, I'm confident that we'll continue to get approved in the time frame we've articulated. We put our application in on October 6. That's both the Fed and the OCC application. We've had a number of back and forths and answered questions since then, and we're still on track as far as I'm concerned.

Yes. And then with respect to the -- starting to hit that $700 billion threshold, once -- whenever the transaction takes place, we'll still be below that. We'll, ultimately, end up growing through that. Once you hit that trigger, we have about a year or so to go through the transition. And maybe from a process standpoint, first of all, if you think about it, we already developed most of the processes necessary in order to be able to do the advanced approach. And we were always constrained more by the standard capital ratio as opposed to the advanced capital ratio. So I don't really expect, from a capital perspective or even from a liquidity perspective, it's going to have a significant impact. One of the things, Richard, that we did do in the fourth quarter, early fourth quarter, we started moving some of our investment portfolio to held for maturity as much because we were just preparing for rising interest rates more than anything else. But that also positioned us positively from an AOCI perspective.

Okay. That's very helpful. So maybe we can segue and talk a little bit about NII. You talked about 2 rate hikes expected for next year. Can you take us through some of the different moving pieces in terms of how you're thinking about NII for '22 and maybe talk a little bit about your expectations from loan demand and how you think that will track over the course of next year, expectations for deposit betas and also just update us on your thinking in terms of redeployment of liquidity into securities?

Yes. So let me take that one. Certainly, when we look out into 2022, we do expect net interest income to expand from 2021. There will be a number of different puts and takes. As we talked a little bit earlier, we are starting to see loan demand picking up in a number of different fronts. Our asset-backed securitization has been reasonably strong, but we have relatively low utilization on our lines. And as customers start to rebuild their inventories, which we fully expect they will need to do, we do expect that we'll see an expansion with respect to the utilization as well as just kind of core loan growth. So our -- on the commercial side, I think that, generally, we're pretty optimistic that we're going to see that loan growth. And to give you some perspective, again, we had 0.8% linked quarter growth in the third quarter. If you exclude PPP, it was about 1.8%. So that's already starting to be reasonably healthy. And we do expect it to kind of expand from there. On the consumer side, from a loan point of view, as Andy said, that payment rate has been relatively high. It has stabilized, and we do believe and expect that to start coming down. Consumer spend, we continue to expect to be relatively strong, and that will help loan growth as well. So we're seeing relatively strong growth in auto lending and credit card starting to expand, et cetera, et cetera. And I think that, that generally will be a positive thing. Deposits, I think deposits continue to be relatively strong. There's just a lot of liquidity that are out -- that's out in the marketplace. And so I don't think that you're going to see necessarily a lot of pressure from a beta standpoint at least early in the cycle in terms of interest rates. We're probably not that much in 2022. So all those things, I think, from a net interest income perspective are going to be positive.

Okay. Great. So -- and we've only got a few minutes left. So maybe I can ask a question on credit. Credit costs, very, very low, I think, the lowest level we've seen in 30 years. Do you think that higher interest rates has any impact on charge-offs or credit quality as we think about, not so much 2022, but maybe '23 or beyond? And what are your expectations near term in terms of credit quality? Do you think it can stay at this level or not? Are you seeing anything change relative to what we saw in the third quarter?

Yes. Generally, our outlook, especially near term is that credit quality continues to be very strong. Again, there's just a lot of cash in the system. There's a lot of cash that's being generated by companies and -- at the consumer level. So our expectation near term is that the credit charge-offs continue to be relatively benign. There will be a normalization that will take place. I think the timing of that is a little hard to know and understand and to be able to predict. Certainly, inflationary pressures will put some pressure on credit quality on a longer-term basis. But again, the timing of that is pretty hard to predict at this point.

Okay. And then maybe you can just update us on your thought process around capital returns. And I know you suspended buybacks until after the deal has closed, but is 9% CET1 still the right target? How are you thinking about the attractiveness of dividends versus buybacks? And how should we think about the long-term progression in terms of capital returns post this deal?

Yes. We've put our guideline at 8.50% to 9%. 9% is our sort of operating level. That's correct. Our priority in return is dividends, opportunities, investment in acquisitions and buybacks would be third. We suspended the buybacks until post the deal. We expect to pick them back up in the second half of 2022 in the fourth quarter likely. And dividends would be our priority. But our capital levels are consistent with what we've talked about.

Okay. But the capital requirements you don't think will change post these transactions...

No, we don't. I mean if you end up looking at the mix of their business, it's very similar. How they underwrite credit is pretty similar to us. So we really don't see a need to change those target levels because of the acquisition.

Okay. I actually think with that, we're out of time, but thank you so for joining us. It's been a real pleasure. And I hope to see you in person next year because I much prefer this.

Thank you. Right, you're #14.

Okay. Thank you.

Thanks, everybody.

Thank you.