American Express Company (NYSE:AXP) Barclays 2020 Global Financial Services Conference September 16, 2020 8:15 AM ET
Company Participants
Jeff Campbell – CFO
Conference Call Participants
Mark DeVries – Barclays
Mark DeVries
Good morning and thank you for joining us for the final day of the 18th Annual Barclays Global Financial Services Conference. I’m Barclays Consumer Finance Analyst, Mark DeVries. And I’m pleased to be joined by American Express’ CFO, Jeff Campbell. We will be conducting a fireside chat, but we’ll break it up with some polling of the audience and we’ll also leave time for any questions that come in from the audience during this session.
If you’d like to ask a question, you should have an option to enter it on the upper left hand side of your screen. Or you can try to e-mail directly to me, and we’ll do our best to address your questions in the time we have today.
Before my first question for Jeff, I’d like to lead off with a question for the audience. To participate please click through to the polls on the left side of your screen. After you respond, you should be able to toggle back to the video of the discussion.
Question-and-Answer Session
Q – Mark DeVries
Turning to the first question for the audience. What factor you view as the most likely to determine whether AXP outperforms over the next year: rebound in T&E spends to pre-COVID levels, reacceleration of loan growth, stable to modestly worsening credit, upside to NIM or other? So with that first question out of the way, Jeff, I wanted to start with an update on the overall environment and what you’re seeing. You mentioned on the last earnings call that spend volume declines had moderated to 20% in mid-July from the April trough. So have you seen a continued improvement since then? And so kind of what spend categories have been the fastest to recover and what have been the slowest?
Jeff Campbell
So Mark, if you don’t mind, before I get to the specifics of your question, I might just remind everyone of the framework we’re using as we manage through the current situation, because I think that will help provide context for the specific answer to your question, and I suspect I’ll keep coming back to it throughout the next 45 minutes or so. And so to remind everyone, when we got into the current situation, we really set out four priorities as a company: supporting our colleagues, protecting the customer and the brand, and ensure we remain financially strong, and then investing selectively to build growth momentum for the longer term.
And if you think about those four priorities, we also said, you need to think about the pandemic in terms of three phases. Phase one is, wow, we’re at the absolute peak of uncertainty, let’s just make sure we stay very strong. Phase two — and I would say today, Mark, we’re at the cusp of early stages of phase two, is about the environment to stabilize for us really to think more about that priority of selectively investing to rebuild growth momentum. And then of course, phase three, which today I cannot tell when we will get there or at least go back to pre-COVID levels of earnings, go back to executing on the kind of financial growth algorithm that we’ve done so well over the last couple of years.
So with that as a framework, I’d remind everyone that on the July earnings call, we talked about the fact that while mid-April was clearly the trough in hindsight and you saw pretty dramatic improvement in volumes from mid-April to mid-July. As of mid-July, we were about in terms of overall volumes 20% down, that was for us very importantly consisting of two different parts of our business. T&E part of our business that was down about 75% at the time, and the non-T&E part was actually up a little bit as of mid-July.
As we sit here today — and I guess it’s September 16th, that’s what it says here on my computer screen. I would say that certainly the pace of change has dramatically slowed and we’ve gotten into more of a stable environment. Now T&E has continued to improve a little bit from that mid-July, and I’ll talk maybe in a little bit more about the components of that, whereas non-T&E has been fairly stable I would say. You have a little bit of noise when you try to look at the daily and weekly data sets mid-July and you’ve got different timing of Labor Day, you’ve got different countries and different geographies going through different situations. But the overall story, I think, since mid-July is the pace of improvement has slowed, things have been very stable. T&E is making a little bit of improvement. The parts of non-T&E, that I think many of you or attendees at this conference have talked about, were no different. The e-commerce, digital spend, contactless spend, those have all accelerated the already high growth rates they had. And clearly the things that have lagged a little bit more on the non-T&E side i.e. physical shops. So I think we have seen some steady improvement there. Interestingly enough, as you’ve seen some steady improvement on the physical shop side, you haven’t really seen much slowdown yet in the e-commerce side.
So a longwinded answer to your first question Mark, right? I thought it was a little important to provide some context and I’m happy to dive wherever you would like to dive. That’s why.
Mark DeVries
Yes, that’s a great and helpful start. And I think as your comments highlighted, T&E is obviously still very challenged and it’s a very big part of your business. Can you just talk about things that AXP is doing to manage through this crisis and kind of what your more intermediate to long-term expectations are for T&E spend?
Jeff Campbell
Yes. So I do think it’s important maybe just to work your question backwards, Mark, because we’ve had, boy, extensive, extensive debates as management team with our Board over the last few months. And the reality of where we are is, we believe in the value of our consumer travel propositions. We believe consumer travel will come back in the long run. We look as to support that belief history and the fact that — I was an airline CFO in 9/11, nobody thought people would get on planes, they did. Just took a little while. We look frankly underneath the covers a little bit at the current situation and the fact that spending on our travel co-brand cards remains very strong; intelligent people, if they can’t take that Delta flyer and stays at Hilton today, they want to keep earning points to save up.
We look at the fact that things like car rentals, not at airports, but for people who want to take trips that fit within the pandemic timeframe is actually pretty strong. We look at the home rental business, which is very strong. And all of that tells us that, that human urge to travel on the consumer side is going to come back. The question for us is, are we doing the right things to bridge to however long that takes? Because I’m not going to call how long that phase, it’s going to be a function of the virus. And that’s why you’ve seen us with our travel-oriented products over the recent months, do things like add interim benefits around wireless, around streaming, around groceries, around takeout, various things like that? And it’s why you heard us on the July earnings call, we emphasized the fact that we are very focused on our attrition levels, and have been very pleased that we have seen no uptick in our attrition levels. So, we feel like we’re getting the balance right, between the fact that we believe in the long-term and our travel-oriented value propositions kind of make sure we’re doing the right things to support them or to bridge them to the long-term. Attrition in many ways is our best measure whether we’re getting that bridging right. And we feel good so far about where we are in that, and we feel good about the long-term prospects for consumer travel.
Now, I wouldn’t be completing my answer if I didn’t say, when we think about business travel, for that it’s going to be much slower to come back. And it’s really not clear to us that companies like Barclays or American Express or people who are listening to you and I this morning, when I talk to other CFOs, they say, sorry, Jeff, I don’t know if my travel budget ever snaps back to where it was. Because we’ve all learned that there is more you can do in the kind of setting Mark you and I are in than perhaps many of us thought.
Now we are not one of these companies that says, oh, nobody ever needs to come back to the office and nobody ever needs to travel again. Believe me, we strongly as a company believe we’re internally trading off the relationships of the equity we’ve built up and/or we’ve got sales people are anxious to get back to their clients. So that will happen. I don’t know that it happens quite to the degree. What’s important to remember is that business travel part of our business is actually a pretty modest part of our business. Consumer travel is very important. And that’s why it’s such — so fundamental to us that — and why we’ve had so many debates, making sure we believe in long-term that remains a really strong pillar for us to rest our consumer foundation on.
Mark DeVries
Okay, that’s really helpful context. Just curious in the bounce you’ve seen so far in T&E spend, has that driven more by the consumer so far than it has been by business travel?
Jeff Campbell
Well, so business travel has gone to extremely low levels on the corporate side. Remember you’ve got about 5% of our volumes Mark that come from our corporate card business with really large companies, the big consulting firms, the big guys. And I’ll tell that travel is still close to zero. And when I say that, I just want to remind you that travel is also pretty low margin, so it’s an important foundation for the business, important in terms of building brand that will come back to — we don’t want to lose share there but it’s very low. When you look at consumer travel and entertainment spend, and I’ve read through many of the comments Mark, some of your other attendees made in the last few days, I think we see what other people see. So while our overall travel and entertainment pend which is driven by consumers was down about 75% in mid-July, better than that in recent weeks, probably got about 70%. And when you look at the components, you would see hotels and kind of miscellaneous stuff right about at that average. You would see the home rental business, very, very strong. You would see airlines a little weaker than that 70%. And as many people have commented, you’re seeing a little bit of domestic travel, but the dollars, big dollars come from cross-border travel, and there’s so many restrictions around the globe, quarantine restrictions, et cetera. In cross-border travel, just you don’t see many signs of life yet. And that’s important for the long run.
Cruise lines are not surprisingly probably the worst. And of course, the bright spot, if you want to call it that, would be restaurants which in recent weeks have probably for us been down about 40% and they’ve shown steady improvement, steadier than any other category, as restaurants have figured out more and more how do you do take out, how do you do outdoor dining as they try to reinvent. I’d remind everyone that we did buy Resy last year. And it’s interesting while they were on their tremendous growth trajectory pre-pandemic. If you take that growth trajectory out, actual bookings through the Resy system are approaching prior year levels. Now you’ve admitted the investment growth dynamics in there, so it’s not completely comparable. But restaurants in some ways I think Mark and I do think some of your other speakers have pointed this out, are illustrative of human nature, is finding ways to adapt to current environment. And so maybe they can’t spend here but they are going to find ways to spend over here and the restaurant that can’t operate the way it used to operate, it’s going to be extremely innovative and work hard in finding other ways to operate. And the small business in general — we pointed out on a call in July, it remains true today that the spending category for us that has held up the best in terms of customer types, is actually the small business customer type.
And as a reminder to everyone, our small business card members are dominated by things like professional services firm, by construction related firms, contractors, healthcare, restaurants and retail shops, which are really important to our merchant footprint, are tiny part of our small business Card Member base. Our small business Card Member base has been very creative in finding ways to keep operating their businesses and keep spending.
Mark DeVries
Okay. Great. I want to pause here and ask a second question to the audience. Next question, what do you view as the biggest risk to the shares here? Additional material reserve builds, prolonged period of depressed T&E spend, low or zero loan growth, prolonged period of no buybacks or other? Moving back to you, Jeff…
Jeff Campbell
When do we get to hear the results of the first question, Mark?
Mark DeVries
Well, I will have to share that with you later. I already advanced to the second question.
Jeff Campbell
Okay.
Mark DeVries
Although, I think — if I recall, I think it was not surprisingly that people want to see a rebound in T&E spend. I know that was by far the overwhelming response. And I’ve got a feeling not to lead the witness that that’s probably going to be the response. Oh, yes, now my teammate Terry has texted me. 72% voted for rebound in T&E spend.
Jeff Campbell
While that tells me, I think you have a very astute of attendees. Unapologetically, our brand and that consumer value propositions, in particular, have a heavy travel back. And we think that’s a strength in the long run. Clearly, it does mean in the short run, in the near term, we’ve seen a little bit more impact on our volumes than we’ve seen in some other companies.
Mark DeVries
Yes. And for the second question I just asked, it’s about the same response rate for a prolonged period of T&E spend. So pretty similar questions and not entirely surprising. So shifting to the next question. Can you just discuss your product refresh efforts post-COVID and how you’ve adapted the value proposition for your different cards to adjust to changing spend patterns?
Jeff Campbell
Yes. So on the consumer side, you have some products — and I would maybe start, Mark, by reminding everyone that we have a really, really broad product range across geographies and we have cashback cards, we have travel-oriented proprietary cards. We have many different co-brands, over 50 different co-brands. So I’m going to generalize a bit when you think about the breadth of that range of value propositions on the consumer side. And same thing on the small business side.
On the consumer side, what I would say is that your cashback products actually have kind of a sweet spot where the market has gone. So we haven’t really had to make changes to those. When you look at the travel-oriented products, including the co-brands, which are overwhelmingly, with the exception of Amazon travel-oriented, you have seen us think about how do we add some benefits to help bridge back to a long-term, while we still believe in those value propositions. And so that’s where you’ve seen us add things like the wireless benefits, the streaming benefits, the benefits around take out, the benefits around comm to keep us all well in comm in the current environment.
On the small business side, you have seen us similarly add some benefits around shipping, around connectivity, things that are more relevant in today’s environment to bridge people back to the longer term. And certainly, any major product refreshes that we’ve had planned for this year, we have deferred, Mark, into an environment, hopefully next year where things become a little bit more stable.
I do want to end this still by saying, the measure for us as we think about value proposition pivots in the short to medium term, is that attrition rate, which we feel really good about since it has changed.
Mark DeVries
Okay. And I think you’ve mostly answered my next question, but it’s focused more specifically on your strong co-brand cards that are travel-oriented. Are you seeing where the value prop has been most disrupted? Are you seeing attrition rates hold up just as well there as on other cards? And kind of just how is the performance of those products?
Jeff Campbell
Yes, the performance remains really good on the co-brand. And that is not surprising to us. I think sometimes people forget a few things. They forget that co-brand cards are generally used about 90% for just other daily spend to build the loyalty points of whoever that co-brand partner is. And I go back to my earlier comments about the fact that, boy, that human urge to save up to do the travel they want to do as soon as they’re able to do it, is still there. And you see that with the spend on the co-brand.
I’d also just remind people that our largest co-brand by far is Delta, most important partner. We have a great relationship with Delta. We have worked with them to evolve some aspects of the Delta co-brands as well, and we are a big partner with them together and working through how do we position our mutual customers for what we both believe is the inevitable travel rebound.
I’d also remind you, we’ve made some good progress on continuing to extend out our co-brand. So during the pandemic period, we did extend our British Airways co-brand for the long-term. That’s not huge in the context of the overall company. It is important to our UK business and the UK is one of our key markets outside the U.S. So we feel good about the co-brand. The one co-brand I perhaps might also mention that I think Mark wouldn’t surprise you is that, on the small business side, we do have an Amazon co-brand. And as you might expect, that co-brand, if you look at new accounts coming in, it’s probably the one card where we will continue to see a very strong stream, even though we’re being very thoughtful from a risk management standpoint, very strong stream of new card members coming in.
Outside that card, both consumer and small business, very consciously scaled back new Card Member acquisition until we have a little bit more visibility from a risk management perspective into the environment but the Amazon card has been very strong.
Mark DeVries
Okay. Great. Shifting to another question to the audience. Next question is, current reserve levels are adequate, over-reserved or under-reserved?
So moving back to you, Jeff. Switching gears and moving on to credit, it’s now been about 6 months since the pandemic really began to affect the real economy and several weeks since the supplemental employment insurance lapsed, are you seeing any signs yet that credit could be weakening? And do you have a sense of the timing and level of credit deterioration you expect…?
Jeff Campbell
Yes. So once again, having had the benefit, Mark, of two prior days of your conference, I am reading through some of the other discussions you’ve had. Look, this is a unique and unprecedented medically-driven economic dislocation. So it’s very difficult or I think very challenging to draw analogies to prior situations.
Certainly, just like volume just hit a trough in mid-April, so did uncertainty amongst our customer base. And that’s why if you go all the way back, we talked about in terms of what we call — we kind of manage in terms of the receivables, we want to keep a close eye on. It’s a mixture of people who have gone delinquent or people who have signed up for one of our varied financial relief programs. And that hit a peak back in the April timeframe of a little over $11 billion. Now that number was down to about $5 billion as of mid-July, it’s under about $4.3 billion today. There’s no new inflow into our shorter-term pandemic relief programs.
And as any of you can see, if you have the chance to look at some of the 8-K filings, we do about monthly stats, our — the rest of our portfolio that is not in one of the programs, has actually continued to strengthen, as we do see delinquencies generally Mark at rates below where they were in the prior year.
So we feel really good about the way, we as a company, have made many changes over the last few years to set ourselves up much better than we were in the great financial crisis or an inevitable downturn. We feel really good about the speed with which we were able to pivot, create some incremental new, very targeted financial relief programs for our customers. We feel really good about the way we pivoted literally several thousand salespeople, out of being salespeople into being people who really know how to work with customers to help them think about how to manage through a short-term challenge.
And internally, Doug Buckminster, who many of you know, at times has said, boy, when you look at the current results, it’s almost shocking how good credit looks. Now all that said, Mark, we don’t pretend to know the course of the virus over the coming months as we get into the fall and the winter. And we, therefore, don’t pretend to know with certainty what that might mean for the economy. And you’ve heard me say, you’ve heard Steve say, one of our concerns is when we think about the situation, we say, boy, as government aided in the U.S. and some of the European countries, where there has been similar runs out, do you have a another wave of economic weakness that causes more unemployment and/or more small business stress. And even we’ve talked about a third wave, even as you get into the end of this year or early next year, do you have larger organizations, which have the financial strength to carry things in the near term, start to say, boy, as we look at the future, we’re going to have to do a little bit of rightsizing here. And do you have a kind of third wave of layoffs and economic stress?
So we feel great. And in fact, I’ll go back to Doug’s words, I’m almost shocked by how strong credit looks today. As you know, though, in a CECL world, it’s not about when you think about the accounting we’re going to do at the end of the third quarter, it’s not necessarily about what we see today, it’s about a lifetime estimate in this incredibly uncertain environment. A lifetime estimate about what you think is going to happen. And as we make that estimate, I will tell you, we will weigh in for that estimate, this lingering uncertainty of do we really have enough visibility today, Mark, to know that there’s not going to be a second or third wave, I hope there’s not. I’m not forecasting that there will. But could there be? There could. And given the reality of what we’re trying to do with reserves in a CECL world, that will weigh heavily on us as we think about our third quarter.
So I probably — it’s only September 16th. So we’ll have to see as we close the books on September 30th, exactly what the world looks like and where we end up, and that is what the rules call for us to do. If I had to make an estimate today, Mark, I wouldn’t expect a lot of change in our credit reserves, one way or the other as we close the books for the third quarter. We’ll have to see in the coming months how the world evolves.
Mark DeVries
Okay. That’s very helpful. I have some questions coming in from the audience. A couple of them are related, so I’ll lump them into one question. Can you maybe just remind us the estimated business T&E as a percentage of spend? And then do you plan to pull any expense levers in order to offset the weak T&E environment and any kind of color around sizing of potential cuts?
Jeff Campbell
Yes. So let me first talk about size and travel on the commercial side, and then go to your expense question. So as I said earlier, I think probably most well-known is the fact that when you look at our large corporate card business, about 5% of our overall volumes as a company come from that business. It is a important foundation for us. It is a lower-margin business and boy, that 5% has gone down to a very, very small number. And while our expectation is that’s not coming back any soon, that to us is a manageable part because of its small size. That’s manageable financially as we think about the inevitable recovery here. And it is an important foundational part of our business.
When you look at the rest of the commercial business, I’d remind everyone that small business represents the great majority of our commercial segment. And small businesses use the card only sparingly for travel. I mean, small businesses use the card to run their business, to buy the inventories, to buy the supplies. And that is why when you look at total spend, small businesses are the customer type where you have seen the strongest performance relative to consumers and relative to the larger businesses. And that’s because they actually have the least amount of T&E spend. And we remain in the long run very bullish, both in the U.S. and outside the U.S. about small business as an engine growth for us. I’d remind everyone that our non-U.S. small business segment was over the last year the highest growth part of the company. And our U.S. small business franchise has been an engine of growth for many, many years as well.
Now when you turn to expenses, I’d remind everyone, maybe if you go back to the April earnings call for a second, we talked about the fact that we dramatically scaled back spending. We talked at the time about calling about $1 billion out of OpEx in the last three — versus the prior year versus the last three quarters, we talked about taking several billion dollars out of marketing, and we also talked about reinvesting part of those marketing saves in what we have called value injection for our customers. And those are the things that I talked about earlier in terms of offering some different benefits to our card members to help bridge the time period prior to travel return. So we feel good about all those decisions.
I will tell you, going back to the three phases that I opened up with, we do see those right now kind of in the early stages of that second stage. We don’t see ourselves worried about, oh, my gosh, there’s so much uncertainty in the world, just let’s make sure we’re in that first phase. It makes sure you’re safe and taking care of customers and taking care of colleagues, remain financially strong. We’ve all learned a lot about virus, about its impact on the economy, about its impact, therefore, on American Express. So we are selectively, from a spending perspective, putting a few things back. And that’s true on the OpEx side, probably as well as the marketing side because we have a little bit more visibility now.
But as we get into that second phase, I’m going to come back, Mark, to the way I described the second phase, which is the second phase is about rebuilding growth momentum, investing selectively to drive long-term growth, and it’s not necessarily about maximizing EPS in the second phase. It’s the third phase where we get back to pre-COVID levels of earnings, back to the financial growth algorithm. But in the second phase, we’re using our tremendous financial strength. I’d remind you that we made money in the second quarter and some of the more card-oriented companies and business models that don’t give them that level of financial strength. And so we’re using it to selectively be aggressive. Frankly, Mark, the modest-sized acquisition that we did of Kabbage in us — to us is an example of using our tremendous financial strength at a time of some economic stress for others to, in that case, buy some capabilities that we think are going to be tremendously valuable to our small business franchise over the next couple of years.
Mark DeVries
Okay. Great. Turning back to question of the audience. First, Jeff, I’m sure you’ll be relieved to know the answer on the reserve adequacy, it was 70%. I think it’s what — adequate and equal amounts think it’s over versus under. So next question on peak charge — credit card charge-offs in this cycle will be 3% to 4%, 4% to 5%, 5% to 6%, 6% to 7%, or 7% plus?
Let’s see. I think we’ve addressed the reserve question. Let’s just move to capital and how investors should think about capital adequacy here. You had a stressed capital buffer of about 2.5% in the most recent one of the press. I mean it shows your minimum capital levels remain well above required levels with that SCB. So kind of given that strong buffer, how should investors think about capital returns or priorities around deployment of capital going forward?
Jeff Campbell
Well, we benefit, Mark, as you know, from a business model that produces capital at a rate nobody else in the financial sector does, right? We went into this with an ROE around 30%, 35%. And we just have a business that generates huge amounts of capital and organic growth doesn’t require that much capital.
And so for some years, the constraints on our capital returns have really not been the Fed and the regulatory strains. It’s really our desire to remain a really strong investment-grade company and the rating agency knew of what that takes. And that’s why we have talked for some years about the fact that we need to keep our Tier 1 common equity ratio in the 10% to 11% range. And that’s, of course, well above what the Fed would actually require as a minimum. And I — and I’m going to go back to the Kabbage acquisition. It is an example of the fact that our capital strength is allowing us in the current environment to do some things that we think will really benefit us in the long run.
Now all that said, we got our bank holding something. And so we will be participating in the CCAR process that the Fed will be kicking off presumably any day now, sometime this month. And we are subject to the Fed approving us as part of that process. But we feel — we have reported extremely high levels of excess capital in the second quarter. We will, again, in the third quarter. And what I have said previously, which I would stick to is it really resumption of beyond the continuation of the dividend. And I’d remind everyone in the great financial crisis, we were the only big name that never stopped its dividend.
Share repurchase is really a function of when is there enough visibility into the economic and medical trajectory to create certainty again. And getting through whatever hoops the Fed may want to put up, but we have tremendous capital strength. And that will not be the constraint to when we resume capital returns. It will just be a function of how the Fed chooses to play the processes out and when there is some clear visibility into the future.
Mark DeVries
Okay. Great. And one last question for the audience. Over the next year, would you expect your position in AXP to increase, decrease, remain the same?
Turning to that acquisition of Kabbage, the recent announcement. Jeff, can you just talk about the rationale there and how it fits in the AXP’s broader plan, kind of what you expect to gain from that acquisition?
Jeff Campbell
Yes. So our small business franchise in the U.S., Mark, has been — if you were to take a multiyear view, probably the most consistent driver of growth for the company. As people know, it’s a very strong sector for us where we’re probably the largest in the next 5 or 6 competitors combined and we’ve had a strategy that Anna Marrs has talked about now for a couple of years of saying for those small businesses, we want to be a broader provider of financial services in short-term, we’re not trying to be a long-term, short-term working capital needs because I’d remind people that a charge card is really just what small businesses use to manage their working capital. They’re not using it for travel. It’s a tool they use to provide working capital.
So Kabbage has a really great suite of digital-oriented products to provide a broader range of financial services and to build the relationship. We’ve also demonstrated and shown in various forums, Mark, over the years, that when we have multiple products with the customer, it creates a stickiness. It creates a primacy of the relationship, if you will, to drive more usage of all of those products. And that’s really what Kabbage is about.
Now importantly, I just want to remind people, we did not — Kabbage for us is about capabilities, and it’s about their tremendous broad digital banking platform, if you will, that they will help us provide to our small business customers. We did not buy their loan book, we do not buy their BBB loans, those stay with an entity, separate entity. It is about those capabilities. And I think it fits really nicely and just provides an acceleration of the path we were already on. I mean could we, over time, have built out the kind of product suite that we’re buying here? Yes. Would it have taken us longer? Yes. And so given the reality of the pandemic and the opportunity that created from a purchase price perspective, we thought this was a better choice than doing the classic buying. Do you build it yourself or will you buy now? Buying now is generally going to accelerate your time to market. And I’ll go back to my — one of my opening comments, that we do see ourselves right now at sort of the cusp of or in the early stages of that second phase and it’s time to invest selectively for growth. And it’s time to build growth momentum. We think Kabbage is going to be a tremendous asset for us to help rebuild growth momentum in that small business sector.
Mark DeVries
Okay. Great. We have time for one last question. Turning back to the reserves. And I think the audience clearly agrees that you’re at least adequately reserved. And I think you were clear that it sounds like the reserve doesn’t move much in the third quarter. What will it take for you to be in a position where you feel like you can release reserves?
Jeff Campbell
Well, I think releasing reserves to us in a CECL world is something that you should be doing when you have clear visibility and clear confidence that, oh, the world has changed so much from the way it looked when we put those reserves on, but it is clear to us and we are confident now that we’re through that.
In a pandemic world, Mark, where there is so much medical, scientific and economic debate about, are we now just on a steady path forward where things are just going to make it slow, but just steadily as they have in the last few months, keep getting better? Or are you going to see a second round of either medically-driven closures or a second round of economic challenges due to government aids running out? You have to have, in our view, clarity on those kinds of uncertainties before you could in good contents, in good faith and frankly, just in sending a clear signal to our shareholders, it’s ultimately what CECL should be all about. And we are certainly over all those things and we’re through. That’s what I think it takes, and that’s where — I don’t know, Mark, but sitting here on September 16th, that’s not the way I view the world right now. I hope that, that steady improvement is where we are and the last X weeks or a couple of months that’s what you’ve seen, but I’m not ready to say that’s the trajectory for sure for the future.
Mark DeVries
Okay. Great. Well, I think we’ll have to end on that note. But really appreciate your time and insights today, Jeff. Thank you for joining us.
Jeff Campbell
Well, thank you, Mark, for hosting the conference, and thanks to everybody for taking the time to listen this morning.
