Q2 2024 Regions Financial Corp Earnings Call

[music].

Good morning, and welcome to the regions financial Corporation's quarterly earnings call.

Christine: Good morning, and welcome to the Region Financial Corporation's Quarterly Earnings Call. My name is Christine, and I will be your operator for today's call.

Christine: My name is Christine and I will be your operator for today's call.

Christine: I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad. I will now turn the call over to Dana Nolan.

Speaker Change: I would like to remind everyone that all participant phone lines have been placed on listen only.

Speaker Change: At the end of the call there will be a question and answer session.

Speaker Change: If you wish to ask a question. Please press star one on your telephone keypad.

Speaker Change: I will now turn the call over to Dana Nolan to begin.

Dana Nolan: Thank you, Christine. Welcome to Region's second quarter 2024 earnings call. John and David will provide high-level commentary regarding our results. Earnings documents, which include our forward-looking statement, disclaimer, and non-GAAP information, are available in the investor relations section of our website. These disclosures cover our presentation materials, prepared comments, and Q&A. I will now turn the call over to John. Thank you, Dana, and good morning, everyone.

Dana Nolan: Thank you Crystal welcome to regions second quarter 2024 earnings call, John and David will provide high level commentary regarding our results earnings documents, which include our forward looking statement disclaimer or non-GAAP information are available in the Investor Relations section of our website.

Disclosures cover our presentation materials prepared comments and Q&A I'll now turn the call over to John.

John: Thank you Diana and good morning, everyone. We appreciate you joining our call today.

John: We appreciate you joining our call today. This morning, we reported strong second quarter earnings of $477 million, resulting in earnings per share of $0.52. For the second quarter, total revenue remained relatively stable at $1.7 billion on a reported basis and $1.8 billion on an adjusted basis, as net interest income remained resilient and fee revenue declined modestly compared to the first quarter. As expected, adjusted non-interest expenses declined quarter over quarter and are expected to remain at this approximate level for the remainder of the year.

John: This morning, we reported strong second quarter earnings of $477 million, resulting in earnings per share.

Speaker Change: 52 cents for the SEC.

Speaker Change: Second quarter total revenue remained relatively stable at one 7 billion on a reported basis and $1 $8 million on an adjusted basis as net interest income remained resilient.

Speaker Change: And fee revenue declined modestly compared to the first quarter Asics.

Speaker Change: As expected adjusted non interest expenses declined quarter over quarter.

Speaker Change: I expect it to remain at this approximate level for the remainder of the year.

John: Average and ending loans remain relatively stable quarter over quarter, reflecting modest customer demand, continued focus on client selectivity, and paydowns in the portfolio. Average deposits also remain relatively stable, while ending deposits decline modestly during the quarter, consistent with seasonal tax-related patterns.

Average in ending loans remained relatively stable quarter over quarter, reflecting modest customer demand continued focus on client selectivity and pay downs in the portfolio.

Speaker Change: Average deposits also remained relatively stable, while ending deposits declined modestly during the quarter.

Speaker Change: <unk> with seasonal tax related patterns.

John: We experienced broad-based improvement in overall asset quality this quarter. Non-performing and business services loans, as well as net charge-offs, improved sequentially. In summary, we are proud of our second quarter results driven by the successful execution of our strategic plan. We have a great plan, and the investments we are making in talent, technology, and products and services are positioning us to benefit as macroeconomic conditions improve. Our footprint continues to provide us with significant opportunities.

Speaker Change: We experienced broad based improvement in overall asset quality this quarter nonperforming and business services criticized loans as well as net charge offs improved sequentially.

Speaker Change: In summary, we're proud of our second quarter results driven by the successful execution of our strategic plan, we have a great plan and the investments, we're making in talent technology and in products and services are positioning us to benefit as macroeconomic conditions improve.

Our footprint continues to provide us with significant opportunities, while we are experiencing more competition in our markets our long standing presence commitment to communities and the favorable brand we built over many years positions us well.

John: While we are experiencing more competition in our markets, our long-standing presence, commitment to communities, and the favorable brand we've built over many years positions us well. As long as we remain focused on execution, I have no doubt that we can continue generating top quartile results. Now, David will provide some highlights regarding the quarter. Thank you, John.

Speaker Change: As long as we remain focused on execution.

Speaker Change: I have no doubt, we can continue generating top quartile results.

Speaker Change: Now David will provide some highlights regarding the quarter.

David: Let's start with the balance sheet. Average and ending loans remain relatively stable on a sequential quarter basis. Within the business portfolio, while average loans remained relatively stable, ending loans increased 1%. Despite near-term macroeconomic and political uncertainty, pipelines are beginning to rebuild. Average consumer loans also remained stable as modest growth in residential mortgage and consumer credit cards was offset by declines in home equity and other miscellaneous consumer loans.

David: John let's start with the balance sheet average in ending loans remained relatively stable on a sequential quarter basis within the business portfolio.

David: Average loans remained relatively stable ending loans increased 1%.

David: Despite near term macroeconomic and political uncertainty pipelines are beginning to rebuild.

John: Average consumer loans also remained stable as modest growth in residential mortgage and consumer credit card were offset by declines in home equity and other miscellaneous consumer loans.

David: We continue to expect 2024 average loans to be stable to down modestly compared to 2023. From a deposit standpoint, deposits remain relatively stable on an average basis, while ending balances decline 2%. These declines in the second quarter reflect anticipated tax seasonality.

John: We continue to expect 2024 average loans to be stable to down modestly compared to 2023.

John: From a deposit standpoint deposits remained relatively stable on an average basis, while ending balances declined 2%. These.

John: These declines in the second quarter reflect anticipated tax seasonality.

David: Having largely returned to pre-pandemic patterns, we expect relative stability in deposits, which is typical for summer and early fall. As expected, deposit mixing has slowed. Competitive pricing and customer demand for promotional products have stabilized. During the second quarter, the proportion of non-interest-bearing deposits relative to total deposits remained steady in the low 30% range. Now let's shift to net interest income. Net interest income increased modestly during the quarter, outperforming our expectations.

John: Having largely returned to pre pandemic patterns, we expect relative stability in deposits, which is typical for summer and early fall.

John: As expected deposit Remixing has slowed competitive pricing and customer demand for promotional products has stabilized over the second quarter, the proportion of noninterest bearing deposits relative to total deposits.

John: <unk> remained steady in the low 30% range.

John: Let's shift to net interest income.

John: Net interest income increased modestly during the quarter outperforming our expectations. The increase reflects stabilizing deposit trends in asset yield expansion.

David: The increase reflects stabilizing deposit trends and asset yield expansion. Also, exceeding expectations, the net interest margin declined only four basis points, resulting primarily from higher average cash levels. As expected, deposit mixing and cost increases slowed meaningfully at a quarter.

John: Exceeding expectations. The net interest margin declined only four basis points, resulting primarily from higher average cash levels.

John: As expected deposit remixing and cost increases slowed meaningfully in the quarter.

David: The full-cycle interest-bearing deposit beta remains stable at 43%, and we continue to expect a mid-40% deposit beta will be the peak this cycle. Asset yields benefited from the maturity and replacement of fixed-rate loans and securities at current higher rates. This includes the repositioning of approximately $1 billion of securities late in the quarter with an estimated payback period of 2.6 years relative to the $50 million pre-tax loss recorded this quarter.

John: Full cycle interest bearing deposit beta remained stable at 43%.

John: And we continue to expect a mid 40% deposit beta will be the peak this cycle.

Asset yields benefited from the maturity and replacement of fixed rate loans and securities at current higher rate levels. This includes the repositioning of approximately $1 billion of securities late in the quarter with an estimated payback period of two six years relative to the $50 million free.

John: Tax loss recorded this quarter.

David: Following our successful $750 million debt issuance in June, we used the proceeds to purchase a like amount of securities with a similar duration in order to maintain a relatively neutral balance sheet position and bolster liquidity. We believe net interest income has reached an inflection point and is expected to grow over the second half of the year as deposit trends continue to improve and the benefits of fixed-rate asset turnover persist. As we move further into 2024, a stabilizing deposit and funding environment, along with securities repositioning and favorable debt issuance levels, have pushed our expectation for net interest income towards the upper end of our $4.7 to $4.8 billion range.

John: Following our successful $750 million debt issuance in June we used the proceeds to purchase a like amount of securities with a similar duration in order to maintain a relatively neutral balance sheet position and bolster liquidity.

John: We believe net interest income has reached an inflection point and is expected to grow over the second half of the year as deposit trends continued to improve and the benefits of fixed rate asset turnover persist.

John: As we move further into 2024, a stabilizing deposit and funding environment, along with securities repositioning and favorable debt issuance levels have pushed our expectation for net interest income towards the upper end of our four seven to $4 $8 billion range.

John: This narrow range portrays a well protected profile under a wide array of possible economic outcomes now, let's take a look at fee revenue performance this quarter.

David: This narrow range portrays a well-protected profile under a wide array of possible economic outcomes. Now, let's take a look at fee revenue performance this quarter. Adjusted non-interest income declined 3%, driven primarily by lower capital markets and mortgage income.

John: Adjusted non interest income declined 3%, driven primarily by lower capital markets and mortgage income.

David: If you recall, capital markets experienced seasonally elevated activity in the first quarter, and several deals were pushed from the fourth quarter of 2023. Over time, and in a more favorable interest rate environment, we expect our capital markets business can consistently generate quarterly revenue of approximately $100 million, but in the near term, we expect it will run around $70 to $80 million per quarter. The decline in mortgage income was primarily driven by a $6 million adjustment to the company's mortgage pipeline valuation in the first quarter that did not repeat.

John: If you recall capital markets experienced seasonally elevated activity in the first quarter as several deals were pushed from the fourth quarter.

John: 2023.

John: Over time and in a more favorable interest rate environment, we expect our capital markets business can consistently generate quarterly revenue of approximately $100 million, but in the near term, we expect it will run around $70 million to $80 million per quarter.

John: The decline in mortgage income was primarily driven by positive 6 million dollar adjustment to the company's mortgage pipeline valuation in the first quarter that did not repeat.

John: While modestly lower versus the seasonally high first quarter Treasury management continues to perform exceptionally well.

David: While modestly lower versus the seasonally high first quarter, Treasury management continues to perform exceptionally well. Compared to the second quarter of last year, its client base has increased 6% while total revenue is up 8%. Helping to offset this quarter's fee income declines, wealth management increased 3% to a new quarterly record, reflecting increased sales activity and stronger markets. Based on a strong first half of the year, we now expect full-year 2024 adjusted non-interest income to be at the top end of our $2.3 to $2.4 billion range. Now, let's move on to non-interest expense. Adjusted non-interest expense decreased 6% compared to the prior quarter, driven primarily by lower salaries and benefits, occupancy, and professional fees.

John: Versus the second quarter of last year Treasury management client base has increased 6% while total revenue was up 8%.

John: Helping to offset this quarter's fee income declines wealth management increased 3% to a new quarterly record, reflecting increased sales activity and stronger markets.

John: Based on our strong first half of the year. We now expect full year 2024, adjusted non interest income to be at the top end of our two three to $2 4 billion dollar range.

Speaker Change: Let's move on to noninterest expense.

Adjusted noninterest expense decreased 6% compared to the prior quarter, driven primarily by lower salaries and benefits occupancy and professional fees.

David: The improvement in salaries and benefits was attributable primarily to lower base salaries and seasonally higher HR-related expenses in the first quarter. Operational losses also decreased during the quarter, and current activity continues to normalize within expected levels. We continue to expect full-year 2024 operational losses to be approximately $100 million. We remain committed to prudently managing expenses to fund investments in our business. We will continue focusing on our largest expense categories, which include salaries and benefits, occupancy, and vendor spend.

Speaker Change: Improvement in salaries and benefits was attributable primarily to lower base salaries and seasonally higher HR related expenses in the first quarter.

Speaker Change: Operational losses also decreased during the quarter and current activity continues to normalize with unexpected levels.

Speaker Change: We continue to expect full year 2024 operational losses to be approximately $100 million.

Speaker Change: We remain committed to prudently managing expenses to fund investments in our business.

Speaker Change: We will continue focusing on our largest expense categories, which include salaries and benefits occupancy and vendor spend.

Speaker Change: Based on our results through the first half of the year, including outperformance in revenue.

David: Based on results through the first half of the year, including outperformance in revenue and our expectation to be towards the top end of our previously provided full-year revenue ranges, we now expect full-year 2024 adjusted non-interest expenses to be between $4.15 and $4.2 billion. Regarding asset quality, as John indicated, overall credit performance improved during the quarter. Provision expense was essentially equal to net charge-offs at $102 million, and the resulting allowance for credit loss ratio remained relatively stable at 1.78 percent.

Speaker Change: And our expectation would be towards the top end of our previously provided full year revenue ranges. We now expect full year 2024, adjusted noninterest expenses to be between 415 and $4 $2 billion.

Speaker Change: Regarding asset quality as John indicated overall credit performance improved during the quarter.

Provision expense was essentially equal to net charge offs at $102 million and the resulting allowance for credit loss ratio remained relatively stable at 1.78%.

David: We expect full-year 2024 net charge-offs to be towards the upper end of our 40 to 50 basis point range, attributable to a few large credits within our higher-risk portfolios. However, those losses are fully reserved for. Assuming stable loan balances and a relatively stable economic outlook, we expect our ACL ratio to remain flat to declining over the second half of the year. Now, let's turn to capital and liquidity. We ended the quarter with an estimated Common Equity Tier 1 ratio of 10.4% while executing $87 million in share repurchases and $220 million in common dividends during the quarter. Earlier this week, the Board of Directors declared a quarterly common stock dividend of $0.25 per share, a 4% increase over the second quarter.

John: We expect full year 2024, net charge offs to be towards the upper end of our 40 to 50 basis point range attributable to a few large credits within our higher risk portfolios.

John: However, those losses are fully reserved for.

John: Assuming stable loan balances and a relatively stable economic outlook, we expect our ACL ratio to remain flat to declining over the second half of the year.

John: Let's turn to capital and liquidity.

John: We ended the quarter with an estimated common equity tier one ratio of 10, 4%, while executing $87 million in share repurchases and $220 million in common dividends during the quarter earlier.

John: Earlier this week the board of directors declared a quarterly common stock dividend of 25 cents per share a 4% increase over the second quarter.

David: This increase is in addition to the 20 percent increase last year, representing three consecutive years of robust dividend growth, well supported by underlying financial performance. Additionally, we received notification of our supervisory capital stress test results, including the preliminary stress capital buffer, which will remain at 2.5% for the fourth quarter of 2024 through the third quarter of 2025. We expect to maintain our common equity tier one ratio consistent with current levels over the near term.

John: This increase is in addition to the 20% increase last year, representing three consecutive years of robust dividend growth well supported by underlying financial performance.

Additionally, we received notification of our supervisory capital stress test results.

Speaker Change: Clothing, the preliminary stress capital buffer, which will remain at two 5% for the fourth quarter of 2024 through the third quarter of 2025.

Speaker Change: We expect to maintain our common equity tier one ratio consistent with current levels over the near term.

David: This level will provide sufficient flexibility to meet proposed regulatory changes along the implementation timeline while supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings. With that, we'll move to the Q&A portion of the call. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: This level will provide sufficient flexibility to meet proposed regulatory changes along the implementation timeline, while supporting strategic growth objectives, and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings.

Speaker Change: With that we'll move to the Q&A portion of the call.

Thank you.

Speaker Change: Well now be conducting a question and answer session.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: You May press Star two if you would like to remove your question from the queue. Please.

Speaker Change: Please hold while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Thank you. Our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.

Christine: Please hold while we compile the Q&A roster. Thank you. Our first question comes from Ryan Nash with Goldman Sachs. Please proceed with your question. Hey.

Ryan Matthew Nash: Hey, Hey, good morning, guys.

Ryan Matthew Nash: Hey, good morning, guys. And maybe just walk through some of the key drivers of the updated NII guidance. You know, you're expecting some nice growth in the second half. And given that the Fed cuts won't be a material driver, maybe just talk a little bit about the magnitude of the growth that you're expecting. And can you maintain that pace, you know, beyond the second half?

Ryan Matthew Nash: Maybe just walk through some of the key drivers that would be updated NII guidance.

Ryan Matthew Nash: You were expecting some nice growth in the second half and given that the fed cuts won't be a material driver, maybe just talk a little bit about the magnitude of the of the growth that you're expecting and can you maintain that pace you know beyond the second half and what does all this mean for where you think the margin can head over the medium term.

David: And what does all this mean for where you think the margin can head over? As we mentioned last quarter, we're neutral to short-term rates. The benefit that we see for this quarter and then going forward is how we controlled our deposit costs, so our interest bearing costs were up three basis points. So the front book, back book benefit that we're getting is, when you add securities and loans, about 175 basis points is now overwhelming the change in deposit costs, and we expect that to continue for the rest of the year. So, we don't really need any cuts to help that.

Speaker Change: Yeah. So as we had mentioned last quarter, we are neutral to short term rates and so.

Speaker Change: The benefit that we see.

Speaker Change: For this quarter and then going forward is how we controlled our deposit costs or our interest bearing costs were up three basis points. So the.

Book back book benefit that we're getting is when you add securities and loans about called the 175 basis points is now overwhelming the change in deposit costs and we expect that to continue.

Speaker Change: For the rest of the year. So we don't really need any cuts to help that.

Speaker Change: Sure.

Speaker Change: If we get them we get them.

David: If we get them, we'll get them, but we're neutral on that. The driver really going forward, in addition to what I just mentioned, will be balance sheet growth. And so we think that can help us continue to grow NII. And when you look at all that, we felt comfortable saying we'd be at the upper end of our range. We also did a repositioning trade, and that'll that'll help us march towards the upper end as well. So we think we're in pretty good shape. We get a little bit of loan growth in the back half of the year, which sets up nicely for 2025. Got it.

Speaker Change: <unk> to that so we think.

Speaker Change: The driver really going forward. In addition to what I, just mentioned will be balance sheet growth and so we think that can.

Speaker Change: Help us continue to grow NII. When you look at all that we felt comfortable saying we'd be at the upper end of our of.

Speaker Change: Of our range, we also did a repositioning trade.

Speaker Change: And that'll that'll help us.

Speaker Change: Our march towards the upper end as well so we think we're in pretty good shape.

Speaker Change: Get a little bit of loan growth in the back half of the year it sets us up nicely for 2025.

Speaker Change: Yeah.

Speaker Change: Got it.

David: Maybe as a follow-up on the expenses, you know, the increase in expenses seems somewhat commensurate with the increase in revenue. So can you maybe just parse out how much of the increase in expenses was driven by better revenues? And is there maybe a pull forward of some expenses from next year in order to position you for improved positive operating leverage? You know, really, the increase is attributable to the expected increase in revenue, both NII and NIR that you mentioned. Our expectations for that for the year are at the upper end of our ranges. That's the primary driver.

Speaker Change: Maybe as a follow up on the expenses the increase in expenses.

Speaker Change: Somewhat commensurate with the increase in revenue. So can you maybe just parse out how much of the increase in expenses was driven by better revenues and is there maybe a pull forward of some expenses from next year in order to position you for improved positive operating leverage.

Speaker Change: Yeah really the it's the increases are attributable to the expected increase in revenue both.

Speaker Change: NII and NII or that you mentioned hum.

Speaker Change: Our expectations are for that for the year being at the upper end of our ranges.

Speaker Change: That's the primary driver.

David: Also impacting the full year, we have about $20 million in expenses associated with market value adjustments on HR assets. And so that is what it is. We'll see if that reverses or not. And to a lesser extent, we experienced some modest incremental increases in the first half of the year, and the opportunities to offset that aren't likely. So it's important when you consider all this, our revenue and expense, that we are firmly committed to generating positive operating leverage through the back half of 2024. I appreciate the call.

Speaker Change: Also impacting the full year, we have about $20 million in expenses associated with market value adjustments on HR assets.

Speaker Change: And so that is what it is we will see if that that reverses or not.

Speaker Change: And to a lesser extent, we experienced some modest incremental increases in the first half of the year and the opportunities to offset that arent likely so.

Speaker Change: It's important when you consider all of this our revenue and expense that we are firmly committed to generating positive operating leverage so in the back half of 2024.

Speaker Change: I appreciate the color. Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Scott <unk> with Piper Sandler. Please proceed with your question. Good morning. Good morning, everyone. Hey, Thanks for taking the question I was hoping maybe you could talk a little you could please speak to the kind of the competitive backdrop for commercial lending I mean, it seems like it's tough everywhere, but it seems like everyone appropriately wants to be in the south east.

Robert Scott Siefers: Thank you. Our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Good morning, everyone.

Robert Scott Siefers: Hey, thanks for taking the question. I was hoping, maybe at a high level, you could please speak to kind of the competitive backdrop for commercial lending. I mean, it seems like it's tough everywhere, but it seems like everyone wants to be in the Southeast.

John: So maybe just the overall competitive landscape, and then maybe if you could also please highlight, you know, just sort of in your own words or thoughts, what it would take to generate better commercial loan demand. Yeah, so it is competitive. You're right.

Speaker Change: Maybe the overall competitive landscape and then maybe if you. All also please highlight I'm just sort of in your own words, the thoughts what it would take to generate better commercial loan demand at this point.

John: We're in great markets. We talk about that a lot. And as a result of that, we're seeing more and more competition. But we think we're competing well. We believe our business is largely about the quality of our people. Execution of our plan, providing unique ideas and solutions to customers, those things differentiate us.

Speaker Change: So it is competitive you're right. We're in great markets, we talk about that a lot and as a result of that we're seeing more and more competition, we think we're competing well.

Speaker Change: We believe our business is largely about the quality of our people.

The.

Speaker Change: Execution of our plan, providing unique ideas and solutions to customers those things differentiate us and fundamentally in our business and we think it is about talent we continue to recruit.

John: And fundamentally, in our business, we think it is about talent. We continue to recruit across our markets, and they're having some good success doing that. As a result, we're seeing nice growth in our commercial middle market, which is being set by declines in some of our specialized industries groups and in investor real estate, as you might imagine, as those portfolios pay down. But all in all, activity is still somewhat muted.

Speaker Change: Cross our markets and they are having some good success doing that as a result, we're seeing nice growth in our commercial middle market business offset by declines in some of our specialized industries groups.

Speaker Change: And in Investor Real estate as you might imagine as those portfolios pay down but all in all our activity is still somewhat muted customers remain cautious given some concern about inflation cost the political environment just general uncertainty.

John: Customers remain cautious, given some concern about inflation, costs, the political environment, just general uncertainty, but activity is improving. Pipelines are stronger than they were a year ago, certainly stronger than they were two quarters ago. And so while we're not projecting much loan growth for this year, we do believe that there is, and we would expect, in 2025, I think, to likely see economic activity pick up, reflected by the increase in activity in our pipelines. So yes, it's competitive.

Speaker Change: But activity is improving pipelines are stronger than they were a year ago, certainly stronger than they were two quarters ago.

Speaker Change: So while we're not projecting.

Speaker Change: Loan growth for this year, we do believe that.

Speaker Change: There is and we would expect in 2025, I think to likely see economic activity pick up reflected by the increase in activity in our pipeline. So yes. It's competitive we think we're competing effectively largely because of the quality of the teams that we continue to build.

John: We think we're competing effectively largely because of the quality of the teams that we continue to build and the long-term relationships that we enjoy, and we'll continue to focus on that. Perfect. Thank you. And then, David, just a quick one for you.

Speaker Change: And the long term relationships that we enjoy and we will continue to focus on that.

Speaker Change: Okay perfect. Thank you and then David just a quick one for you you've done a couple of these incremental balance sheet repositioning, which it would have been great, especially as it helps to sort of push up the NII expectation through the year I think you're speaking to the deck to opportunities for further ones, maybe if you could just sort of hum.

David: You've done a couple of these incremental balance sheet repositionings, which have been great, especially as they've helped to sort of push up the NII expectation through the year. I think you speak in the deck about opportunities for further ones. Maybe if you could just sort of help put a frame of reference. Would we look at similar sort of iterative ones like this? What would be the size of the opportunities, etc.?

David: A frame of reference would we look at similar sort of interested ones. Like this you know what would be the size of the opportunities et cetera.

David: Yeah, I think we continue to look for opportunities like this that are good uses of capital. We've got our capital ratio kind of where we need it to be. So to the extent we can use our capital accretion through earnings for something like this, it would be good to do, and this is about the size. This is probably the biggest you would see from us.

David: Yes, I think so we continue to look for opportunities like this to.

Speaker Change: Good use of capital.

David: Got our cap ratio kind of where we needed to be so to the extent, we can use our capital accretion through earnings for something like this it would be good to do and this is about the size. This is probably the biggest you would you would see from us.

David: It's in that 10% range of earnings. So we like to take opportunities to do this when our payback period is fairly tight. We'd like three years, and then this one, the first one had a 2.1 year payback period; this one was 2.6.

David: In that 10% range of earnings so.

David: We like to do.

David: Take opportunities to do this when our payback period is fairly tight wed like three years and in this one the first one was 2.1 year payback period. This one was two six and so if we could get an opportunity to do something in that three in and we might do that.

David: And so if we could get an opportunity to do something in that time, then we might do that. We may take advantage of that, you know, the curve continues to steep, and that really gives us an opportunity to take advantage of it as well. Perfect. All right. Thank you guys for taking the questions. Thank you.

David:

David: We may take advantage of that you know if the curve continues to steepen that really gives us an opportunity to take advantage of it as well.

Speaker Change: Perfect Alright, Thank you guys for taking the questions.

Speaker Change: Thank you.

Ken <unk>: Our next question comes from the line of Ken <unk> with Jefferies. Please proceed with your question.

Kenneth Michael Usdin: Our next question comes from the line of Ken Usdin with Jeffries. Please state your question. Hey, good morning, everyone.

Ken <unk>: Good morning, Hey, good morning, everyone.

Ken <unk>: Question on the deposit side, just I think the plus three basis points on the interest bearing cost was probably a lot better a lot lower than people thought just wondering if you can kind of talk us through what youre seeing underneath there in terms of.

Kenneth Michael Usdin: Question on the deposit side, just I think the plus three basis points on the interest-bearing cost was probably a lot better, a lot lower than people thought. Just wondering if you can kind of talk us through what you're seeing underneath there in terms of where you're continuing to see some back book catch up and where you're starting to see the ability to kind of change prices and how you kind of build that into that forward expectation.

Speaker Change: Where you are continuing to see some backfill catch up or where you're starting to see the ability to kind of change price and how you kind of build that into that forward expectation. Thanks.

Kenneth Michael Usdin: Yeah, so our Q of the beta is 43%. We've said we'd be in the middle 40. So call it 43 to 45%. We feel confident in that because we know we understand our customer base. There was still some remixing going on.

Speaker Change: So our cumulative beta is 43% we said we'd be in the middle 40, so call it 43% to 45%.

Speaker Change: Feel confident in that because we know we understand our customer base.

Speaker Change: They're still with some remixing going on.

Speaker Change: But.

Speaker Change: The industry doesn't have a lot of loan growth the demand or the the aggressive.

David: But because the industry doesn't have a lot of loan growth, the demand, or the aggressive aggressive competition for deposits just has not been there. And we have to be competitive with our deposit rates, and we think we are. We've been very short on things like CDs to take advantage of when we think rates may actually go the other way. So we have a lot of confidence, though, that it may tick up, deposit costs may tick up, depending on how the mix shift happens, and we continue to grow core checking accounts and operating accounts. These are really important to us.

Speaker Change: Competition for deposits just has not been there and we have to be competitive with our deposit rates and we think we are.

Speaker Change: We've been very short on things like Cds to take advantage of when we think right rates may actually go the other way.

Speaker Change: So we have a lot of confidence, though that that you know it may tick up the deposit cost may tick up depending on how the mix shift happens.

Continuing to grow core checking accounts and operating accounts those are really important to us and as a result, I don't think you're going to see a major change in our deposit our deposit cost and therefore, our cumulative beta and that 45% range I think is as important.

David: And as a result, I don't think you're going to see a major change in our deposit cost. And therefore, our cumulative beta in that 45% range, I think, is important. Yeah, okay, cool, great.

Speaker Change: Yeah, Okay cool, great and then just a follow up on just credit great to see the NPA has come down and also understanding your point that the couple of credits are fully reserve for.

David: And then just to follow up on just credit, great to see the MPAs come down. And also, understanding your point that the Q-couple credits are fully reserved for, can you just flesh out your general points on just how asset quality feels, what you're just seeing in underlying migration, and any things that you're still just kind of watching out underneath the surface for the most? Thanks.

Speaker Change: Flush out your.

Speaker Change: Just general points on just how asset quality fields what youre.

Speaker Change: Are you seeing an underlying migration and anything that youre still just kind of.

Speaker Change: Watching out underneath the surface for amongst banks sure. Yeah. So we've indicated I guess for a couple of quarters that we thought our credit metrics would likely peak in the second quarter and I think that's proven to be true. We've highlighted a couple of industries that we've been concerned about now for again a couple of quarters. That's.

David: Sure, yeah. So we've indicated for a couple of quarters that we thought our credit metrics would likely peak in the second quarter. And I think that's proven to be true. We've highlighted a couple of industries that we've been concerned about now for, again, a couple of quarters, that are obviously asset classes, office, senior housing, transportation, manufacturing of commercial non-durables, information, are areas that we are following in particular Portfolios where we think there have been some systemic impacts, specifically office transportation and senior housing.

Speaker Change: Obviously off of our asset classes office.

Speaker Change: Senior housing transportation manufacturing of commercial Nondurables information are areas that we are following that.

Speaker Change: The particular.

Portfolios, where we think theres been some systemic impact specifically office transportation senior housing senior housing seems to be improving transportation still in a recession, particularly for those smaller transportation companies that are operating in the spot market, but that may be improving modestly as well.

David: Senior housing seems to be improving. Transportation is still in a recession, particularly for those smaller transportation companies that are operating in the spot market, but that may be improving modestly as well. Office, we're still working through, really credit by credit. And we talked about office.

Speaker Change: Office, we're still working through really credit by credit.

John: We have 101 credits, and about 40% of those are single-tenant, so we're really working on about 60 to 70 relationships that are multi-tenant. I think we have a good handle on that exposure and are continuing to work through it. With respect to our guidance, our non-performing loans are centered on 20 credits that represent about 72% of our total non-performing loans.

Speaker Change: <unk> talked about office, we have 101 credits and about.

Speaker Change: 40% of those are.

Speaker Change: They are single tenant so we're really working on about 60% to 70 relationships that are multi tenant. We think we have a good handle on that exposure and are continuing to work through it.

Speaker Change: With respect to our guidance.

Speaker Change: Sure.

Speaker Change: Nonperforming loans are centered in 'twenty credits that represent about 72% of our total nonperforming loans five of those are office related and in every case, we are working with a customer in some instances we're adding additional.

John: Five of those are office-related, and in every case, we're working with a customer. In some instances, we're adding additional collateral to support the credit. We may be getting some additional tenant improvement money. We've got, I think, a pretty good approach to resolving the loans. We know, and we believe we are well-reserved.

Speaker Change: [noise] collateral to support the credit we may be getting some additional tenant improvement money.

Speaker Change: We've got a I think a pretty good approach to resolving the credits. We know we believe we are well reserved.

John: Just as a point, we've been asked about our allowance. Allowance against our multi-tenant book is about 9.6 percent. Total allowance against our office book is 6.4.

Speaker Change: Just as a point been asked about our allowance allowance against our multi tenant book is about nine 6% total allowance against our office book six four so we feel like where we are.

John: So we feel like we're adequately reserved against... Portfolio. And we just have to continue to work through them. So our guide is charge-offs toward the upper end of a 40 to 50 basis point range. That reflects the fact that we do have some large exposures. The issue is, we can't predict the timing.

Speaker Change: We're adequately reserved against the portfolio and we just have to continue to work through them. So our guide is charge offs towards the upper end of a 40 to 50 basis point range that reflects the fact that we do have some large exposures. The issue is we can't predict the timing and so.

John: And so we expect these things to get resolved over the next two quarters; they may or they may not, but we continue to work on them. Otherwise, the level of downgrades and upgrades is sort of coming into equilibrium, which indicates, again, that we think we've reached a point of some stabilization in our credit metrics, and we could potentially see them go a little higher or go a little lower. They will ebb and flow, but we think we've reached a point of stability. Does that complete your question? Thanks very much.

Speaker Change: Hmm.

Speaker Change: We expect these things will get resolved over the next two quarters that may or may not.

Speaker Change: But we continue to work on it otherwise.

Speaker Change: The level of downgrades and upgrades is sort of coming into equilibrium, which indicates again that we think we've reached a point of some stabilization in our credit metrics should potentially see them go a little higher little lower they will ebb and flow, but we think we've reached a point of stability.

Speaker Change: Is that complete your question.

Speaker Change: Got it thanks very much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.

Erika Najarian: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question. Hi, good morning.

Hi, good morning.

Speaker Change: No.

Ken <unk>: Ken's questions on deposits.

Erika Najarian: Following up on Ken's questions on deposits, you know, you tell us, and you've always had a good view of and know your consumer, especially very well. I'm wondering, as we contemplate these rate cuts, how we should expect deposit balances to behave and then what the betas could look like. And David, if you could sort of break it down in terms of how you expect the betas and the commercial versus betas for consumers and also the. I know it could be helpful as well.

Speaker Change: We've always had a good view.

Speaker Change: Tumor, especially very well I'm wondering.

Great Todd.

Speaker Change: How we should expect sort of deposit balances.

Speaker Change: And now with the data could look like and believe it if you could break it down in terms of how you expect the betas in the space.

Brookfield: Brookfield versus waiting for consumer.

Speaker Change: Hum.

Speaker Change: Great.

Speaker Change: Wow.

David: Erika, you broke up a little there, but I think it's kind of what we think betas will look like as rates come down. So we do have a schedule in our investor deck that's a good one for everybody to look at. It's on page 18.

Speaker Change: Erika you broke up a little there, but I think it's kind of what do we think betas will look like as rates come down. So we do have a.

Speaker Change: A schedule in our investor deck, that's a good one for everybody to look at it is on page 18.

David: And so we really have three buckets of deposits, if you will, with different beta assumptions in all three of these buckets. So, in general, we expect a mid-30% down rate beta. And so if you think about about 35% of those accounts repriced with the market, so they're tied to an index, or they're short-term CDs. So we kept our tenors fairly short, call it five months, so that as rates came down, we would have a chance to reprice that. And the beta for those is somewhere between 80% and 100%.

Speaker Change: And so we really have three buckets of Oh.

Speaker Change: Deposits, if you will with different beta assumptions and all three of these buckets. So in general we expect a mid 30%.

Speaker Change: Down.

Speaker Change: Beta and so.

Speaker Change: If you think about Oh.

Speaker Change: 35% of those.

Speaker Change: Accounts repriced with the market so they're tied to an index.

Speaker Change: Or they are short term Cds, so we kept our tenors fairly short call it five months.

Speaker Change: So that as rates came down we would have a chance to reprice that and then the beta for those somewhere between 80 and 100%.

If you go to the.

David: If you go to the other end of the spectrum, we had about 46% of our deposit base that was low beta, low cost, never moved up, probably not going to move down. And so that beta is going to be very low because it never actually increased. And then we have about 19% that's kind of in the middle that we think is called 20% to 30% beta. And so we structured our deposit book to really take advantage of rates as they come down.

Speaker Change: On the other end of the spectrum, we had about 46% of our deposit base. It was low beta low cost never moved up probably not going to move down and so that base is going to be very low because they never never actually increased and then we have about 19% is kind of in the middle.

That we think is call it 20%, 30% beta.

Speaker Change: And so we structured our deposit book to really take advantage of rates as they as they come down and we're only factoring in even though on the up.

David: But we're only factoring in, even though on the up rates, we had 45% beta, as I mentioned earlier, we've only factored in our guidance to have 30% at a down rate. And it could be better than that.

Speaker Change: Right.

Speaker Change: Up rates, we had 45% beta as I've mentioned earlier, we've only factored in our guidance to have 30% is down right and it could be better than that but.

David: But the 30% comes from that math that I just walked you through, which, again, is on page 18 of our investor deck. It's been a while since we've had a level where we stopped at when there has been an easing cycle that's above zero. And historically, you know, as we, and I'm sure everybody's thinking about this as they're seeing through 2025 net interest income, you know, historically, where do you price bonds relative to Fed funds?

Speaker Change: The 30% comes from that math that I, just walked you through which again is on page 18 of our Investor day.

Speaker Change: Got it.

Speaker Change: It's been awhile since we've had sort of had a lateral.

Speaker Change: We stopped that when there has been an easing cycle, that's about zero and historically.

Speaker Change: Sure everybody's thinking about that right.

Speaker Change: Great.

25 net interest income.

Speaker Change: Historically, where do you price relative to fed funds do you price it.

David: Do you price it? You know, if Fed funds end up being at, you know, 350, 375, are you usually 50% of that in terms of where your deposit costs settle out? Is it better? Is it worse?

Speaker Change: If fed funds ended up being at 350 375 are easily 50% of that in terms of where your deposit costs.

Is it better is it worse I'm just trying to think about.

David: I'm just trying to think about, obviously, there's a lot of uncertainty as to what the ultimate, you know, rate path is going to be. But you know, obviously, we need help because, you know, we haven't had an easing cycle that didn't end at zero. Yeah, I think you've got to think of it a little more globally in terms of Fed funds and where do you think terminal Fed funds are going to be. 2.5% to 3% is kind of our best guess. But when we get there, who knows?

Speaker Change: Obviously, there's a lot of uncertainty as to what the ultimate yeah, right path is going to be.

Speaker Change: But obviously, we need to help because we.

Speaker Change: We haven't had an easing cycle that did almost zero for some time.

Speaker Change: Yes, I think yes.

Speaker Change: Think of it a little more globally in terms of kind of fed funds and where do you think terminal fed funds are going to be two 5% to 3%.

Speaker Change: That's kind of our best guess, when we get there who knows.

David: And in that, with a normal yield curve where Fed funds are 2.5% to 3%, we're about to structure to have a margin that's going to be in the 3.75 range, maybe 3.80. And so that's our expectation. We think as rates start to get cut from here and we have a normalizing or less inverted yield curve, our margin can pick up. We said we'd exit at $350, and we should start to climb as our manager's margin should start to increase a bit as we go through 2025 and beyond. But kind of the steady state for us would be $375 to $380. With Fed funds, it's $2.5 to $3. Thank you.

Speaker Change: And is that with a normal yield curve, we're at fed funds or two 5% to 3%.

Ebrahim Huseini Poonawala: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please take your question. Thank you for having us.

Speaker Change: Our balance sheet structure to have a margin that is going to be in the $3 75 range, maybe $3 80.

Speaker Change: And so that's our expectation we think is as rates start to get cut from here and we have a normalizing.

Speaker Change: Less inverted yield curves.

Speaker Change: That our margin can pick up we said we'd exited at $3 50, and then we should start to climb as our net interest margin should start to increase a bit as we go through 2025 and beyond but kind of a steady state for us would be $3 75 to $3 80 with a fed funds, it's there's two and a half to three.

Speaker Change: Got it thank you.

Speaker Change: Sure.

Our next question comes from the line of Ebrahim <unk> with Bank of America. Please proceed with your question.

Ebrahim Huseini Poonawala: Good morning, Thanks, I guess.

Speaker Change: Maybe David just looking at the slide 18.

David: Historically sort of net charge offs.

John: Is it safe to conclude that absent a recession? [inaudible] Transcripts provided by Transcription Outsourcing, LLC. Yeah, I mean, we don't believe so, Ebrahim, we have had a little change in the composition of our loan portfolio since... The pre COVID timeframe, we acquired a Ascentium Capital, we've acquired Interbank, we believe we have a good handle on what those relative charge offs and the contribution to charge offs will be. But we're observing that obviously, as we operate those companies, we have grown our, Presence in the corporate banking space as we've talked about before we are taking some larger exposures That's intentional helps us as we think about growing our capital markets business being more important to customers and so from time to time as you acknowledge we could have a large charge-off that would impact the numbers, but Generally, we believe based on all our observations That the 40 to 50 basis point range is historically appropriate and and where we should operate over time similarly Non-performing loans somewhere between 80 and 100 basis points is a Reasonable range we may be a little higher a little lower.

Speaker Change: Is it safe to conclude that absent a recession.

Speaker Change: 50 basis points of charge offs at least out of the high end.

Speaker Change: On a non recessionary environment I understand any given quarter. It can move around but generally is there any reason why.

Speaker Change: Charge offs could be elevated even in a normal recession going forward than what we've seen I guess over the last 10 11 years.

Speaker Change: Yes, I mean, we don't.

Ebrahim: We don't believe so ebrahim, we have had a little change in the composition of our loan portfolio since the.

Ebrahim: The pre Covid timeframe, we acquired a sentient capital we've acquired interbank. We believe we have a good handle on what those relative charge offs and the contribution to charge offs will be but we are observing that obviously as we operate those companies we have grown our.

Ebrahim: Presence in corporate banking space as we've talked about before we are taking some larger exposures. That's intentional helps us as we think about growing our capital markets business being more important to customers and so from time to time as you acknowledged we could have a large charge off that would.

Ebrahim: Impact to numbers, but generally we believe based on all our observations that the 40 to 50 basis point range is historically appropriate.

Ebrahim: Where we should operate.

Over time, similarly, nonperforming loans somewhere between 80 and 100 basis points.

Ebrahim: Reasonable range, we may be a little higher a little lower I'm sorry.

John: I'm sorry. From time to time, I wouldn't expect us Frankly to be much higher, But that's kind of our view of what our credit metrics will look like given the composition of the portfolios That we currently have. That's a good call, John. Thank you.

From time to time, I wouldn't expect us frankly to be much higher but thats kind of our view of what our credit metrics will look like given the composition of the portfolios that we currently have.

Speaker Change: That's good color, thank you and I guess.

John: And I think I heard you say in your prepared remarks that lending pipelines are beginning to pick up. Give us a sense, like, do we need rate cuts for the pipelines to begin to translate, or do we need to get through the elections in order to get things going? Like, what would be the driver to get customers off the sidelines and start borrowing? And also, give us a sense of, just from an operational standpoint, where's the bank hiring?

Speaker Change: I think I heard you say in your prepared remarks, despite planes lending pipelines are beginning to pick up.

Speaker Change: Give us a sense like when is it cuts for the pipelines to begin to translate or do we need to get to the elections in order to get it.

Speaker Change: <unk> is growing like what could be the driver to get customers off the sidelines Dod borrowing and also give us a sense of it.

Speaker Change: Just from a often standpoint with the bank hiring obviously, there's a lot going on across your markets competitively.

John: Obviously, there's a lot going on across your markets competitively. What, yeah, where are we investing in terms of branches or hiring bankers, et cetera? That would be the question. So maybe I'll work backwards.

Yes.

Speaker Change: Investing in terms of events is the hiring of bankers et cetera.

Speaker Change: So maybe I'll work backwards.

John: We're investing in markets like Atlanta, Nashville, Houston, Dallas, Orlando, Tampa, where we either have had a significant presence over time and see an opportunity to grow or have made an investment, like in Houston. And so the first three or four markets, we've been there for some time. We have a strong presence.

Speaker Change: Vesting in markets like Atlanta, Nashville, Houston, Dallas, Orlando, Tampa, where we either have had a significant presence over time and see an opportunity to grow or have made investment like in Houston and so the first three or four markets. We've been there for some time, we have a <unk>.

Speaker Change: Strong presence, we're continuing to build on that markets like Houston, Dallas, we're making investments to grow and see real opportunity there.

John: We're continuing to build on that. Markets like Houston and Dallas, we're making investments to grow and see real opportunity there. With respect to your question about pipelines, I think I'm trying to remember the question now. Let's see. Somebody help me.

Speaker Change: With respect to your question about pipelines I think I'm trying to remember the question now, let's see somebody help me.

John: Yeah, what would be the catalyst for, like when you talk to speak to your customers, pipelines are building. Is it rate cuts? Is it electricity? Oh, thank you. Yeah, thank you. I'm sorry.

Speaker Change: Well what would be the catalyst for any book.

Speaking of customer pipelines are building deep cuts. Thank you, Jeff. Thank you I'm sorry.

Speaker Change: Thanks.

John: So I think, you know, eliminating uncertainty, but cost is the bigger issue. I spent some time this week talking to one of our customers who's a large supplier of construction materials and indicated that they're getting a lot of requests for bids, that they're completing a lot of bids, but they're not seeing a lot of work awarded. And I think that's consistent with the fact that costs are still high, whether it be interest costs, labor costs, or the cost of materials. It is costs that make things somewhat uneconomic or create more risk than customers are comfortable with.

Speaker Change: Eliminating uncertainty, but cost is the bigger issue I'll spend some time.

Speaker Change: This week talking to one of our customers who is a large supplier of construction materials.

Speaker Change: Indicated there, they're getting a lot of requests for four bids.

Speaker Change: <unk> a lot of bids, but they're not seeing a lot of work awarded.

Speaker Change: That's consistent with the fact that costs are still high whether it be interest cost labor cost cost of materials and it is cost that make things somewhat uneconomic or create more risk than customers are comfortable with and so I think we need just continuing to see a.

John: And so I think we need to continue to see adjustments in pricing. At the same time, I expect that our customers will continue to adjust their operations to accommodate changes in pricing. I think that's the bigger factor. The election probably has some impact on just uncertainty overall, as do the broader geopolitical events that are occurring.

Speaker Change: Adjustments in pricing at the same time I expect that our customers will continue to adjust their operations to accommodate changes in pricing I think that's the bigger factor.

Speaker Change: The election.

Speaker Change: It probably has some impact on just uncertainty overall as do the broader geopolitical events that are occurring but I believe it's probably more likely interest rates and costs will be the catalyst as those things come down for more economic activity.

John: But I believe it's probably more likely interest rates and costs will be the catalyst for more economic activity. But first, we'll do... Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Matt O'connor with Deutsche Bank. Please proceed with your question.

Matt O'connor: Our next question comes from a line from Matt O'Connor with Deutsche Bank. Please proceed with your question. Hey Matt.

Hey, Matt good morning.

Matt O'connor: Morning. Just on the expenses, the guidance kind of toward the upper end of the range, is that just because the fees are coming in higher or anything else in terms of like increased investment spend to top that off as well? As I mentioned earlier, the increase is largely attributable to the expected increase in revenue both from a Net Interest Income and Non-Interest Revenue standpoint. And we also had $20 million in expenses associated with the market value adjustments on HR-related assets.

Matt O'connor: Just on the expense guidance.

Speaker Change: Our guidance towards the upper end of the range is that.

Matt O'connor: The fees are coming in higher or anything else in terms of like increased investment spend.

Matt O'connor: Top that off as well.

Matt O'connor: No.

Matt O'connor: As I mentioned earlier, the increase is largely attributable to the expected increase in revenue both from a net.

Matt O'connor: Net interest income in <unk>.

Matt O'connor: Noninterest revenue standpoint.

Matt O'connor: We also had $20 million in expenses associated with the market value adjustments on HR related assets.

David: That was a piece, and to a lesser extent, we've experienced some modest incremental increases in the first half of the year, and opportunities to offset that just aren't likely. However, you know, as I mentioned earlier, we are committed to generating positive operating leverage in the second half of this year. Okay.

Matt O'connor: That is a piece.

Matt O'connor: And to a lesser extent, we've experienced some modest incremental increases in the first half of the year and opportunities to offset that just arent likely.

Matt O'connor: However.

Matt O'connor: As I mentioned earlier, we are committed to generating positive operating leverage in the second half of this year.

Matt O'connor: Okay.

Matt O'connor: And then as you look out a little bit longer term, like, I'm not trying to pin you down on 25, but just call it like the medium term, the next couple of years. What do you think is a good underlying expense growth as we think about, you know, some of the positives you mentioned before, like loan growth picking up, maybe the higher capital markets run rate? What would you think is a reasonable level?

Matt O'connor: And then as you look out a little bit longer term.

Speaker Change: Not trying to pin you down to 25, but just call. It like the medium term the next couple of years.

Speaker Change: Or do you think there's a good underlying expense growth.

Speaker Change: As we think about.

Speaker Change: Yes, some of that.

Speaker Change: The positive you mentioned before like loan growth picking up maybe the market's run rate.

Would you think is a reasonable level.

Although you Didnt want to pin us down to 25, which added 26 on there.

David: Thanks. You didn't want to put us down to 25, but you added 26 on there. That's good. You know, every year we go through a challenging discussion as to what we think expenses ought to be for our budget and going forward. If you look, we do have a slide in our investor deck that shows that our compound annual growth rate since about 2016 is a little over 3%. We try to keep it to 2.5 if we can.

Speaker Change: Okay.

Yes.

Speaker Change: Every year, we go through.

Speaker Change: Challenging discussion as to what we think.

Speaker Change: Expenses ought to be for our budget and going forward.

Speaker Change: If you look we do have a slide in our investor deck.

That shows that our compound annual growth rates since about 2016 is little over 3%.

Speaker Change: Try to keep it to two and a half if we can we've.

David: We've had some labor inflation, as everybody has over the last couple of years, and obviously, technology costs continue to go up. So I would expect us to be somewhere, Matt, in that 2.5 to 3% range, and not commit to that just yet. We'll give you the guidance for 25 in January, but that should give you at least a start. Yeah, that's helpful. It makes sense.

Speaker Change: We've had some labor inflation as everybody has over the last couple of years.

Speaker Change: And obviously technology cost continues to go up so I would expect us to be somewhere Matt in that two 5% to 3% range.

Matt O'connor: I'm not committing to that just yet we will give you the.

Matt O'connor: The guidance for 'twenty five in January but.

Matt O'connor: That should give you at least to start.

Matt O'connor: Yes, that's helpful. It makes sense. Thank you.

Christopher James Spahr: Our next question comes from the line of Chris Spahr with Wells Fargo. Please repeat your question. Hi Chris. Good morning. Good morning.

Matt O'connor: Our next question comes from the line of Chris Ferrara with Wells Fargo. Please proceed with your question.

Hey, Chris Good morning.

Christopher James Spahr: So, this is just a follow-up, I think, to Ebrahim's question. So you're on a pace to have a good single-digit or 7% growth in core fees this year. What do you think Regions can achieve over the next two to three years with all the tactical hires you've kind of made and when they start monetizing? And if fees are about 33% of revenues, what do you think that could be in three to five? Well, you know, we continue to look for ways to generate fees by offering products and services that our customers value and and and and and Need.

Good morning. So this is just a follow up I think the Ebrahim as question.

Christopher James Spahr: So you've had.

Speaker Change: They have a good mid single digit 7% growth I think in core fees this year.

Speaker Change: What do you think you regions can achieve over the next two to three years with all the tactical hires you've kind of made in.

Speaker Change: When they start monetizing and if fees are about 33% of revenues what do you think that could be in three to five years.

Speaker Change: Well.

Speaker Change: We continue to look for.

Speaker Change: Ways to generate fees by offering products and services that our customers value.

Speaker Change: Tim.

Speaker Change: Need and so you've seen us do several acquisitions to that.

Speaker Change: To that end.

Christopher James Spahr: And so you've seen us do several acquisitions to that end. You know, we're trying to stay committed to generating positive operating leverage between growth and NII and NIR and controlling our expense base. And I think we'll continue to do that and expect to generate positive operating leverage in 2025. We'll give you a finer point on that again in January. But if we could have a little higher percentage of our fees, we've always said we would like to have revenue 50-50 between NII and NIR. We've been saying that for a long time, and we haven't been able to get there.

Speaker Change: R R.

Speaker Change: We're trying to stay committed to generating positive operating leverage between growth in NII and NII are and.

Speaker Change: And controlling our expense base and I think we will continue to do that.

Speaker Change: And expect to generate positive operating leverage in 'twenty five.

Speaker Change: We will give you a finer point on that again in January but.

Speaker Change: If we could have a little higher percentage of our fees.

Speaker Change: We've always said, we would like to have revenue 50, 50 between NII and NII or we've been saying that for a long time and been able to get there but.

David: But if we could increase that, call it 40% of our revenue and fees, that would be great. We've overcome an awful lot of consumer fee declines, whether it be interchange through Durbin, OD fees, and the like.

Speaker Change: If we can increase that.

Speaker Change: Call it 40% of our revenue and fees that would be great. We have overcome an awful lot of consumer fee declines whether it would be.

Speaker Change: Interchange through Durbin.

Speaker Change: Yeah.

David: And we've made investments in other products and services that have helped us, including treasury management investments that we've made, where we've been up, call it, you know, 7% to 10%, three years running now. So wealth management continues to grow. They had a great quarter this quarter, hit a record, as a matter of fact.

<unk> and the like and we've made investments in other products and services that have helped us, including Treasury management investments that we've made.

Speaker Change: Where we've been up call it.

Speaker Change: 7% to 10% three years running now so.

Speaker Change: Wealth management continues to grow they had a great quarter this quarter hit a record as a matter of fact so.

Speaker Change: We're going to continue to look for ways to generate fee growth in <unk> offset some we have some potential impacts if if durbin gets updated we've given you that information so.

David: So, you know, we're going to continue to look for ways to generate fee growth and offset that. So we have some potential impacts if, if Durbin gets updated. We've given you that information. So, You know, it's incumbent upon us to continue to look for ways to continue to grow. And then, regarding capital on slide 10, do you have any kind of target or, you know, aspirational target that you have for C1 all in, if it's 8.2, a quarter inch? Yeah, so we have a capital range, operating range of 925 to 975 on CET1. We've increased that to 10 points this quarter, 10.4 percent.

Speaker Change: It's I think it's incumbent upon us to continue to look for ways to continue to grow.

Speaker Change: And then regarding capital on slide 10.

Speaker Change: Do you have any kind of target or.

Speaker Change #100: Aspirational target that you have that for CET one eight.

Speaker Change #101: $8 two at quarter end.

Speaker Change: Yes.

Speaker Change: So we have a capital range.

Operating range of $9 25 to 975 on CET one.

Speaker Change: We've increased that to pinpoint this quarter 10, 4%. The reason for that was partly uncertainty with the economy and then uncertainty with regards to Basel III and what that was going to mean to us.

David: The reason for that was partly uncertainty about the economy and then uncertainty with regard to Basel III and what that was going to mean to us. We have seen the draft of B3, as has everybody, and we think we're within striking distance of whatever the ultimate Basel III is going to be, and we'll continue to pay a fair dividend. We'll continue to look for ways to reposition our securities portfolio if that makes sense. And if all else fails, then we'll buy our stock back. And we've done all three of those things this past past week.

Speaker Change: We have seen the draft of the three is <unk>.

Speaker Change: Everybody and we think we're within striking distance of whatever the ultimate Basel III is going to be and so we don't need to let our capital continue to creep higher from here.

And as a result, if we generate.

Speaker Change: We will continue to pay a fair dividend.

Speaker Change: We will continue to look for ways to reposition our securities portfolio, if that makes sense and if if all else doesn't.

Speaker Change: It doesn't work then we'll buy our stock back and we've done all three of those things. This past and of course, we use that to grow loans as well and you should look for us to continue that and so the capital of CET one tier three tier four is about where you should expect it to be going forward.

David: And of course, we use that to grow loans as well. And you should look for us to continue that. And so the capital of CT1 of 10.3, 10.4 is about where you should expect it to be going forward. It's until we ultimately get buyable three.

Speaker Change: We ultimately get Basel III.

Speaker Change #102: Okay, but so that implies you were kind of there was a <unk>.

David: Okay, but that implies that you kind of had a decline in your buybacks in the second quarter. So we should expect a meaningful increase in the third and fourth quarter. Well, commensurate with earnings and the reason that we had changed, we used a bit of that capital for the $50 million pre-tax loss we took on the securities reposition.

Speaker Change #102: Decline in your buybacks in the second quarter. So we should expect a.

Speaker Change #103: Meaningful increase in the third and fourth quarter.

Speaker Change #104: Well commensurate with earnings and if we the reason it.

Speaker Change #104: We had changed we used a bit of that capital for the $50 million pre tax loss, we took on the securities repositioning. So it's all predicated on how big if any.

David: So it's all predicated on how big, if any, of our capital generation will we use for that. The buyback is nothing more than what it takes to solve for getting us to 10.3 and 10.4 common equity tier one. Our next question comes from the line of Gerard Cassidy with RBC. Please answer your question. Hi John, Hi David, Hey Gerard.

Speaker Change #104: Of our capital generation when we use for that.

Speaker Change #104: The buyback is nothing more than what it takes to solve for getting us to $10 three two for common equity tier one.

Thank you.

Speaker Change #105: Thank you.

Speaker Change #105: Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question.

Gerard Sean Cassidy: Hi, John Hi, David.

Speaker Change #105: Sure.

Speaker Change #105: John you and I have to.

Gerard Sean Cassidy: John, you and I have talked in the past about pipelines, and you emphasize that they are stronger today than they have been recently. And I know it's hard to quantify this, but can you give us any kind of subjective opinion that these pipelines, the pull-through, could be even better than in the past, or any color there? I don't know that I have an opinion, Gerard, that would be any different from our historical experience.

Gerard Sean Cassidy: Talked in the past about pipelines and you emphasize that they are stronger today than they have been recently and I know, it's hard to quantify this but can you give us any.

Gerard Sean Cassidy: Kind of subjective opinion that these pipelines the pull through could be even better than in the past or any color there.

Gerard Sean Cassidy: I don't know that having opinion gerard that would be any different than our historical.

John: I do think that we are seeing, as I said, pipelines, billed, we have seen softness in some of our specialized businesses, and those pipelines, in particular, are beginning to improve, particularly in areas like energy, as an example, and financial services, where we also include our subscription lines and our insurance book of some of the businesses where we're lending to customers who actually lend to others. We've got some strong relationships, and Consumer Finance has been really good over time, but I can't tell you that I necessarily believe that we're going to see any change in pull-through rates. Very good

Gerard Sean Cassidy: Experience.

Speaker Change #107: Think that.

Speaker Change #108: Are seeing as I said pipelines built.

Build we have seen some softness in some of our specialized businesses and those pipelines in particular are beginning to improve particularly in areas like energy as an example financial services, where we also include our subscription lines and our.

Speaker Change #108: Our.

Speaker Change #108: That would be comprised of our of our insurance book of some of the businesses, where we're lending to customers, who ask Glenn to others got some strong relationships.

In consumer finance that have been really good over time.

Speaker Change #108: Can't tell you that I believe necessarily that we're going to see any change in pull through rates.

Speaker Change #108: Very good.

John: And I know, David, you've given us very good detail on the CET-1 and uses of capital for buybacks or the securities repositioning. Possibly, John or David, both of you, could you give us your views on acquisitions? You, in the recent past, have done non-depository acquisitions, of course, but when you look out over the next two or three years, there's likely to be more banking consolidation. How do you kind of look at that outlook for regions? Yeah, Gerard, thank you.

David: I know, David you've given us very good detail on the CET, one and uses of capital for buybacks or the securities repositioning, possibly John or David or both of you can you give us your views on acquisitions I know you had over the recent past have done non depository acquisitions.

Speaker Change #109: Of course, but when you look out over the next two or three years.

Speaker Change #109: <unk>.

Speaker Change #110: Likely to be more banking consolidation, how do you kind of look at that outlook for regions.

John: We, we have said historically that we've not been interested in depository acquisitions. We've obviously made a number of non-bank acquisitions that have added to our capabilities, helped us grow and diversify revenue, and we continue to look for those. We believe that we have a really solid plan. If we execute our plan, we can generate top quartile returns for our shareholders without doing any bank M&A. It's disruptive, and it'

Gerard Sean Cassidy: Yeah Gerard thank you.

Speaker Change #111: We have said historically that we've not been interested in depository acquisition. We've obviously made a number of non bank acquisitions that have added to our capabilities helped us grow and diversify our revenue and we continue to look for those we believe that we have a really solid plan. If we execute our plan that we can generate top quartile.

<unk> for our shareholders without doing any bank M&A, it's disruptive it's challenging.

John: We certainly have, over time, through our performance, improved our positioning. Our currency is much stronger than it was six, seven years, 10 years ago. But we still don't think that bank acquisition necessarily is in our future. It's not part of our strategy today. As I said, it's disruptive, and it's complicated.

Speaker Change #111: We certainly have over time through our performance improved our positioning our currency is much stronger than it was six seven years 10 years ago.

Speaker Change #111: But we still don't think that.

Speaker Change #111: Bank acquisition necessarily is in our future is not part of our strategy today as I said, it's disruptive it's complicated and frankly, if we just execute our plan. We think we can deliver great results for our shareholders.

Speaker Change #111: That's not to say, we won't fall in what's going on we will pay attention.

Speaker Change #111: We'll continue to observe the market but.

Speaker Change #111: Today, where we are focused on executing our plans.

Speaker Change #112: Very good thank you Sir.

Speaker Change #113: Our next question comes from the line of John Payne carry with Evercore. Please proceed with your question.

John: And frankly, if we just execute our plan, we think we can deliver great results for our shareholders. That's not to say we won't follow what's going on. We'll pay attention. We will continue to observe the market. Today, we're folks who are executing our plan. Very good. Thank you, John. Our next question comes from the line of John Pancari with Evercore. Please proceed with your question. Good morning, John

Good morning, John Good morning.

John G. Pancari: Back to credit, your ACL ratio came down slightly this quarter by about a bit, and just given what you're seeing on the credit front, given your commentary that your trends are peaking around this quarter on certain fronts, where do you see the reserve ratio going from here, if you can kind of walk through the expectations, if you could see incremental release on that front? Thanks. Yeah, John.

Speaker Change #114: I'll talk to credit.

Speaker Change #115: ACL ratio came down slightly this quarter by about a bit.

Speaker Change #114: Okay.

Speaker Change #116: Given what youre seeing on the credit front given your commentary that your trends are peaking around this quarter on certain fronts, where do you see the reserve ratio going from here.

Speaker Change #117: You kind of walk through the expectations, if you could see incremental release on that front. Thanks.

John Payne: Yes, John.

Speaker Change #119: So as we stated.

John: So, as we stated, you know, if you look at our credit metrics, they're improving. We said our charge-offs would be at the upper end of our range, and so those are reserved for, so the expectation would be absent loan growth or changes in economic conditions as those charge-offs come through. You wouldn't expect, you would expect the ACL to come down.

Speaker Change #120: If you look at our credit metrics they are improving.

Speaker Change #121: We set our charge offs would be at the upper end of our range and so if those are reserved for so the expectation would be absent loan growth or changes in economic conditions as those charge offs coming come through you wouldn't expect you would expect the ACL to come down.

John: But where it comes down, ultimately, which is what I think your question is, is hard to tell. You know, we have to look at it every quarter and take all the information that's available to come up with the reserve. Something that you can look at, just as a guide, is if you were to go to pre-pandemic or pre-CECIL, which was the fourth quarter of 19.

Speaker Change #121: It comes down and ultimately which is what I think your question is it's hard to tell.

Speaker Change #121: We have to look at it every quarter.

Speaker Change #122: Take all the information.

Speaker Change #122: That's available to come up with the reserve.

Speaker Change #123: Nothing that you can look at.

Speaker Change #123: Just as a guide is if you were to go to the two pre pandemic or pre season.

Speaker Change #123: Which was the fourth quarter of 19.

John: And in that scenario, credit was kind of looking pretty good, but there was a little bit of a forecasted downturn in the economy at that time. And our absolute CECL reserve was 1.71%. If you take the losses, though, at that time, by portfolio and apply it to our current portfolio, that would equate to a reserve level of 161. I think we put that on the bottom of one of our charts. And so you would expect, over time, to bleed back down towards something more normal like that. But how fast that gets there, when it can get there, that's impossible for us to tell.

Speaker Change #123: And in that scenario credit was kind of looking pretty good but there was a little bit of a forecasted downturn in the economy at that time.

And our absolute seasonal reserve was 171%.

Speaker Change #123: If you take the losses, though at that time by portfolio.

Speaker Change #123: And apply it to our current portfolio that would equate to a reserve level of 161, I think we put that on the bottom of one of our charts and so you would you would expect over time to bleed back down towards something more normal like that how how fast that gets there when it can get.

Speaker Change #123: Sure.

Speaker Change #124: That's impossible for us to tell but generally speaking what we know today is that if we have charge offs coming through in the short term you should see the ACL come down.

John: But generally speaking, what we know today is that if we have charge-offs coming through in the short term, you should see the ACL come down. Thank you for that. I know you expected it to flatten out, but helping frame it like that is definitely helpful.

Speaker Change #125: Well. Thank you for that I know you expected to be flat to down but.

Speaker Change #126: Helping frame it like that it's definitely helpful.

John: And then secondly, on the expense front, as a follow-up to Matt's question, I know you're confident in the positive operating leverage in the back half of this year, and it sounds like you're focusing on positive operating leverage for next year as well. Your long-term expense growth rate that you alluded to in your response of 2.5% to 3% is a bit above where it looks like consensus is running right now, around 2% for next year. I guess where are you investing in areas that could put you in that 2.5% to 3% range versus anywhere lower?

Speaker Change #127: And then secondly on the expense front.

Speaker Change #128: Follow up to Matt's question.

Speaker Change #129: I know you're confident in the positive operating leverage in the back half of this year.

Speaker Change #130: And it sounds like you're focusing on pause operating leverage for next year.

Speaker Change #131: Well your long term expense growth rate that you alluded to.

Speaker Change #132: In your response to the two 5% to 3% that's a bit above where it looks like consensus is running right now around 2% for next year.

Speaker Change #133: I guess, where are you investing in areas that could put you in that 2.5% to 3% range.

Speaker Change #134: Versus anywhere lower and maybe if you could talk about what that would mean for our longer term efficiency ratio that you should be running at.

John: And maybe if you could talk about what that would mean for a longer-term efficiency ratio that you should be running. Yeah, so we're going to give you more points of guidance for 2025 later. So we're not trying to get ahead of ourselves.

Speaker Change #134: Yes, so we're.

Speaker Change #135: I'll give you more point of guidance for 2025 later, so we're not we're not trying to get ahead of ourselves generally speaking inflation thats baked into our our book is going to be closer to that two 5% our largest category of expense salaries and benefits and so we have to adequately pay our people.

David: Generally speaking, inflation that's baked into our book is going to be close to that two and a half percent for our largest category of expense, salaries and benefits. And so we have to adequately pay our people. And we are also investing in technology, cyber, consumer compliance. All those things take a lot of money to continue to invest in to improve in all those areas. We have to find ways to pay for that.

Speaker Change #135: And and we are also investing in technology cyber.

Speaker Change #135: Tumor compliance all those things take a lot of money to continue to invest in it to improve in all those areas, we have to find ways to pay for that and Thats what gets harder as.

Speaker Change #135: The low hanging fruit is not there we've done a really good job.

David: And that's what gets harder is we've, you know, the low hanging fruits aren't there. We've, we've done a really good job of controlling our expense base; we have one of the lowest efficiency ratios in the peer group.

Speaker Change #135: Controlling our expense base, we have one of the lowest efficiency ratios in the peer group.

David: You know, we were hoping to get to the lower 50s over time; we think we can do that. But we're going to have to leverage technology better over time than we do today. And I think that's going to be true for anybody in the industry.

Speaker Change #135: We were hoping to get to the lower fifties over time, we think we can do that but we're going to have to leverage technology.

Speaker Change #135: Better overtime than we do today, and I think thats going to be true for anybody in the industry.

Speaker Change #135: And so.

Speaker Change #135: By doing that you have less reliance on on labor and so you can let natural attrition take care of of labor.

David: And so, you know, by doing that, you have less reliance on labor. And so you can let natural attrition take care of labor as you implement technological solutions. So, we're spending 9-11% of our revenue on technology. We have some big technology projects in the works with our new deposit system, new commercial loan system, new general ledger. Those take money.

Speaker Change #135: As you implement technology solutions so.

David: We've got to figure out how to pay for that and keep our expense run rate as low as we can. Our goal is to try to continue to move our efficiency ratio down from where we are today to get to that lower 50. Got it. Now that's helpful.

Speaker Change #135: We're spending.

Speaker Change #135: All at 9%, 11% of our revenue on technology, we have some big technology projects in the works with our new deposit system, a new commercial loan system, New General Ledger.

Speaker Change #135: Those take money, we got to figure out how to pay for that and keep our expense run rate.

Speaker Change #135: As low as we can so our goal is to try to continue to move our efficiency ratio down from where we are today to.

Speaker Change #135: To get to that lower fifties.

Speaker Change #140: Got it that's helpful and since you mentioned the deposit system is that still running on plan.

John: And since you mentioned the deposit system, is that still running on plan? It's a big project and it's moving according to how we have it laid out, but we've got a long way to go. So we're not there yet. Yes, it's running on the plant job.

Speaker Change #137: It's a big project and it's moving according to how we haven't laid out but we've got a long way to get so.

Speaker Change #136: We're not there yet.

John Payne: Yes, it's running on plant John.

John: All right, all right, thanks both of you. I appreciate it. Okay. Our next question comes from Betsy Graseck with Morgan Stanley. Please proceed with your question. Hey, good morning.

Speaker Change #137: Alright, Thanks I appreciate it okay.

Our next question comes from the line of Betsy <unk> with Morgan Stanley. Please proceed with your question.

Betsy: Hey, good morning, good morning.

Betsy: I just wanted to make sure I heard you right on that man normalized in a normalized rate environment. So if I heard you correctly. It was normalized rate environment starts with a fed funds that CNS somewhat similar on inflation right like two and a half three and you have a steep curve from there.

Betsy Lynn Graseck: I just want to make sure I heard you right on the NIM, normalized NIM in a normalized rate environment. So if I heard you correctly, it was the normalized rate environment starts with the Fed funds that's, you know, somewhat similar to inflation, right, like two and a half, three. And you have a steep curve from there, or a steep, you know, normal curve, not inverted. You're saying that your normalized NIMS should be somewhere in the 375 to 380 range, is that right?

Betsy Lynn Graseck: That's right. You got it. Okay. And that, based on the forward curve, that would be, again, sometime in 25 or 26? Yep, that's right. Okay. And then, obviously, that's higher than your NIM that you had this quarter. Could you just walk through – and I know you spent a lot of time on the NIA and the NIM in the beginning part of the call.

Speaker Change #141: Normal curve not inverted.

Speaker Change #141: And in that environment on a full year basis here.

Speaker Change #142: You're saying that your normalized NIM should be somewhere in the $3 75 to $3 80 range is that right. That's right you got it okay.

Speaker Change #143: And and then based on the forward curve that would be <unk> sometime in 'twenty five 'twenty six.

Speaker Change #144: Yes, that's right.

David: I just want to make sure I understand the key drivers that take you from where your NIM is today to that normalized thing. Yeah, well, I think as rates continue to come down, our funding costs, and our input costs will come down as well. And the power of our front book and back book will continue to benefit us for a couple years. So, you know, with a curve steepening and a repricing of the balance sheet, that's what drives you up from where you are in the 350s to that 375 range that we just talked about. It's just about what period of time?

Speaker Change #145: Okay, and then yeah.

Speaker Change #146: Obviously, that's higher than your NIM that you had this quarter could you just.

Speaker Change #147: And I know you spent a lot of time on on the NII and NIM in the beginning part of the call I just wanted to make sure I understand the key the key drivers that take you from where your name is today to that normalized.

Speaker Change #148: Well I think as rates continue to come down our funding cost our input cost will come down as well and that the power of our front.

Speaker Change #148: Front book back book will continue to benefit us for a couple of years. So.

Speaker Change #148: <unk>.

Speaker Change #149: With the curve Steepening in a repricing of the balance sheet. That's what drives you up from where you are in the $3 50 to $3 75 range that we just talked about it's just about what.

Speaker Change #149: What period of time.

David: We think we have our beta down, I mean, down rate beta in the mid-30s is appropriate, perhaps conservative. And so, it's an important driver to get the input cost down. And to continue to grow the balance sheet and to grow, you know, we have some high-yielding assets that have higher losses, but they have nice returns, nice net interest margins. Continuing to grow checking accounts of a consumer and operating accounts of a business are huge drivers of lowering the input cost on deposits.

Speaker Change #150: We think we have our.

Speaker Change #150: Yes.

Speaker Change #150: Down.

Speaker Change #150: Now rate beta in the mid <unk>, we think is.

Speaker Change #150: Appropriate perhaps conservative.

Speaker Change #150: So.

Speaker Change #150: It's important driver to get to the input costs down.

Speaker Change #150: And to continue to grow.

Balance sheet and to grow.

Speaker Change #150: We have some high.

Speaker Change #150: Yielding assets than they.

Speaker Change #150: Higher losses, but they have.

Speaker Change #150: Nice returns nice net interest margins.

Speaker Change #150: Continuing to grow checking accounts of a consumer.

Speaker Change #150: And operating accounts of our business are huge drivers to lowering the input cost on deposits and so that's why it's so important for us to continue to make investments in the markets that John mentioned earlier for both of those reasons.

David: And so that's why it's so important for us to continue to make investments in the markets that John mentioned earlier for both of those reasons, on the consumer side and the business side, to get those checking accounts and operating accounts. Yes, so should I read it as you are liability sensitive, or should I read it as you are, neutral with these changes that drive the NIM higher, or you're asset sensitive but decliningly so as rates fall?

Speaker Change #150: The consumer side business side to get those checking accounts and operating accounts.

Speaker Change #150: Yes, it is today.

Speaker Change #151: Do I read it as you are liability sensitive or do I read it as you are.

Speaker Change #152: Neutral with these changes that drive the NIM higher or your asset sensitive, but declining Lee so as rates fall.

David: We're neutral to short rates, and so to the extent we start seeing rate cuts, then you're going to see our deposit costs continuing to come down, and we still have fixed-rate assets that will continue to help benefit NII and the margin, and what will happen is the curve will steepen. Obviously, if you stay anchored on the long end, and the short rate comes down, and we'll benefit from that as well.

Speaker Change #152: We're neutral to the short rates and so to the extent we start seeing.

Speaker Change #153: Great cuts, then youre going to see our deposit costs continuing to come down.

Speaker Change #153: And we still have fixed rate assets. So it will continue to help.

Speaker Change #153: Health benefit NII and the margin and what will happen is the curve steepen. Obviously, you keep if you stay anchored on the long and short rate comes down.

Speaker Change #153: We will benefit from that as well.

Speaker Change #154: Super. Thank you that's very clear I appreciate it.

David: Thank you. That's very clear. Thank you. I would now like to turn the call back over to John Turner for closing comments. Okay. Well, thank you all very much. We're, again, proud of our quarter, proud of the team that's executing our plan so well. We appreciate your interest in our company. Have a great weekend. This concludes today's teleconference. You may disconnect your lines at this time.

Thank you I would now like to turn the call back over to John Turner for closing comments, Okay, well. Thank you all very much where again proud of our quarter proud of the team is executing our plans well. We appreciate your interest in our company have a great weekend.

Speaker Change #155: This concludes today's teleconference. You may disconnect your lines at this time.

Speaker Change #155: Okay.

Speaker Change #155: [music].