Q2 2024 Citizens Financial Group Inc Earnings Call
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Good morning, everyone and welcome to the citizens Financial Group second quarter earnings Conference call.
My name is Ellen and I'll be your operator today.
Currently all participants are in a listen only mode. Following the presentation, we will conduct a brief question and answer session.
As a reminder, this event is being recorded.
Now I'll turn the call over to Kristen Silverberg Executive Vice President of Investor Relations Christian you may begin.
Thank you Ellen and good morning, everyone and thank you for joining us.
Morning, Chairman and CEO, Bruce Van <unk>, and CFO, John Woods will provide an aggregate about second quarter results.
Copeland head of consumer banking and Don Mccree head of commercial banking are also here to provide additional color.
We will be referencing our second quarter earnings presentation, located on our Investor Relations website. After the presentation, we will be happy to take questions.
Our comments today will include forward looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectation. These are outlined for yogurt here on page two of the presentation. We also reference non-GAAP financial measures. So it's important to review our GAAP results on page three of the presentation and the.
She is in the appendix with that I will hand over to you Bruce Okay. Thanks, Chris and good morning, everyone. Thanks for joining our call today.
We announced solid results today, and we continue to execute well through an uncertain environment.
Highlights for the quarter include very strong fee performance, good deposit cost management tight expense control and credit metrics, which were within expectations.
Our balance sheet remains robust with a set one ratio of 10, 7% our loan to deposit ratio was 80%.
The ACL ratio was 163% and federal home loan bank advances are now below $600 million.
Of note, we saw our revenues ticked up relative to Q1, our underlying <unk> grew by 2% over Q1.
Our underlying net income grew by $13 million or 3%.
We repurchased $200 million in shares over the quarter with our sequential EPS up 4%.
The combination of our strong capital position solid returns and capital freed up from non core rundown has allowed us the capital flexibility to support our customers and to return capital to shareholders share count is down over 5% versus a year ago.
Our fee growth was relatively broad as capital markets fees continued their rebound led by both indications and bond underwriting.
The card fees both at record levels. We also are seeing nice momentum and are well positioned payments business.
Our private bank had a terrific quarter.
We reached 4 billion in deposits up from $2 4 billion in Q1 and tracking well towards our year end 25 goal of $11 billion.
Brought in two leading private wealth teams in the quarter, one from San Francisco and one from Boston and we've reached three 6 billion in assets under management at quarter end with nice momentum.
Our commercial bank hired a middle market leader for Florida, and for California during the quarter to increasingly important states for us.
Our overall commercial franchise continues to be well positioned in serving the middle market private capital and key growth verticals and we look for our strong performance to continue into the second half.
I should pause to give a shout out to Tom Mccarthy for his appointment as senior Vice chair and Joan Great recognition for his efforts over the years at citizens.
We have done a good job in executing on our strategic initiatives top nine is tracking well to targets.
We have commenced work on top 10, which will push into new areas like AI RV.
So at work is progressing well noncore ran down $1 1 billion in the quarter commercial C&I is refocusing on deep relationships and we have a medium term plan to reduce our CRE exposure.
Credit metrics are holding up fine outside of General office. We continued the lengthy workout of general office, which will take several more quarters before we see improvement.
Roughly 70% of our office exposure is suburban versus central business district or loss, given defaults have been about half of CBD properties.
The good news is that we have our arms around the issue and we don't expect to see major surprises.
Looking forward, we continue to be upbeat about our prospects. While there are still many uncertainties in the external environment. We feel we are in good position to navigate the challenges that may arise and we maintain a positive outlook for citizens over the balance of the year as well as the medium term.
Our strategy rests on a transformed consumer bank the best positioned Super Regional commercial bank and the aspiration to have the Premier Bank private bank, we will continue to execute with the financial and operating discipline that you've come to expect from us with that let me turn it over to John.
Thanks, Bruce and good morning, everyone.
As Bruce mentioned second quarter results were very solid in a number of key areas starting with the excellent feed performance driven by strong capital markets fees and record results in wealth and card.
Also we manage our deposits portfolio quite well with stable balances and lower interest bearing cost in a competitive environment, which positively impacted NII and NIM.
Rounding out quarterly results expenses in credit came in largely as expected.
With respect to balance sheet strength, we continue to maintain a healthy credit reserve position and capital and liquidity levels near the top of our peer group.
And importantly, we are executing well against our various multiyear strategic initiatives, including the build out of our private bank.
I'll summarize further highlights of second quarter financial results referencing slides three to six.
We generated underlying net income of $408 million for the second quarter EPS of <unk> 82, and.
And ROTC of 11, 1%.
Maintaining a strong balance sheet position as a top priority and we ended the second quarter was set one of 10, 7% or about 9% adjusted for the AMC I opt out renewable.
We also maintained our strong funding and liquidity profile in the second quarter.
Our pro forma pro forma LCR is 119%, which is well in excess of the large bank category, one requirement of 100% and our purity, then LDR improved to 84%.
On the funding front, we've reduced our period end FHFA borrowings by about $1 5 billion linked quarter to $553 million.
We continued our programmatic approach to increasing our structural funding base with a successful $750 million senior debt issuance during the second quarter and we added about another $1 billion of auto backed borrowings that.
That was our fourth issuance essentially completing our auto program and it was executed at our tightest credit spreads to date.
We also refinanced preferred stock in the second quarter by issuing $400 million of new preferred and redeeming $300 million of higher coupons floating rate preferred on July eight.
Credit losses of approximately 180 million were in line with our expectations.
The NCL rate rose, a little to 52 basis points, reflecting loan balances coming in a little lower than expected.
Our ACL coverage ratio of 163% is up two basis points from the prior quarter.
This includes an 11, 1% coverage for general office up from 10, 6% in the prior quarter.
Regarding our strategic initiatives the private bank is doing very well, having generated $4 billion of deposits and $3 6 billion AUM through the second quarter.
Also our investments over the years in the private capital and capital market space are playing out nicely as demonstrated this quarter.
Finally, we are excited about our top of the house initiatives, including the ongoing benefits from BSO and top as well as growing contributions expected from data and technology related initiatives, such as generative AI and cloud migration.
Speaker Change: Next I'll talk to the second quarter results in more detail starting with net interest income on slide seven.
As expected NII is down 2% linked quarter, reflecting lower net interest margin and loan balances.
With respect to NIM as you can see in the walk at the bottom of our slide our margin was down four basis points to 287%, reflecting a six basis point increase in swap expense due to the 60 basis point decline in average receive rate in the quarter.
This was partly offset by a net increase in NIM of two basis points from all other sources, including higher asset yields noncore runoff and good deposit cost performance with interest bearing deposit costs down three basis points.
Overall, our deposit franchise continues to perform well in a very competitive environment with our interest bearing deposit beta at 51%, which was down from 52% in Q1.
Moving to slide eight our fees were up 7% linked quarter, given strong results in capital markets and record card and wealth results are.
Our capital markets business improved 14% linked quarter with higher bond underwriting and loan syndication fees given strong refinancing activity.
M&A advisory fees were down slightly off a strong first quarter. However, our deal pipeline remains strong and we expect to see positive momentum in the second half of 2024.
It's great to see our capital markets business holding the number one middle market sponsor book runner position for the second quarter in a row. This reflects the benefit of the investments we've made in our capabilities since the IPO and demonstrates the diversification of the business.
Card fees were a record primarily given the full quarter benefit of the first quarter transitioned to a new debit card platform as well as seasonally higher purchase volume.
We delivered record results in world driven by increased sales activity as well as higher asset management fees, given a constructive market environment and contribution from the private bank, which will continue to grow given the AUM increase in the second quarter from our wealth team hires.
Mortgage banking fees are up modestly with a benefit from the MSR valuation net of hedging and an improvement in servicing P&L.
<unk> fees were down slightly given a decline in margins.
On slide nine underlying expenses were down slightly as we saw the normal seasonal benefit and compensation and we did a nice job managing our expenses, while continuing to invest in our strategic initiatives.
Our top nine program is progressing well and we continue to expect to deliver a $135 million pre tax run rate benefit by the end of the year.
We have commenced work on our top 10 program and we will provide more details later this year.
On slide 10 period end and average loans are down 1% linked quarter as we continue to optimize our balance sheet and prioritize relationship based lending.
The linked quarter decline was driven by the run off of our noncore portfolio of $1 1 billion.
Horizontals were broadly stable with a slight reduction in commercial balances largely offset by an increase in retail.
The decrease in commercial loans reflects paydowns and exits of lower returning credit only relationships lower client loan demand and corporates continuing to issue in the debt markets.
Next on slides 11, and 12, we continued to do an excellent job of deposits and an extremely competitive environment.
Period end deposits are broadly stable linked quarter as seasonally lower retail deposits was offset by strong growth in the private bank.
We continue to see a slowing rate of migration from demand in lower cost deposits to higher cost interest bearing accounts with the fed holding steady as well as the benefit of deposit market share gains with the private bank.
As a result noninterest bearing deposits are stable at about 21% of total deposits.
Our deposit franchise is highly diversified across product mix and channels about 69% of our deposits are granular stable consumer deposits and approximately 70% of our overall deposits are in shorter secured.
This attractive deposit base has allowed us to efficiently and cost effectively manage our funding costs and the higher rate environment.
Our interest bearing deposit costs were down three basis points linked quarter, given proactive management of our pricing strategy.
Moving to credit on slide 13.
Net charge offs were 52 basis points up two basis points linked quarter, reflecting broadly stable charge offs and lower average loans the.
The commercial charge offs in the quarter were largely driven by Cree General office, and the fact that C&I recoveries were higher in <unk> versus <unk>.
This increase in commercial was largely offset by a decrease in retail primarily due to seasonal trends in auto and runoffs.
Non accrual loans increased 4% linked quarter driven by increases increased general office and multifamily which has been reflected in the reserve level for the quarter.
Turning to the allowance for credit losses on slide 14.
Our overall coverage ratio stands at 163%, which is a two basis point increase from the first quarter, reflecting broadly stable reserves and lower loan balances given noncore runoff and commercial paydowns and balance sheet optimization.
A reserve of 369 million for the $3 3 billion General office portfolio represents 11, 1% coverage up from 10, 6% in the first quarter.
Additionally, since the second quarter of 2023, we have absorbed $319 billion of cumulative losses, and the general office portfolio.
When you add these cumulative losses to the reserves outstanding this represents roughly a 17% loss rate based on the March 2023 balance of $4 1 billion.
Over the past six quarters. The general office portfolio was down roughly 900 million to $3 3 billion at June 30, given paydowns of about $500 million and the charge offs I just mentioned.
The loss experience. So far has been concentrated in the central business district properties with approximately two times the loss rate of suburban properties.
Suburban exposure is 70% of our total at this point.
On the bottom left of the page you can see some of the key assumptions driving the general office reserve coverage level, which we believe represents a severe scenario that is much worse than we've seen in historical downturns. So we feel the current coverage is very strong.
Moving to slide 15, we have maintained excellent balance sheet strength are set one ratio was a strong 10, 7% up 10 basis points for <unk> and if you were to adjust for the <unk> opt out removal under the current regulatory proposal are set one ratio would be 9%.
Both are set one in TCE ratios have consistently been among the top of our peers you can see on slide 16, we're set one stands currently relative to peers.
Given our strong capital position, we repurchased another $200 million in common shares and including dividends. We returned a total of $394 million to shareholders in the second quarter.
Moving to slide 17, our strategy is built on a transformed consumer bank are best positioned commercial bank amongst our regional peers and our aspiration to build the Premier Bank on private bank and wealth franchise.
First we have a strong transform consumer bank with a robust and capable deposit franchise rounded in primary relationships and high quality customer growth.
Notably the transformation of our consumer deposit franchise as the Chief reason, our deposit performance has dramatically improved from the last upgrade cycle.
We are much more nimble on our deposit raising capabilities now with more levers to pull and better analytical tools and where our beta performance lagged our regional peers last time. So far this cycle, we are better than peer median.
We also have a differentiated lending platform, where we are prioritizing building durable relationships with our customers and we are focused on scaling our wealth business.
Accordingly, we continue to make great progress improving digital engagement with our customers and increasing deposit shares we build our customer base, particularly in New York Metro.
Next we believe we have built a leading commercial bank amongst the superregional banks, we are focusing on serving sponsors and middle market companies in high growth sectors of the economy, and we have full set of product and advisory capabilities to deliver to our clients.
Speaker Change: In particular, we are uniquely positioned to serve the private capital ecosystem, which appears poised for a strong recovery after one of the slowest steelmaking periods in decades.
We are starting to see a more constructive capital markets environment develop and our consistent position near the top of the middle market and sponsor lead tables gives us confidence that we have a right to win as activity picks up.
Finally, we are building a premier private bank and that is going very well and gaining momentum.
We're growing our client base and now have about $4 billion of attractive deposits of $1 6 billion increase from the prior quarter with roughly 30% noninterest bearing.
So we are now at $1 4 billion of loans and continuing to grow.
We recently opened private banking offices in Mill Valley, California in Palm Beach, Florida, and we are opportunistically, adding talent to bolster our banking and wealth capabilities with our citizens wealth management business is the centerpiece of that effort.
We added two exceptional asset management teams in the second quarter, one from San Francisco and the other from Boston, bringing the total private bank AUM to three 6 billion.
Well on our way to hit our $10 billion target by the end of 2025.
Importantly, our private bank revenue increased 68% to about $30 million in the second quarter and we are on track to breakeven on the bottom line.
Later this year.
Moving to slide 18, we provide the guidance of the third quarter. This outlook contemplates a 25 basis point rate cut in each of September and December.
We expect NII to be down one 1% to 2% driven by one last step up and swap costs. This cycle.
Noninterest income should be up slightly reflecting seasonally lower capital markets more than offset by a pick up across other categories. We expect noninterest expense to be stable.
Net charge offs are expected to be down modestly in the ACL should continue to benefit from noncore runoff.
Our set one ratio is expected to come in about 10, 5% with approximately $250 million to $300 million share repurchase as currently planned.
With respect to the full year 2024 guide we provided in January we feel good about the overall level of PPE NR.
Revenues are tracking broadly in line with some puts and takes.
And it is expected to come in at the upper end of the down 6% to 9% range, reflecting lower loan balances with NIM trending modestly better.
Come in modestly above the range of 6% to 9% originally expected.
You should expect us to continue to do well on expenses, which will be broadly in line with the January guidance.
We expect NII and net interest margin to rebound in the fourth quarter given swap costs peaked in the third quarter with a return to positive operating leverage in the fourth quarter.
In addition, net charge offs are trending in line with our January expectations.
We continue to expect to end the year with a target set one ratio of approximately 10% to 25% and the level of share repurchases will be dependent on our view of the external environment and loan growth.
To wrap up we delivered a strong quarter with good momentum in capital markets record results in wealth and card and credit performance that continues to play out largely as expected.
Our capital levels are strong near the top of our peer group and we are maintaining robust liquidity and funding.
Our unique multi year strategic initiatives, including the build out of our private bank are progressing well and our consumer and commercial banking businesses are well positioned to drive strong performance over the medium term.
Given these headwinds combined with strong execution and tight expense management, we remain confident in our ability to hit our medium term, 16% to 18% return target and with that I'll hand, it back over to Bruce.
Well thank you John.
Bruce: Let's open it up for Q&A.
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Our first question will come from the line of Peter Winter with Ta Davidson go ahead.
Morning, Ken.
Ken can you can you provide an update on the loan outlook in the second half of the year and maybe just talk about customer sentiment.
It's going to take to kind of move them off the sidelines.
Yes, I can jump on that one so I mean, I think we're seeing pretty positive signs.
For <unk> as it relates to loan growth when we look at the three different businesses that that really will drive that we've got the private bank.
Which is S has demonstrated the ability to not only grow deposits and AUM, but absolute but the private bank is actually penetrating its customer base and growing loans in the second quarter, and we expect that to actually continue and begin to accelerate into the second half.
In the.
In the commercial space.
Customer activity is picking up we do expect to see that particularly in our.
In our sort of.
You call them M&A advisory related driven finance arena, we are seeing some opportunities in the subscription line space as well as some pickup in fund finance and then in retail where we've been seeing some opportunities and HELOC and mortgage. So so all three legs of our stool as we call it our.
Bruce: Starting to demonstrate the ability to really deliver on that loan growth expectation as you look out into the second half.
Yes, John I'll jump in on that as Don I think.
One of the interesting things, we've seen and this goes to capital markets also as a real pickup in new money activity over the last six to eight weeks and as the interest rate cycle appears to be abating in the economy seems to be okay. So that's driving growth in subscription lines thats driving a little bit more bullishness, among our core C&I customers and certainly do.
<unk> opportunities domestic activity among the PE firm. So I think we'll see some decent growth in the second half of the year exact timing I guess I am not exactly sure, but which we did see at the end of the end of the second quarter. The beginnings of some pretty significant draws on our subscription lines.
Yes, I will jump into on the consumer and private banking side. The consumer story is a little complicated given the non core rundown, where we're running down $800 million to $1 billion each quarter, but if you put that aside the fundamentals of our core loan business are actually growing.
At a reasonable clip really led by residential lending and a little bit in card, our HELOC position remains incredibly strong and with rates.
Being higher than we had expected going into the year and our customers having the most home equity in their personal balance sheet in the history of the United States Our HELOC.
Our market position is reaping a lot of benefits for our sourcing very strong HELOC growth. Despite the mortgage challenges some modest growth in the mortgage portfolio are starting to see a bit of a tick up on the card on the card book and then turning to the private bank.
Our offering is much broader than what the team that we hired was used to so we're starting to see a diversification of that book early days. It was really led by private equity adventure capital call lines, that's still a strength of the business model. We did see in this last quarter in Q2 of diversification towards consumer so consumers now 30.
6% of the loan book versus in the low twenties earlier in the year. So mortgage is starting to pick up some HELOC lending and still continued strength in business banking and private equity and we expect that trend to continue.
That's great color. Thank you.
Yes.
On a separate question just the stress capital buffer came in higher than I was expecting.
Sure, it's higher than what you would expected.
Are there any plans to kind of reassess any of the businesses, but helped drive a lower FCB. Bruce you mentioned some plans over the medium term to reduce the CRE exposure.
Yes, I guess.
We were a bit.
Disappointed.
Seb.
Our results and I would say.
I think the fed overall does a pretty good job on credit.
Our very conservative, but they have a lot of data to work from and where we've consistently been frustrated has been their modeling <unk>.
And so our own modeling of <unk>.
Much more robust.
We do things like we picked up forward starting swaps.
Or if the situation to the scenario where.
If rates are much lower than we're going to see a pickup in mortgage fees and a pickup in capital markets fees.
Pending on a scenario but.
Anyway I'd say.
We have the good news is we have sufficient capital we'd run at a conservative level.
So having a higher SCB.
As appropriate isn't really hindering our strategy.
And so I don't think.
Peter.
Peter: We need to make significant changes to the business model I think we're on the right track, having said that the balance sheet optimization is still places where there is work to do.
To optimize the risk adjusted.
Returns that we make off the balance sheet.
Bruce: Hopefully improve some of the stress results on the credit side.
And so CRE, we can see.
No that run down.
It popped up after we did the investors acquisition a lot of that was kind of low risk multifamily, but certainly we want to create the capacity to lend in areas that really further deeper relationships.
Bruce: We will have more C&I kind of still some of that void as we bring down.
CRE would probably be the biggest shift that you'd see on the balance sheet over time.
Thanks Bruce.
Okay.
Next question.
Your next question comes from the line of Erika Najarian with UBS. Your line is now open.
Oh good morning.
Well. This question. The first question is for John John I think you were.
<unk> conference in June and you talked about very positively about an exit rate for the fourth quarter of 2024 and the net interest margin.
I'm wondering if you could readdress that again and when you put it in context of you know you noted that the swap costs were peaking.
Peaking in the third quarter.
If you can't give that in context on how you expect asset yields to suggest as we speak.
Think about that September and December rate cut and obviously, the three basis point improvement in interest bearing deposit costs.
Notable.
I'll turn the trajectory from here, whether it's in context of the rate cuts I know it out.
Yeah sure Erika I guess, what I'll I'll start off with is that at the beginning of the year. We we did indicate that we thought the exit NIM would be in that neighborhood of 285, or so I'd say that as we've gotten into the middle part of the year, we expect that to come in a little better.
So I think I did mention that at conference earlier earlier last quarter and I think we can confirm that those trends continue to be looking at.
Looking good that we're going to end up a little better than what we expected and broadly what we said at the time was that we saw loans coming in a little lower and pushed out a little bit more than we had originally expected, but that was getting offset.
Bruce: In part from better net interest margin trends.
We were pleased to be able to transact.
Very strong interest bearing deposit costs number that was down three basis points this quarter.
I think it's very likely that our interest bearing deposit costs have peaked in the first quarter.
<unk>.
We had some.
A nice opportunity to two.
To kind of price or our rollovers of Cds in the second quarter and that was a tailwind.
I think there'll be some variability there, but I think <unk> is probably the peak.
Now I will provide a nice tailwind as you get into the second half of the year.
Broadly the trends when you get into the fourth quarter are along the following lines every quarter, we're generating a couple of basis points of positive benefit from all other sources outside of swaps and so given the third quarter is the last time that we will see a step to step up and swap costs really.
But the rest of the bank will be able to drive net interest margin rising off of that NIM trough in <unk> into <unk> and the big drivers would be there.
There's a number of them I mean, we've got noncore, which continues to run off and is providing about two basis points a quarter of net interest margin all by itself.
Asset yields.
Around five basis points or so ex swaps given the front book back book dynamic that we're seeing which is in that two to 300 basis point range.
From the standpoint of what's happening with securities and loans.
And then.
You have the initiatives with the private bank, which is accretive across the board, which is contributing so all of those things I think youll see contribute.
And I would say that getting that that first fed cut in late September would be also helpful. It's not necessary for us to stay on track for having a really strong.
A rebound in <unk>, but it does help I would say.
Address.
Higher for longer pressures that pricing pressures on deposits that that will continue to bump along.
Until that first cut comes out from the fed.
Let me stop there and see if that addresses a number of the points that you made.
That does yes.
As you lay out.
And you said a third from.
A rising cost for the net interest margin from what you mentioned is 324 class I am wondering about the size of the balance sheet do you feel like your mix is optimized in other words as investors think about normalizing NIM.
Multiply that by your balance sheet is your balance sheet growth going to be in line with business growth or will there be.
Moves that you're making in terms of wholesale funding or whatever else. It could move balance sheet growth sort of underneath business grows on a bus business growth.
It's a good question I'd say I think there might be two different answers here one is as in the second half of 2004, we have a.
At the balance sheet date here at June 30, we have a significant amount of excess liquidity and so you could see us deploy some of that into lending through the second half and that will that's very powerful in terms of the ability to drive net interest margin.
And so we're pleased to be able to do that given how strong our balance sheet position as at June 30, but I'd say when you zoom out and think about the medium term, we without a doubt have opportunity to grow the balance sheet over time in line with with.
Bruce: Business growth adjusted for the balance sheet optimization.
Initiatives that we have in place.
Powerful combination of net interest margin reflating into that.
What do we say $3 25 to $3 40 range plus the opportunity to grow the balance sheet over the medium term is really one of them is the primary end majority.
Driver of our ROTC targets over the medium term, so I think maybe a little bit of transition in two H well, we'll probably deploy some liquidity, but then but then growing into 25% and 26 and beyond.
Just add to that Erika is I do think we have one thing thats pretty unique to us which is the launch of the private bank. So if we just grow at kind of nominal GDP kind of in the medium term.
For consumer and commercial we should grow a little faster because.
But banks is scaling up.
Certainly as the customer base grows and we keep adding and investing in the business, we should see additional growth there.
Well guys. Thank you.
Okay.
Your next question will come from the line of Ryan Nash with Goldman Sachs. Your line is now open.
Can I ask if you could please check your mute feature on your phone.
And then maybe we can come back to Ryan let's move onto the next question and we'll circle back to Ryan Yes, one moment. Please Mr. Matthew will have to re queue by pressing one then zero again, we will go next to Scott <unk> with Piper Sandler Your line is now.
All of them.
Everybody. Thanks for taking the question.
Maybe we could pivot to the fee story for a moment that's been a pretty solid story.
This quarter and John so it sounded like we'll see maybe some seasonal capital markets weakness in the third quarter, but it feels like it's on a good trajectory. So just maybe some thoughts on the overall investment banking pipeline, how it how it looks and then just broader thoughts on the main drivers as you see them for the fee based outlook.
I'll start off with broader the broader picture and maybe Don tell us.
A little bit more about about the capital markets pipeline outlook, but more broadly I mean, we're really pleased with our performance in the second quarter.
And and printing another number one.
Market sponsor position on league table, it's nice to see for the second quarter in a row.
<unk> is the typical seasonal.
Period, where it's a little a little down for our capital markets and we expect that that that that may play out.
As as it has done in prior years, but I think the floor in those in that seasonally down here. It is actually higher this year than it's been in prior years. So that's something to keep in mind that given all of the investments we actually sure it will be down off of great <unk>, but but the floor is probably higher than prior years number one.
Number two the diversification not only within capital markets, but outside of capital markets and all the investments we've been making in wealth.
We had those two significant asset management teams that we brought on board plus all of our organic investments inside the private bank and broadly.
Is really driving wealthy so here to see well fees.
A bigger contributor in the third quarter.
So youll see the rate environment moving around we are seeing opportunities and are and are helping our customer hedges hedge the exposure to rates and so we're going to we expect to see some benefit there in just a number of other categories, including service charges.
And ability for possibly some mortgage banking opportunities as rates seem to be.
Stabilizing and down so there's just a number of other categories given the diversification of the platform that will allow us to stay on track here as you head into the third quarter.
To add to that we did take some regulatory cleanup items in other income so that was suppressed in the quarter, which should bounce back next quarter, but with that Don why don't you give a little more color on it so.
So it's interesting the characteristics of the market are very favorable right now theres enormous amounts of liquidity and that drove really the first half of the year, which was primarily a refinance market. So if you look at transactions done in the core capital markets being syndicated lending and bonds. It was it was about 85% refinanced.
Hang of existing exposures that were on people's balance sheet, and extending maturities and alike, but we didn't see and what we're beginning to see is new money activity led by the private equity team. So as we move into a more favorable interest rate environment, a decent economic environment, we're starting to see the pipelines really well on the PV side of the business and frankly.
That's where the big underwritings are and Thats, where the profitability drives M&A is hanging in there pretty well remember we are primarily a middle market investment bank. So we do the midsized deals $100 million valuation to a 1 billion a valuation of 100 million capital raise to 1 billion capital raise so those those have actually been more resilient.
Bruce: And the really big ticket M&A deals, which you are getting government scrutiny and getting held up in regulatory approval. So that it does seem to be moving along reasonably well the place we haven't seen a lot we've seen actually more than we saw last year and the IPO side of the business. There are a lot of ipos that are kind of prepped and ready, but people aren't pulling the trigger and going to market in <unk>.
Some of Thats been the aftermarket performance of the Ipos that have happened so far but if we can get continue to get the broadening of the equity markets.
High rise in the equity markets you could see some of that begin to come.
And then when you have a pretty decent pipeline on the convert side of the follow on site. So it's broad based it's pretty encouraging and I think the backdrop is very favorable for a good second half and a great 25, frankly, and we think we've got all the pieces, we need to take advantage of the markets.
Maybe just very quickly add on the consumer side, our improvement is very durable sticky.
<unk> revenue so the card changes that both John and Bruce mentioned, we reissued $3 5 million debit cards last quarter and a new contract that just drops directly to the bottom line is predictable and will stick around service charges has bottomed out mortgage we think will be in the zone could you give a little bit of favorability if rates if rates drop a little bit in the wealth AUM growth is.
<unk> durable repeatable fee income so that's what we're calling for steady continued upward momentum on consumer without a lot of volatility I'll just I'll just add one more thing as we're beginning to see it's interesting because the private banking teams never had a capital market business are at their prior employer and so we're starting to see some crossover activity among the private banking.
Alliance here coming on board in the capital markets I don't know if thats, a second half thing, but I think thats a brand new opportunity from a client base that was never really resident citizens before.
Terrific. Thank you for that color and then wanted to ask a little bit about the reserve and specifically the office reserve I think we're up at 11, 1% now which is of course very very high I guess I'm curious about the factors as you might think about them that would.
Allow you to start sort of absorbing.
Losses with that existing reserve in other words, what what sort of allows that that office reserve to start to come down rather than to continue.
Continue to tick up I think when you talk about the the reserve more broadly you've you've pointed to noncore runoff as being the thing that might allow that the reserve to benefit, but just curious about how office fits in there in particular.
Yes, I would say I'll start and let John add.
Color, but I'd say the.
Office.
There's still a lot of uncertainty in that space just.
What we're seeing in terms of valuations cap rates the path of <unk>.
Future interest rates and so I think we've played it conservatively.
Having a big reserve and then just kind of leading the charge offs run through while maintaining the reserve I think you'd have to get to a point, where you're starting to see.
Things solidify a little bit and start to.
Move in the right direction so to speak.
I don't I don't really see that happening actually sure.
Certainly this year it will happen maybe sometime in next year. So we're kind of prepared for a slog here on office that we've got our arms around the properties. We know what the maturity schedules are and we've got good people working with the borrowers to deliver good outcomes.
I don't expect we'll see any big surprises, but we will continue to I think just work our way through it.
Where we hit kind of feel better moment when things start to look like they're moving into right direction. That's when we'll be able to start to drawdown on the reserve.
A nice benefit when that happens John Yes, I would just echo that point I mean, just having some.
Growing confidence in valuations and seeing maybe transactions occur could be in all likelihood of 25 2025 outcome and so.
This is a multi quarter probably multiyear.
Journey that we're on but.
Given all of the balance sheet strength that we have with our capital position, we feel really confident that any uncertainties are expressed in the reserves and any any any other anything else would be supported by the capital.
I would also mentioned that we're working with working to book down I mean, we started we started out at $4 2 billion were down but they were down to $3 3 billion. So we're lowering the exposure every quarter.
We're working with that as a good way through repayments and some of it's Richard Yeah.
But less is coming down exactly.
We're getting we're getting some kind of payoffs and paydowns were getting were working through the riskier credits.
And when we're having conversations that have been accelerated given our maturity profile that we've had the opportunity to really lean in with our with our.
Our borrowers.
When and if we've we've come to sort of <unk>.
<unk>, we've been able to extract it in many cases better better positioning in collateral.
So this is a multi quarter.
Ernie and I were feeling good about where we are.
To elevate two to the second part of your question.
Is that a way from some of that away from the General office, we're still feeling good about what we're seeing.
On the consumer.
Metrics.
Commercial.
And we.
We run our <unk>.
<unk> calculations based on scenarios.
Clearly the risk of recession seems to be.
Less than it was a couple of quarters ago, and so our need to keep adding to reserves for rest of the book, which seem to be abating somewhat so thats why when we say.
We will continue to see we are calling out a slight slightly lower charge off number in Q3, and then we have the trend of being able to draw down on those reserves, which I think will accelerate in coming quarters.
Perfect Alright, Thank you all very much.
Your next question comes from the line of Ken Houston with Jefferies. One moment. Please while we opened your line Mr. Houston.
Your line is now open go ahead.
Okay, great good morning.
Hey, John and Bruce.
On the cost side. So you guys are doing a really job keeping costs flat you mentioned earlier youre hiring some bankers you obviously have the wealth management people and I'm. Just wondering if you can help us understand like.
The growth that you have there and like where the top and extra cost program are in terms of the offsets to be able to kind of hold the line I know that it's kind of in line with your full year guidance, but just the puts and takes of kind of where we are at this point of the year in terms of.
Is there just more to come on top to offset those.
Those hires and the growth in the <unk>.
Strong investment banking results et cetera. Thanks.
Thanks, Ken for the question.
I'm just talking about top it's been emblematic of who we are as you know for a number of years.
The topline program is going to generate call it $135 million or solid run rate benefits. When you get to the end of this year in 2024.
The underpinnings of that program, we often have vendor contributions that's a big driver.
Watch the data and analytics country contribution.
This year, which will continue into future years.
We've had.
It really interesting ability to invest in our fraud program.
A number of other opportunities, including branch rationalization that that have underpinned our really strong top program. This year.
That of course is the <unk>.
Way over over time, we have been and been able to invest in entrepreneurial and innovative.
Speaker Change: <unk>, while not meeting too.
To cover that and to self fund those kinds of things.
Top 10 program, we're working on.
And we're feeling good about the.
Early opportunities I think we've launched.
Some analysis and the generative AI space and we're live on a couple of use cases, and I think we're going to see our ability to broaden out there pretty pretty nicely in terms of underpinning. The next top program, there's a half dozen of other other areas expanding data and analytics.
What we're doing in our technology space, which kind of converging our our platforms.
With our ability to converge our mainframes and.
Speaker Change: So I do think that we feel very good about the ongoing ability to make investments and self fund those investments through the TARP program.
As you get into the end of 'twenty, four and into 'twenty, five and maybe I'll just stop there and see it.
If theres anything else that you'd like to add.
Yeah.
Okay, Great Alright second question I know that you.
You issued 400 preferreds and redeemed 300 at the in early July and I think with that you are still kind of in the 1213 zone would be one three.
Preferreds to <unk> as you know as you contemplate the buyback as you think about the SCB and all of that like how do you just think about the overall capital stack in terms of like what your ultimate goals are for optimization of your capital position.
We're feeling pretty good about where we stand in the capital space I mean, I think we've.
We basically think that around $1 25.
Is is fine we ended up with said, we probably have more set one so when you look at the overall tier one stack, we've got higher quality capital given the fact that we have more set one.
Driving our overall tier one.
125 is fine is probably.
We probably won't go much below that and in a range of 120 to 125 to $1 50 of RW as is probably where we will operate we have a number of.
Of issues out there that are coming into the ability to call.
Call periods and into 'twenty, five and so there could be some opportunities.
To refinance just like we did this year there are some very interesting refinance opportunities to lower our our preferred coupon.
That we're paying on on the preferred capital. So that's something we'll keep an eye on.
As we go forward into 'twenty five.
Okay, Great and sorry, just one just wanted to follow up on that last one just the.
So the <unk> have been coming down and your average earning assets have been kind of flat and I know you talked a little bit about this earlier, but it is kind of flattish on total balance sheet size average, earning assets is that the right way to think about things going forward given all the moving parts on both sides of the balance sheet.
Yes, I mean for four 424, I think the answer to that is yes with growing <unk>.
As far as I mentioned, we have excess liquidity at June 30, and you can see the overall balance sheet being basically in the same zone is where we are today, but but the ability to basically deploy some excess liquidity into.
Into lending in the second half is really the plan. So we would see <unk> and loans growing from.
From June 30.
To the end of the year.
Yes.
We can see we could see some growth though in.
I'd say spot deposits and spot loans in Q4 above that about because we are playing the liquidity. So just to be clear, yes agreed we're going to see deposit growth and loan growth is just that given the excess securities that we have on the balance sheet overall interest, earning assets are about about where with LTV.
Just a little bit higher.
Got it thank you.
Right.
Your next question will come from the line of Manav <unk> with Morgan Stanley. Your line is now open.
Hey, good morning.
Okay.
If I try to back into.
For Q NII number using your full year guidance as <unk> guide.
It applies at 3% to 4% quarter on quarter increase in NII in fourth Q.
My question there is what do you need to see that uptick in NII.
There is some benefit from that.
On the swaps front, but do you also need to see loan growth do you need to see deposit costs continuing to come down do you need any help for Brad can you help us frame that.
Sure, Yes, and I would say broadly that the majority of the increase in <unk> is really coming from net interest margin.
Rebounding.
So just allowing all of those positives.
Tailwind from net interest margin across the whole platform from noncore the front book back book dynamics.
And in all of all of those drivers is the majority of the increase in NII for four <unk>. However, there is.
A meaningful contribution expected from from loan growth as well and we talked about loan growth earlier in the call and how all three.
As this is private private bank consumer and commercial are all expected to contribute to that in terms of how that plays out for the second half when it comes to just that net interest margin number as I mentioned noncore front book back book you also have the increase in deposits that you just heard Bruce talk about that incur.
Bruce: <unk> is a better funding mix, where we will have more deposits and less wholesale funding as you get into the second half.
Your other question about about that.
Positive pricing and the rate cut.
I think we're somewhat well.
Well balanced around whether the fed cuts or not.
Tend to have some offsetting.
<unk>, there, where we have some asset sensitivity in a net floating position that benefits with rates being a little higher but then that often the higher for longer impact on deposit migration tends to keep us close to neutral and so whether we get a cut or not I think we're feeling pretty good about the fourth quarter NII.
Being being a nice rebound at a meaningful increase versus <unk> and then the last part I'll throw out there.
Again, all the initiatives and Hell.
For example.
Balance sheet optimization and private bank are all accretive to net interest margin on a quarterly basis.
Speaker Change: Yeah, and I would I would just add to that as well.
We also think that reminder, that Q4 is a seasonally strong quarter for fees.
I think there could be that rebounded NII.
And in Q4 strong fee quarter continued discipline on expenses credit seemingly moving in the right direction. So.
And then continued share repurchase so you put that altogether you could have kind of a nice uptick in Q4 results.
That's really helpful and then.
As a follow up on the on the commercial and middle market side.
Airline several positive drivers for lines picking up in the back half.
That come with higher utilization or do you need to see.
Lower rates for utilization to pick up.
And maybe how does the uncertainty around the election, how is that factoring into your conversations with clients, yes, what we're saying what we're assuming in our utilization growth is it's largely in the capital call and subscription lines. So we're seeing a little bit in the middle market. So I think the middle market.
Trend will be a little bit longer what we've seen are middle market companies do is kind of take their leverage levels down with economic uncertainty. So as the economy begins to show signs of stabilization or some more certainties stabilization, maybe they get a little more aggressive investing in their businesses and I was with a whole bunch of middle market Ceos last week in every single one of them.
Instead, they haven't renewed investment plans over the next 18 months, so that'll take that'll take a little bit longer and I don't really see a massive impact of <unk>.
From the election, I think you may get some market volatility based on what someone says day in day out, but I think the medium term trend is intact and we are seeing I mean, the playbook, we're going to run in California and <unk>.
Forrarder, which Bruce mentioned is going to mirror. The playbook, we ran in New York, where we're having just extremely strong client acquisition as we bring experienced market bankers onto the platform and they bring their clients with them. So very early days, but those pipelines are going kind of literally within two months of hiring new bankers. So they won't be huge numbers of the asset.
There'll be another tailwind for us I think.
Great. Thank you.
Yeah.
Your next question comes from the line of John <unk> with Evercore. Your line is now open.
Good morning.
Good morning.
Bruce.
I think we've talked about the the expectation the medium term plan to shrink the CRE.
CRE exposure incrementally from here.
Want to get an idea of where you think that could settle out I mean right now your commercial real estate loans are about 130% of your.
Your risk based capital plus reserves, where do you think it goes from that perspective.
Approach this expected runoff.
Speaker Change: Yes, I would say.
Over the medium term, we'd probably take the pure commercial book down.
At least 25%.
That will come across the asset classes, obviously want to be smaller in office.
Multifamily, we can bleed that down a bit since we took a big upsurge with the investors deal.
He will make room for some.
Some CRE opportunities with the private bankers some sites.
An important part of their customer base, and so there'll be a little bit of offset to that but that kind of directionally gives you a sense as to kind of what the plans are.
Speaker Change: And as I said earlier in the call, but I think we're making room for more C&I growth that we'd like to kind of flex and have a bigger loan capital allocation to C&I at a smaller to CRE over time.
Right. Okay. Thank you that's helpful and related to that my second one is.
On the private banking side.
First one on the deposit side, the $4 billion in deposits I know, 81% of that is commercial.
36% of the DVA, how much of those deposits our deposits with venture capital and private equity firms are related to that industry.
Yes.
Of the commercial and business banking oriented deposits. The majority are from private equity and venture firms, but I would note that it's heavily led by operating deposits and so the way that the relationship actually works is starting as their cash management operating back which is why the DDA and <unk> percentages, so high and the <unk>.
So they are stable predictable.
Speaker Change: Generally lendable deposits. So we're pleased with the profile. If you think of the loans that have come in obviously about the LDR at the private bank is quite low and we've got a good amount of liquidity padding. When you look at the land the ability of the deposit base to continue to drive loan growth even within the profile just the private.
So we're pleased with the quality.
Yes.
Youre seeing the loan book diversify to consumers.
The deposit book has still remained in that sort of 80 20 split, but given the pace of growth that obviously suggests that the consumer business is also growing at a pretty healthy clip that just takes some time and we do expect that to catch up and it will diversify overtime to more of a 60 40, maybe over the longer term horizon 50, 50, but with.
More of those deposits out of those deposits and loans at higher rates the higher rates.
Held back on mortgage obviously, and then the business banking commercial deposit growth is quicker and lumpier, but we do expect that to continue to change over time, and we're pleased with the strength of the consumer opening these private banking offices, which should attract more of the high net worth individual as well.
Okay. Thank you and one last one.
You could just maybe update us on the likelihood of additional team hires on the private banking side.
The wealth AUM going up to about $3 6 billion. There I know you acknowledged that might be a tougher slog.
But it looks like towards the end of the quarter you had that big jump in AUM. Just curious if you can give a little bit of color around that.
What's driving that.
Recent upturn.
Yes, I'll start.
Brendan but.
Just wanted to make an overriding point is that we want to serve.
That demonstrates that we can run this as a profitable business and so when we initiated the launch of the private banks.
Speaker Change: Put some markers out there as to what we're going to do this year hitting breakeven in the fourth quarter and then.
Speaker Change: Next year getting to <unk>.
So it had.
9 billion of loans 10 billion AUM 11 billion of deposits, that's translates to a 5% accretion to our bottom line.
And so we're still building the business were building the service levels, we're making investments in more support people.
We feel really good about the trajectory that we're on.
Wanted to get that right when they get that flywheel flywheel running and hit those numbers before we start going crazy, making investments in other regions and other opportunities having said that if there are particularly unique situations that we can kind of fit in and execute over the next 18 months.
Once that are important locations and they don't affect our ability to hit the numbers will be open to that.
And then the other thing as well.
Wealth management side.
<unk> had a strong base with car fell we knew ultimately that we were going to have to expand.
Capabilities that we have by bringing in more teams.
Focus has been at a geographically situated teams that can be contiguous with the private banking teams that we've set up in San Francisco, Boston, New York, and Florida, and so so far we've been.
But to bring two great teams quality everything one in San Francisco, one in Boston, that's accounting for.
A big chunk of that rise.
AUM with more to transfer in from their customer base that we have momentum. There. We also have a ton of folks interested in joining our platform. So we can have those conversations and keeps bringing those wealth teams because they don't really impact the near term financials negatively they usually come.
And then around breakeven with an opportunity to quickly turn into profitability. So Brendan you can add to that email to asphalt repeat what you said I would just say on the wealth side, we'll be very selective on the banking expansion until not only when they have confidence in hitting the financials, but also it's still built and we're very pleased with how the book to build is going.
And we're attracting clients and the market is still quite disruptive disrupted both on the client side.
As well as the talent side, we're going to be very thoughtful and make sure that we're attracting the highest quality teams are being very selective on that on the wealth side just said look.
For for really.
The first time in our history I think our right to win in private wealth is at an all time high and there's a lot of inbounds, we're getting from hide some of the highest quality advisors in the market. We're also being very selective there.
I would remind you all that we.
<unk> long been on the hunt for scale here and we've looked at a lot of acquisitions, we've obviously done one or two.
Over the years, but the economics have been a little out of reach with 10 plus year payback on tangible book value when youre buying ria's given the multiples that some of the private equity firms are paying so the economics of the talent acquisition are significantly more attractive to us obviously with de Minimis tangible book value hit and to Bruce's point, there is not really.
Large J curve in the short term. So we're very pleased with the inbounds and talent that we're getting and we expect to continue to selectively add top end market wealth talent to really round out the bankers that we hired so we're looking forward to a strong second half of the year there.
Great. Thanks Brendan.
Your next question will come from the line of Gerard Cassidy with RBC. Your line is now open go ahead.
Yeah.
Thank you good morning, Bruce Good morning, John Good morning.
John.
John you talked and gave US good detail about the office portfolio commercial real estate and I think you said that some of your assumptions.
Bottom left hand corner of slide 14.
Show that this downturn is far worse than historical downturns can you share with us two two.
Two ideas. So two answers first is when you look back I think you guys have been aggressively attacking this portfolio for just over a year now when you look back at those early workouts.
For the second quarter of 'twenty three.
How long the assumptions that youre using them.
Compared to today and then second.
As Bruce said, maybe this office problem doesn't resolve itself until sometime next year.
What are you seeing incrementally in terms of valuations of losses is it still deteriorating in office or has it just stabilize and we've just got to work through these portfolios.
Yes, I'll go ahead and start off Gerard I mean, I think that earlier, but what's your what's evolved over the last year or so has been our outlook with respect to valuations and NOI and what the rent rollovers.
Would actually entail and at what speed, we would see.
Deterioration so.
Of course, our reserve levels are higher now than they were a year ago.
Every quarter, we endeavor.
To put a ring fence around their exposures.
And give it to our.
Our best attempt at.
Forecasting what we think the.
The evolution will be in valuations and NOI.
Say that.
Yeah.
This quarter, we've done that again, and we feel like we've leaned in with this 11, 1%, which really when you look at the property valuations peak to trough that 72% has grown over the last year.
Those have been the main drivers for why after charging off we still end up with this reserve of 11, 1%, but I would say that.
There's still a lot of uncertainty left but but I think that the variability we are hopeful that the variability and this will start to decline.
As we continue to work through our maturities and have conversations with our borrowers and and extract additional collateral and worked through Paydowns, where we can.
This will be a multi quarter event and it will take into 2025.
Speaker Change: I would just add that I do think the fed is starting to move rates lower.
We will certainly be helped here so.
Part of the reason to losses ended up higher than.
What potentially we thought back in early 'twenty three.
Those cap rates going up inflation that was impacting our NOI and things like that.
And so.
No.
We've seen inflation now leveling off and.
If the fed starts to move rates down that could also start to move things in the other direction is too early to call a victory here, but there are some positive signs and I think lease up rates generally.
Our.
Actually holding or potentially getting a little better as return to office picks up but again thats not that significant in the big scheme of things.
Can we is it fair to say that the second derivative of the rate of deterioration that you guys are seeing is it slowing in office or yes, okay, yes, yes, okay.
Okay. Thank you, Okay, and then as a follow up you guys.
What about private equity.
In your slide 17.
So some great numbers, obviously youre number one in the sponsor business in Europe.
Capital markets business is benefiting from that so the question I have is and it's not on the capital call or subscription lines, but it seems over the years for banks to win in this capital markets business with sponsors you have to use your balance sheet to win this business is going to lend money to the sponsors. So can you share with us your.
<unk> two I guess, one of the line items and one of the regulatory reports as non depository financial lender.
Lenders that are you lending to them can you share with us your exposure there how you manage that risk because it seems like banking industry has been de risked, but maybe it's in the private credit side and the indirect exposure for the industry could.
<unk> gone through that channel can you give us some color there Bruce or done thank you.
Why don't I take that it's done so we bank we bank the private capital sector in several different ways, we obviously have capital call and subscription lines, which are based on <unk>.
We have financing lines to some of the private credit organizations, which are kind of structured as almost like asset backed lending, while we have diversified pools of loans underneath it and we have advanced rates.
Speaker Change: And the likes so it's actually relatively safe almost investment grade like lending even if those complex is begin to take some losses on their underlying portfolios.
So we like those two businesses a lot, we're probably not going to grow them to much more across the entirety of the company because it has a large concentration already but when you look at that those non bank financial numbers that includes insurance companies as a whole bunch of other exposures in there also and then of course, we land the riskiest stuff, we do is to the underlying lever.
Buyouts and our strategy there for ever has been very marked holds its an underwrite to distribute business.
The average outstanding is like 12 $12 million on any given deal so very diversified across a large group of leverage.
Leveraged credit to book is actually shrinking given the lack of market activity over the last kind.
Kind of year, and a half or so so we feel like we're very well diversified and I've been doing this business as you know for a very long time and when you get really hurt us when you have big concentrations in leveraged loans and we see that with some of our.
Our competition, but we're not going to go there.
Because thats the way you run those businesses. So those are the really big Pops.
Thank you.
Yeah.
Your next question will come from the line of Matt O'connor with Georgia Bank, one moment, while we opened your line Mr. O'connor.
Yes.
Your line is now open.
Thank you. Good morning can you guys talk about how you think deposits will reprice down I guess, the first kind of call it two or three fed cuts versus.
And more sustained reduction.
Yeah sure I'll take that I mean, I think what we were likely to see under the first couple of cuts.
We are modeling out approximately 20% to 30% down betas in those first couple of cuts.
The way the forwards have it playing out over the longer the longer those are those cuts are in place. The more there is the opportunity to seat rollovers of Cds et cetera, and to lean in and price down. So the fact that we have and I think the forwards get down to around 4% by the by.
By the end of 'twenty, five and May start to get into the $3 50 range in terms of our outlook when you get out into 'twenty and beyond.
Through that full tightening cycle, we think that the full round trip could be could approach the down betas could approach, we're upbeat as ware or update us around 51% I think the down data could get up to that level over.
Over the full cycle, but it'll be 20% to 30 for the first couple.
Okay, and then thoughts on deposit growth pick up a bit for Australia, you've got some specific initiative, obviously, but do you see some pickup in kind of a broader deposit trends as well with some final thoughts.
Yeah.
Yes, I mean I think broader.
Broadly we believe we're going to have deposit growth in the second half contributing from all three of our businesses. So <unk> is a seasonally down quarter, we saw that and we're expecting that plus all of our initiatives that we have in place are going to contribute to deposit growth in the second half.
We got that one cut in September and our outlook that will be helpful. I don't think that is absolutely necessary to have that card in order to continue to have deposit growth, but certainly that would be helpful to get that deposit growth to stop.
Kind of the migration aspects in the mix shifts.
But the industry has been seeing and then as you broaden that out when we have overall deposit growth in average deposits are higher that will be consistent with a very positive funding mixes wholesale funding can be it can be lower in terms of funding the balance sheet and that's a tailwind for NII and NIM into the second half as well.
Speaker Change: Yes.
Add some color there as you know the uptick in private bank deposits in the quarter was $1 6 billion and so.
Can see that we're really got a cadence and a rhythm.
Kind of growing the book and the private bank and bringing in the customer base. So we would expect to have again something that most other banks would have to drive deposit growth.
Having that unique business opportunity.
And then there is generally some seasonality thats favorable and the consumer business in the commercial business. So I think the outlook for deposit growth in the second half is pretty pretty so the ones. The one point I would add on the consumer side is that we've got a number of years in a row, where we've outperformed on a relative basis on DDA and low cost deposits and with benchmarking that we see.
So far this year, we believe we're number one in the peer set in consumer for relative DDA performance. So we see that continuing so we think the trends have stabilized off so much of our deposit strategy is grounded in the health of our DDA base, and we expect whatever the market throws us.
That will continue to outperform peers in doing that for a long time now and certainly this year has been a real strength.
Yep.
Okay. Thank you.
Okay, I think thats it for the queue. Thank you everybody for dialing in today, we certainly appreciate your interest and your support have a great day.
That concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
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