Q2 2025 US Bancorp Earnings Call
Welcome to the US Bank Corp. Second quarter 2025 earnings conference call.
Following a review of the results there will be a formal question and answer session.
If you would like to ask a question, please press star. Then 1 on your phone.
If you wished to withdraw your question, please press star then 1 again.
This call will be recorded and available for replay beginning today at approximately 10:00 a.m. Central Time. I will now turn the conference over to George Anderson director, of investor relations for US Bank Corp.
And vice chair and CFO, John Stern in a minute, gone. And John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation. I'll press release and all supplemental. Analyst schedules can be found in our website at IR. Usbank.com
Please note that any forward-looking statements made during today's call are subject to risk and uncertainty factors that can materially change. Our current forward-looking assumptions are described on page 2 of today's earnings presentation, our press release and in reports on file, with the SEC,
Speaker Change: Following our prepared remarks gun and John will take any questions that you have. I will now turn the call over to gun.
Gun: Thank you, George and good morning. Everyone. If I could, please turn your attention to slide 3.
Speaker Change: In the second quarter, we reported earnings per share of a dollar 111 on net income or for billion 8.
Speaker Change: Gold growth across our Diversified fee, income, businesses and continued expense discipline, more than offset, a lighter spread of income.
Speaker Change: we delivered strong year-over-year, EPS growth as adjusted of approximately 13%,
Speaker Change: Total fee Revenue growth of 4.6%, year-over-year reflected broad-based strength, across our businesses and ongoing focus on execution and organic growth.
Speaker Change: John will discuss how we are navigating the current higher for longer interest rate, environment and taking action to strategically position, our balance sheet for near-term margin expansion.
Notably on an adjusted basis. We delivered 250 basis points of year-over-year positive operating Leverage
the fourth consecutive quarter of Revenue, growth outpacing, expense growth,
Speaker Change: We generated an 18% return on tangible. Common, Equity a return on average assets of 1.08% and improved to a high 50s efficiency ratio.
Asset quality Trends and credit metrics remains stable. And capital levels came in well above regulatory Capital minimums.
Speaker Change: Turning to slide 4. We provide a high-level view of us bankrupt today.
Speaker Change: A few things to highlight for this quarter fee income. Now represents approximately 42% of total, net revenue.
Speaker Change: We saw good sequential growth in total purchase volumes within payment services.
Speaker Change: And a Fortune 500 ranking improved from a year ago.
Slide 5 provides an update on expense stabilization. This is 1 of our 3 major priorities.
Speaker Change: On the left you will see that we have successfully delivered now 7 consecutive quarters of stable expenses on an adjusted basis.
Speaker Change: We are driving meaningful productivity while also self-funding our investments in the franchise.
Speaker Change: For example, increases in payments and Technology expenses were offset by reductions in personnel and occupancy costs.
On the right. We have highlighted a few of the digital Investments we have made over the last 5 years.
Speaker Change: To create modern secure and scalable platforms.
We are now harvesting these Investments to drive long-term productivity and sustainable, positive operating Leverage.
Slide 6 profiles are businesses and the strategies we are deploying to drive organic growth. Our second major priority,
Speaker Change: the businesses highlighted in light blue, represent areas where we are pursuing new strategies or transformative approaches.
Speaker Change: In our Capital markets business, we are focused on introducing new product capabilities. That leverage, our existing balance sheet
Such as ABS bonds, commodity hedging and repo.
Speaker Change: The structured lending capabilities. We are building are also delivering attractive growth in our cni loans.
Speaker Change: In our payments business, which is our third key priority.
Consumers, spend remains resilient.
Specially in the non-discretionary spend where we are slightly overweight.
Speaker Change: Merchant payment services Revenue.
Speaker Change: Which is less than 7% of total firmwide revenue grew 4.4% year-over-year.
Speaker Change: And strong focus on 5 strategic verticals.
Speaker Change: The businesses highlighted in dark blue are areas where we expect continued growth through a sharper and more urgent execution, Focus.
Finally, the mortgage Auto and commercial real estate business portfolios, highlighted on the slide in Gray.
Speaker Change: Our code to our long-term growth strategies and are well, positioned to grow when macro pressures ease.
Speaker Change: On slide 7. We provide a snapshot of how our fex has evolved over the last 10 years in a positive way.
Speaker Change: While fee Revenue as a percentage of total revenue was slightly higher a decade ago at about 45%.
Our Revenue was skewed towards consumer fees.
Which have elevated exposure to Market, volatility and Regulatory pressure.
These Dynamics contributed to fee income as a percentage of total revenue falling to 38% in 2023.
We have been quite intentional in our strategy to invest in growing our trust and investment wealth, and Capital Market advisory services.
And today.
Institutional wealth, and payments businesses. Collectively represent more than 75% of fee Revenue.
Speaker Change: These are stable and profitable fees with underlying positive, macro growth drivers.
Speaker Change: With support our sustainable Revenue, growth objectives.
Speaker Change: Turning to slide 8.
We are approaching the evolution of our balance sheet in an equally deliberate manner.
Speaker Change: At quarter, end cni, and credit card, portfolios represented. 47% of the balance sheet. This is up from 43% at the end of 2023.
This quarter. These average loans grew 6.6% year-over-year.
Vastly outpacing total, loan growth.
Speaker Change: These portfolios also support a higher percentage of multi-service clients at 51%.
Speaker Change: And we are prioritizing growth in these segments.
Speaker Change: to further optimize our balance sheet, we divested approximately 6 billion dollars in mortgage and auto loans, this quarter
Speaker Change: Taking advantage of a favorable rate environment for these assets sales to strategically, reposition the balance sheet.
Speaker Change: Both for stronger growth and in support of deeper client relationships.
Speaker Change: Let me now turn the call over to John who will provide more details on the quarter and forward-looking guidance.
John: Thanks genjin.
Speaker Change: Good morning everyone. This is a good quarter for us as we made meaningful progress towards achieving our medium-term financial targets and work to position ourselves for future growth.
Speaker Change: If you turn to slide 9, I'll start with some highlights followed by a discussion of second quarter earnings trends.
Speaker Change: We reported earnings per share of a 1111 and generated 7 billion dollars of net revenue on flat expenses.
Speaker Change: Ending assets of 686 billion were impacted by seasonally elevated. Quarter-end deposit flows.
Credit quality metrics. Remain stable.
Speaker Change: A modest Reserve release of 53 million. This quarter was largely reflective of favorable loan portfolio sales. We executed a, reposition the balance sheet.
Speaker Change: As of June 30th, our cet1 Capital level was 10.7%.
Speaker Change: Slide 10 provides key performance metrics.
Speaker Change: As the slide shows, we are making steady progress on our medium-term, profitability and efficiency targets.
Link quarter. We delivered an improved return on average assets of 1.08% and saw our efficiency ratio fall to 59.2%
Speaker Change: While net interest margin declined 6 basis. Points sequentially.
Speaker Change: Approximately half of the decline was temporary in nature and will not carry into the third quarter. This decline was driven by strategic loan portfolio sales as well as high Residential, Mortgage, pay down activity in April.
Speaker Change: The remaining impact was driven by elevated deposit pricing pressures and rotation into higher rate products.
We remain focused on action and initiatives to strengthen net interest income and those efforts are fully reflected in our guidance.
Speaker Change: Slide 11 provides a balance sheet summary.
Total average deposits decreased. 0.7% link quarter to 503 billion in line with seasonal tax payment, outflows and our emphasis on relationship-based deposits.
Speaker Change: Balance sheet management supported a funding mix that prioritized both non-interest bearing and low cost consumer deposits.
Speaker Change: Average consumer deposits, balances increase 2.4 billion or 1.1% linked quarter while the percentage of non-interest bearing to Total deposits remained stable at approximately 16%.
And the deposit beta was 42%.
Speaker Change: Average loans total 379 billion dollars, a decrease of 0.1% on a link quarter basis.
Speaker Change: Balances were impacted by the sale of approximately 4 and a half billion dollars of Residential Mortgages in approximately 1 billion dollars of auto loans.
Speaker Change: Excluding these sales average loan growth was approximately 0.4%, sequentially.
Speaker Change: And 1.6% year-over-year.
Notably we strategically grew our cni and credit card average loan portfolios 7.1% and 4.4% respectively on a year-over-year basis.
At June 30th, the ending balance on our investment Securities. Portfolio was 174 billion an increase of 3 billion from the prior quarter end.
Speaker Change: Fixed asset repricing, and reinvestment of proceeds from our Residential Mortgage sale into investment, Securities, resulted in an 8 basis, point increase to the average Investment Portfolio. Yield
Speaker Change: Consistent with efforts to reposition the balance sheet. We opportunistically restructured approximately 1.25 billion dollars of investment Securities. This quarter resulting in a 57 million loss.
Speaker Change: The payback period on this transaction was less than 2 years and the enhanced, our net interest income trajectory
Turning to slide 12 net interest income on a fully taxable equivalent basis totaled. 4.08 billion linked quarter. The competitive deposit in environment more than offset, the benefits of fixed asset repricing.
Speaker Change: Slide 13 highlights Trends in non-interest income.
Speaker Change: Total non-interest income total, 2.9 billion dollars reflecting security. Losses of 57 million from the repositioning of the Securities portfolio.
excluding security losses, total fee revenue of approximately 3 billion dollars increased 4.6% year-over-year,
Growth and new business momentum across payments trust and investment management and other fee Revenue.
Speaker Change: Trying to slide 14. Non-interest expense was 4.18 billion as we prudently managed expenses and further captured operational, efficiencies across the business.
Speaker Change: Slide 15 highlights, our credit quality performance, the ratio of non-performing assets to loans. And other real estate was 0.44% at June 30th. An improvement of 1 basis, point link quarter and 5 basis points better than a year ago.
The second quarter, net charge, operatio of 0.59% and allowance for credit losses of 7.9 billion or 2.07% of the period and Loans, remained stable sequentially.
Speaker Change: Turning to slide 16.
As of June 30th, our cet1 Capital ratio was 10.7% a 2 basis. Point decline, Lynch quarter, given strong Capital levels and earnings accretion, we elected not to replenish a maturing credit risk transfer, keeping our cet1 Capital ratio flat sequentially
Results of this year's stress test which revised our preliminary stress Capital buffer to 2.6% further. Demonstrated the company's ability to withstand a severe economic downturn, which is a testament to the strength quality and diversity of our balance sheet and prudent approach approach to risk management.
Importantly, our cet1 Capital ratio including aoci improved to 8.9%.
Speaker Change: At the top of slide 17, we show a comparison of second quarter results to our earlier guidance.
Speaker Change: As expected slightly lower net, interest income was more than offset by better than expected fee, income of approximately 3 billion dollars and prudent expense management.
I'll now provide forward-looking guidance for the third quarter and full year 2025.
Speaker Change: Starting with the third quarter. 2025 guidance, we expect net interest income for the third quarter on a fully taxable equivalent basis to be in the range of 4.1 to 4.2 billion.
This compares to the second quarter total fee revenue of 2.98 billion.
Total non-interest expense is expected to be 4.2 billion dollars or lower in the third quarter.
Speaker Change: We expect to deliver positive operating, leverage of 200 basis points or more on an adjusted basis.
Speaker Change: I'll now provide full year 2025 guidance, which is consistent with our previous guidance.
Compared to full year 2024. We expect total net revenue growth on an adjusted basis at the lower end of our 3 to 5% range. Our guidance assumes 2 rate Cuts in 2025
For the full year, we expected to deliver positive, operating leverage of 200 basis points or more on an adjusted basis.
Turning to slide 18, we continue to make measurable progress toward achieving our medium-term targets. As you can see on this slide year-over-year, we have improved. Both our return on average assets and efficiency ratio, while delivering High Teens return on tangible. Common equity and mid single-digit fee growth.
genjin: Let me now hand it back to genjin for closing remarks.
Genjin: Thank you, John.
Genjin: And let me close on slide, 19.
Genjin: Second quarter results was supported by a unique. Mix of Diversified businesses. That delivered, strong, sequential and year-over-year EPS growth this quarter.
Genjin: The resiliency of a business model offset, some rate. Driven softness in spread income with good growth in fees and continued expense discipline.
Notably we executed on our key expanse, initiatives and delivered meaningful positive, operating leverage for the fourth consecutive quarter.
Genjin: We are intentionally evolving. Our business mix to be more fee, intensive and attractive to Greater diversification while also Shifting the balance sheet to support a higher percentage of multi-service clients
and improved spread Revenue.
Genjin: As we head into the back half of the year, we are, well, positioned and executing with urgency on our 3, key priorities.
Expense discipline, organic growth and transformation of our payments business.
Efforts, this quarter supported meaningful progress towards our medium-term financial targets.
Genjin: And ability to deliver sustainable EPS growth.
Genjin: I'm often reminded that the true strength of this company is driven by the day-to-day actions and choices of our talented teams.
Genjin: So on behalf of all my US Bank colleagues, I would like to thank our clients and our shareholders for their loyalty and support of our exceptional companies with that. We will now open the call for your questions.
Genjin: Thank you at this time. As a reminder, if you would like to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Scott sifers of Piper Sandler. Your line is open.
Morning everyone, thank you for taking the question. Um, John was hoping to start out on some knee Dynamics. Maybe if you could spend a moment uh, discussing where the margin goes from here off to 266 bass, I think you mentioned, you know, part of the link quarter decline was was sort of transitory based on the actions you took in the second quarter. So you know what do you see as the best launching point and I kind of what would it take uh to move it higher or lower from here. In other words the main puts and takes um I guess the final piece of it is um maybe where we stand on the um 3% medium-term margin uh aspiration.
John: Sure, uh, thank you Scott and uh good morning. Um, first of all, yeah, you're right on the net interest margin. We had uh, 3 basis point of the 6 uh, was really attributed to transitory things related to the sale that I that I mentioned uh kind of a, a grossing up a balance sheet. Um, so we we expect that to reverse. I also expect uh, sequential net interest income growth here in the third and fourth quarter, as we move forward, you know, um, we have a lot of positive momentum on the asset side driven by a lot of strategic actions that we mentioned throughout our remarks. Um, we do have fixed asset repricing. That will accelerate and be better, uh, than the first half of the year. Um, we do the Strategic actions we took, um, in terms of the loan sales as well as the investment re uh uh, portfolio repositioning is going to help uh, and and interest income trajectory for the next uh, several quarters and then loan growth, uh we feel uh, the pipelines are strong on cni and card. We've been growing, cni at a 7% year-over-year clip card at 4 to 5% year-over-year
John: The tie there in terms of um not being as much of a drag in terms of growth, and in terms of deposits, we're we're being active and remixing. Our, our deposit mix, we are intentionally. We moved out of some high-cost, uh, corporate and and single serve client. Um, and we had moved into more of our consumer deposit base with our highlighted, with our bank smartly products. So we feel very good about the trajectory of all these moves. And so that's going to help us both on the net interest, uh, income and margin side of things go forward. And I would just say in terms of our 3%, there's no change. We, you know, obviously we know the margin, dip this quarter but it's not never linear and we just we have those drivers that I just mentioned that are going to help us see through that uh that 3% over the medium term and Scott. Let me add 1 other point even uh on on deposit makes even on our institutional side you will observe very healthy growth in treasury management fees and our corporate trust fees. These are processing business that bring operational
John: Deposits that are also favorable to a mix. So that is also that Focus will also help our um, name trajectory
Speaker Change: Perfect. Okay, good, thank you for that color. And then, um, maybe it's the, the follow-up, um, John when you talked about, um, organizing uh, when you talk about expenses being, I think 4.2 billion dollars or lower in the the third quarter, uh, maybe just a second on where that Flex could come from if necessary and more kind kind of more broadly, I guess.
1 of the, the concerns I hear, uh, from investors is that cutting costs to meet the operating. Leverage targets, might just be preventing some uh, necessary Investments. Can you just sort of address that and certain you? You all don't feel that way? But maybe if you could just spend a moment addressing it, please sure. We certainly don't feel that way. Um, we, we feel, uh, all the, uh, initiatives and Investments we've made. We are harvesting that uh, for all these sorts of things. And as Jen mentioned, in our comments, we are self-funding in a number of the initiatives that we have. And so we feel very good about the levers that we have. It's it's coming from things, like the real estate that's going to be a continual driver. Um the the uh combining of of certain areas have have found a sufficiency within our operations and other sorts of uh technology uh like groups, the productivity changes we've made in platform enhancements, we've made um you know, AI is certainly a buzzword but there are um there are things that we are deploying. That is being helpful and we'll continue to be helpful going forward. There's just a lot of uh, efficient
Agencies and, and things that we are executing on, on the expense side, that's being helpful to us and we have uh continued our investment. We continue to our investment, uh, in terms of our Tech spend in terms of our investments in the business that has not changed. And we we feel really good about, uh, these things being pointed at our strategic objective objectives where we want to grow.
Speaker Change: And I'll just add Scott, you know, you've covered our company for a long time, and you've seen us operate, very effectively at a efficiency ratio much different from where we are today. It's a very, uh, streamlined simple business mix. We are quite big in the businesses. We are in. So our, um, conviction that we can operate the company and invest in the future growth at a slightly. Um lower efficiency ratio is very real
and in addition to the digital Investments, um, um, that uh, that John talked about
I do want to say that the real productivity that is coming from having spent more than 5 billion dollars in digital Investments over the last 5 years is very real.
And you will observe certain line items over time um increase like technology sales and marketing expenses investments in our payments businesses because those are our strategic areas and the real productive will be in some other categories. So we very much take the question that uh the productivity is not coming out of um under investing in future growth.
Speaker Change: Perfect. All right. Thank you very much.
You your next question comes from the line of Steven alexopoulos of TD Cowen. Your line is open.
Speaker Change: Morning.
Steven Alexopoulos: I wanted to start. So got you for you a a bigger picture question if you will.
So if we look at the guidance, you provided to the market. Hold expenses, flat-ish deliver positive operating, leverage, 200 basis points are better. That's been the guide, you know. You look at this quarter. You basically did that right 250 Pips P, maintain the Outlook despite that the stock will see where it goes. It's down 4% right now, pre-market, when you think of the financial targets, right? The desire to create shareholder value,
Do you need to do more on the revenue side, right to start moving the P needle.
Steven Alexopoulos: It's a very, um,
Speaker Change: It's very thoughtful question. Thank you.
Um,
Speaker Change: 200 basis points of positive operating Leverage is very healthy in the long term. The opportunity is in Revenue growth.
Speaker Change: If you look at our portfolio and we really tried to disaggregate some of our business lines. So you can see the underlying strength of how we have evolved the portfolio. The opportunities are for growth are very, very real.
Speaker Change: And that's where you will see us, sort of flex, the EPS growth, the expense side was an important, um, area of focus for us, just to just to get the positive operating, leverage in place, and I look back and reflect also, on by the uh, you know, why? The stock reaction
Speaker Change: and it's
Less about the targets, not being appropriate. But whether there is enough, um, sustainability and consistency of delivery against it, which is why we report out, sort of how we are progressing. Towards our medium-term Target. We are very confident that as the confidence grows in our ability to March towards our medium-term Targets. In a consistent fashion, the stock would react to that.
Okay.
Speaker Change: That's fair. Um,
Speaker Change: Maybe for John, even though uh blown growth was negatively impacted by the mortgage sales. You guys did have very solid, underlying cni growth.
And and I guess this goes to Scotty's question.
A minute ago. But if we look at your funding right, assuming cni loan growth, continues to be strong, which is what we saw out of PNC yesterday. MNT same thing.
Speaker Change: Talk about what is going to change for what happened this quarter where you you saw a migration, the higher cost deposit products how how can you fund that with lower cost, deposits and drive, Nim expansion.
Speaker Change: Say the back half of this year. Thank
Speaker Change: great. Uh, yes, good, good question. Uh, Steve and I think the, uh, your observation is correct and we do, uh, expect as I've mentioned, uh, the previous question, uh, growth in cni and card, and things like that that are going to position um us for higher growth on the asset side, coupled with all the other things that I said. So there's certainly the asset side. We feel good about on the deposit side. Yes. We saw an increase of of cost, uh, in in in that. But I think what we're, um, where we're leaning in is on the consumer side, um, which is, is appropriate because what we're doing is we're looking at, uh, things like our bank smartly product, which is a fantastic product for us, you know, it's a, uh, a product where clients set up, uh, both a card and a checking, and or savings account.
And we have seen through this a uh, over 50% of the the the people that use this product is new to bank. We see that the uh, multi-service client statistics on this cyber product are 3x. What we would normally have on on the retail side and our acquisition cost is a lot lower. Um, nearly a third of the cost we can take out in terms of acquisition with this product value, proposition that we give uh, to the clients and so over time, uh, what we're, what we are, uh, seeing is an improvement in a deposit portfolio and improved flexibility of our ability to price as we move forward. And that's really going to be the drivers of how we will manage over the long term, our funding costs.
Got it and John, I'm newer to your story. Why didn't that help this quarter?
Steven Alexopoulos: Does does smartly product? Like why is it going to help next quarter? But it didn't help this quarter.
Steven Alexopoulos: It, there was there, the, uh, deposits aside was all, it was in the commercial and Retail side. So I'm not going to say it's just all retail. This is, this is a, this is a forward, uh, deposit portfolio position. It's really about our flexibility and to move pricing, as we think about, uh, the different, uh, deposit levers, that we have, whether it's CD or, or the savings rate as the FED, moves rates, and things like that, we have more ability than we would have otherwise in our retail book. Uh, as a result of this, and then on the commercial side, we have a high beta already a high.
Beta, uh, type of product. So when the FED does move, we can cut those rates or move those rates appropriately,
Speaker Change: Your next question comes from the line of uh, Betsy grasic of Morgan Stanley. Your line is open,
Betsy Grasic: Hi, good morning.
Steven Alexopoulos: A couple of follow-ups.
Steven Alexopoulos: Um, QQ that would be helpful.
Speaker Change: Yeah, you know, uh, Betsy it was, um, the growth really in scene. I was everywhere. It was, it was very good to see, um, you know, I could give you the laundry list, but the highlights would be, uh, you know, the utilization rate did tick up a little bit is about, uh, 30 40 basis points. And it's a continuation of what the trends that we saw last quarter, um, we saw, uh, strength in our, our ABS lending portfolios. We saw strength in small business led by Healthcare and things of that variety. We SBA as well. Um, you know, our expansion markets Middle Market that we. We've been growing in uh, in various areas have been and providing us nice growth year on year. And so there's just been a lot of, uh, good growth and we have a lot of momentum and and the pipelines are are strong and Betsy. Let me add just 1. Other thing to the, to your question for the last few years, we've been very intentional with. Also introducing new product capabilities, more structured, credit capabilities, just reflecting a more sophisticated client base and their needs. So you're seeing uh, um, the impact in these
Speaker Change: Recent quarters of um, the groundwork that was laid over the last few years.
And similarly, the credit cards. Yeah.
Speaker Change: Go ahead.
Go ahead.
So that's advancing the private credit side of the business is that partly what's going on with the structured credit?
Speaker Change: That's helping to helping as well.
Speaker Change: But it's broader than that.
Speaker Change: Okay, and then just a ticky tacky question, but were there any gains or losses on the asset sales? You did?
Speaker Change: No, there's nothing. Uh, nothing meaningful. Other than the reserve release that. You saw uh this quarter.
Speaker Change: Okay, thank you.
Speaker Change: You're next question comes from the line of Michael Mayo of Wells, Fargo. Your line is open
Speaker Change: For you, John. Just um,
Speaker Change: Uh, still on the Nim. Did you say there was deposit competition? That was 1 of the drags on the Nim and also
Speaker Change: I think I see rwa up 9 billion dollars in a quarter when loans were flat and didn't quite understand why that happened thanks.
Speaker Change: Sure, um I'll let me go to your second question. First on the rwa? Yes, 9 billion is up. I commented, um, and just to reiterate, we had a couple things happen 1. Um, we elected to have some of the uh, credit risk transfers that we've done in the past to roll off. That was about half and the other half was uh, commercial loan growth that we saw at the end of the quarter. Um, uh, we saw
Strengthening, which is why we're commenting on, cni growth and saying that the pipelines are strong. There's a lot of activity. Uh, we felt like confidence improved uh, throughout the quarter. Uh, so that's those are the underlying drivers for the rwa. Uh, component on the uh, net interest margin side, uh, of the equation. Um, I would say the deposit Market, um, is competitive it, it it has been for some time. Um, I don't think anything is unique about this quarter versus others. Obviously, there was the market turmoil that started at the beginning of the quarter but very quickly. Uh, people bounced, the clients have been very much resilient and and we feel like the pricing is is appropriate and rational
All right, now, just because we're here from some others that, you know, yield seeking Behavior has really died down quite a bit but point the lens out just on asset liability management. Generally um I guess you're not running the firm just for the the name, or knee, or running it for revenues and value creation over time. I, I get it. But is there anything that you need to change holistically with asset liability management or that you've done over the past year that may show some results? I get, I'm just looking back, you know, a couple years and you guys were caught with the, uh, underlying Securities losses. And now, it's an issue. And now here it's Nims falling short and its deposits and it just seemed a little bit. Um, you know, not in sync with the industry. It may be as you said, it's going to pick up the next couple quarters and this thing will be in the in the past but just
Just any general thoughts about the process of Alm at USC.
Speaker Change: Ities.
Speaker Change: I just also add Mike that, um, you know, we are strategically evolving both both sides of the balance sheet to support a higher.
Speaker Change: Nii trajectory. Um, so we have a very big mortgage book, um, uh, it grew a lot during the postcovid era, um, and that that's why the focus on credit cards and Commercial cni loans, which have a better yield characteristic on the, um, deposit side we are. Um, in addition to the consumer deposit, Focus, you'll see, we are defending those, um, um, and defending market share there. We also really growing out the treasury management and the corporate trust franchise. So that the institutional deposit profile is very good. So there's a lot of strategic efforts to create a faster knee trajectory,
Speaker Change: And just, lastly, the 3% Nim, is that something that could be seen in a year or 2 years, 5 years of any sense.
Speaker Change: Well, for all the, the drivers that we, uh, talked about, you know, we we continue to expect that to be in, in the, in the medium term, I would say that we have, um, about 4 Cuts over the cycle remaining, uh, within that assumption. Um, more cuts are, are more helpful, uh, fewer Cuts, make it a little bit more of a, a slower pace. So those are kind of the puts and takes to how we, how we think about it. Otherwise, the
Speaker Change: Initiatives that were that we were talking about here are positioning ourselves for that and interest income trajectory going forward.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from line of John penari of evercore, isi, your line is open.
Speaker Change: Morning.
Speaker Change: Morning.
Speaker Change: just,
Speaker Change: On the back.
Trends, I appreciate the loan growth color. You gave and some of the deposit Dynamics and terms of the growth Outlook from here. Is it know, previously, you had pretty much described it as modest growth on both fronts. I believe on loan growth and deposits. Can you maybe just update us how you're thinking about it now? Particularly since you're seeing some acceleration in the underlying Trends within commercial and your uh seeing some growth in card, how are you thinking about that now? Thanks.
Speaker Change: Yeah, thanks John. I think um certainly when we started the year we as we were thinking about the budgeting we looked out and and assumed a modest pace of loan growth that more or less is transpired. Um but um, what we are saying and seeing is that there's been acceleration of of and and focus strategic, focus on cni and card for us, which you are seeing play out. Uh, in terms of our, you know, 7%, cni year-over-year growth. And we continue to see that and expect that to to continue uh, the card, um, growth, we continue to expect to see that as well. So um so we're we're as I say
Here. Today, we're we're better positioned on the long growth side, or we see better growth object, uh, opportunities than we did at the beginning of the year.
Speaker Change: Okay, all right. Thanks and then
Speaker Change: In terms of your your revision to the 3 to 5% Revenue guide, I know you you started the lower end now. Um, you know how much of that we decision to revise? That was coming from the knee headwinds and and I guess also put the other way. What do you seeing in terms of your growth expectation? As you look at the trends in in payments and fees. Are you comfortable still at the mid single digit uh growth level for overall fees and within the payments um businesses as well.
Speaker Change: Sure, absolutely, yeah, let me start. Um, so total revenue obviously is the 2 parts and I'll start on the fee side. We feel very good about the momentum that we're building, uh, gin highlighted a number of those items on her her comments, um, on the institutional business Society, trusts, and and, and and fund Services. We continue to gain market share market activity, so that's going well. Treasury management, gin highlighted with our newer capabilities, uh, merchant processing. We feel very good, they've had a couple quarters now of increased year-over-year. Growth. We continue to or we expect to see that to continue to improve. Um, given the the strategies that we're putting in place there um our um our tax credit activities within the other Revenue have been growing, very nicely for us this year.
Speaker Change: That it can grow because of the things that we talked about. It's embedded in our guide for the third quarter. And, you know, I'm not going to repeat all those things again, but that that that's the essence of it and why we feel like we'll be at the lower end of the range.
Speaker Change: Right. And then thanks for that. John the butt back to the the fees and payments. So we're still comfortable with the mid single digit range.
Yes.
Yes, absolutely.
Speaker Change: Okay, all right. Thank you.
Erika Najarian: Your next question comes from the line of Erika najarian of UBS. Your line is open.
Erika Najarian: Yes. Hi, good morning. Um, my first question is for John John, I'm wondering if you could share um, you know, your LCR ratio. I I guess, you know, to continue on the the theme that a lot of analysts have brought up. We're all scratching our heads because so far, none of your larger or similar size or smaller, peers have really talked about this, um, outside commercial pricing pressure and, you know, given sort of, um, overall flattish loan growth in the quarter. And then, you know, the sale of some of those loans, I guess I'm wondering. You know why? Um, was there any sort of liquidity, optimization reason behind paying up for those deposits?
Uh, no, there's no liquidity. Um, concerns we have very healthy LCR ratios. Uh, we feel very strong about our our portfolio. It's it's it's all, these are all actions. We're taking to help our our business objectives, as well as, uh, our strategic objectives that we've talked about, as well as our positioning for net interest income go forward. So it has everything to do with that and nothing to do with liquidity side of things.
Got it. And and my, my next question is for gunjon. And, you know, I think Scott asked this on the, in the beginning of the call, but I just wanted to maybe re ask it a different way, you know, you know, clearly, um, you know, you're embarking upon, you know, an inflection point for the company. Um, and the stock hasn't yet reacted, you know, I think a lot of the discussion with longer term investors has been, you know, um,
Speaker Change: Really, you know, honing in on the focus going forward. So what I mean by that, is it struck me that you said, you mentioned in your prepared, remarks expense management is number 1 and organic growth is number 2, um, and you also printed the word Harvest, which is not necessarily a word that we've heard from someone, you know, like, you know, a JP Morgan I guess like the question here is, did we just really underappreciated modernization that you that you
Speaker Change: USB was going through over the past 5 years and that there's a lot of sort of excess expenses to recycle. Um, because it just feels like, um, focusing on expenses to drive positive operating. Leverage may be good for the near-term, but as I think about your longer term shareholders and what they own, they typically owned some of like the revenue outperforms, like a JP, or a Morgan Stanley and such.
Speaker Change: Good morning, and thank you. Very, uh,
Speaker Change: Uh very thoughtful question and I appreciate the opportunity to just react to the the the totality of the thesis here on us.
Um, and just, um, I know, you know, our company very well, but I'll just go back a few years to describe the reason for the priorities. Um, we did a very attractive acquisition 2 years back. We were very efficient to integrate it, but we went into the banking crisis with the depleted Capital base.
Speaker Change: And our Focus that at that point was to very quickly rebuild our Capital, which we did.
Speaker Change: It caused, um, some trade-offs, in terms of expenses because we had just integrated, a big bank and, um, just just, uh, not enough attention to the to the revenue growth story.
Speaker Change: My focus on the expenses is entirely short term because it's the fuel that helps create positive operating leverage and also helps us invest in our uh, growth businesses. I would say that our portfolio of businesses is actually very attractive. There's an extraordinary amount of organic growth opportunity in our 10 core businesses and they're very balanced across multiple business Cycles. So we definitely expect to be a growth story. But you you really do have to build credibility, and positive operating, leverage, and bring bring the efficiency ratio down because that's the model we want to scale over time.
Speaker Change: Did you under invest the productivity benefits of the technology? Yes these are very real and
Speaker Change: Uh, on top of that, we are seeing the power of the AI um uh tools that we are deploying. So we expect productivity to be a meaningful contributor to bottom line growth.
You know, I'm seeing, you know, I'm hearing your questions and the concerns around it, but if you just step back, we had 13% growth in EPS, we had very healthy positive. Operating leverage, we are down to 59.2% for our efficiency ratio.
Speaker Change: We had very strong fee growth that are strengthening over time in all the right ways and the portfolio mix. Both the fees. The balance sheet is all strengthening and improving. So outside of the day-to-day noise of this particular quarter, if you just look at the trajectory of the franchise, we are in a very very good position.
Speaker Change: Thank you, genjin. And I think investors um will be warm to what you said about focuses on expenses is entirely short term and that you're looking forward to growth. I thanks for taking my questions.
Erica: Thank you, Erica.
Speaker Change: Your next question comes from the line of Gerard Cassidy of RBC. Your line is open,
Gerard Cassidy: Hey gone. Hi John.
Erica: Morning.
Speaker Change: John, I, I may have missed it and I apologize on the Strategic sale of the portfolio, um, that you identified can you share with us, uh, why that action was taken. And, but second, um, could there be further or additional sales later in the year of parts of the portfolio?
Sure. Um, I'll start on the on the mortgage uh side that was about 4.6 billion dollars in total. Um, so consistent with our comments around, uh, growing the balance sheet. We obviously have a slide, uh, in, in Our Deck talking about, uh, why we want to position, you know, our acid, mix to multi-service clients. Uh, the mortgage is where, uh, Legacy Union transactions with a single Service, uh, type client and so, and they were a certain vintage. It was a certain, um, yield type and thing. And, uh, type that we found an opportunity with the rate Market Etc. This quarter to, um, to effectively, get out at Park. We, uh, have reinvested those proceeds within, uh, the Investment Portfolio and gained a spread of probably 1 and a quarter or so. Um, and we got, um, a little less than half the quarter of the benefit this quarter and we'll pick up the rest, uh, a full quarter, obviously in the in the third quarter, but it's really about
Speaker Change: um, the the the mindset here is really about um uh Shifting the balance sheet being intentional about our asset mix and and moving our balance sheet to support more multi-service clients, which is going to drive fee revenues, net interest income trajectory and all those things that we've been talking about
Speaker Change: Very good, thank you for the color and then gingin. Um, maybe you can share with us um what your view and and the banks view about the stable coins that appears that it's very likely stable coins with the potential passage of the coin act down in Washington will be real soon. And how how do you think that might impact your payments businesses as well as your deposits?
Speaker Change: Thank you. We are expecting that the bills will pass and stable coin operators will be operating in the industry. In some ways, it's 1, more payment Rail, and um, so the first, uh, level of focus is just interoperability. So when it starts to be operational, we should be able to um, accept um, and, and process stable coins, as well as, um, inter interoperate within the banking system. So, that's sort of what our focus is. Um, we are quite ready to Pilot our own stable coin. Um, there's a lot of partnership capabilities in the industry that allows you to, uh, to stand that up. Um, so we accept that this will be, uh,
Speaker Change: Will be here.
Speaker Change: The use cases that we hear most about why this was needed or why there was important are cross border in nature today.
Speaker Change: And as you know, there are institutional in nature and we do not really have a big institutional cross border payments business. Our payments businesses are a large card issuing business
Speaker Change: and there are large Merchant, which is very focused on the small business and largely focused on the, on the us. So we do not expect it to be sort of material to our
Speaker Change: Day-to-day P2P type of a product or a pervasive institutional um payments product, then it would compete with treasury Management Services.
Speaker Change: Gerard, I'll tell you. There are a lot of things to be yet, sorted out both from a technology standpoint and the market structure. So I would just say at this point we are quite ready to participate in it quite ready to um engage in the industry discussions around stable coin but not anticipating.
Speaker Change: uh, immediate
Speaker Change: uh, Revenue impact.
Um,
Speaker Change: to any of our businesses.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Ken, Dustin of our autonomous research. Your line is open
Speaker Change: Uh, thanks. Good morning. Um, morning. I just John. I just wanted to ask you real quick on um the third quarter and II Outlook and a little bit on the wholesale deposit cost. So I think you had mentioned it in the conference circuit that, you know, there was just a, a kind of, a, a hold back on, on giving customers some deposits. So, I'm just wondering, uh, on that first point. I, you know, you know, you mentioned that you can start to bring down wholesale deposits, when rates come down. But is there anything different about how you see that going in terms of a beta perspective, you guys used to be 1 of the faster, you know, up and down beta companies. It's a little slower. You know, this cycle so far.
Speaker Change: Far just 1. So what's changed or what's the Nuance in the current environment about that? Thanks.
Speaker Change: Sure. Um, so a comment at the conference was really about um, at that moment in time there were there were some, uh, conversations regarding that. I would say that largely abated, and I would say that as the quarter moved on, the quarter became all about, you know, just a general deposit environment that is competitive, uh, which is constantly competitive. So, we're, we're always competing. We were very intentional, uh, this quarter, as I mentioned in, in terms of growing our consumer deposit base and we have been focused on that for some time. It just shows up more. Now this quarter than it than it perhaps has because we also, um, uh, let go some of a higher cost deposits on the, on the institutional side, you know, nothing really fundamentally changes on on the beta, uh, side of the equation, we, um, at the beginning of the cycle had talked about, you know, getting around 50% or getting to 50, plus, in terms of the beta, um, that assumed, uh, of course, some uh, sustained rate cut cycle, obviously this cut cycle has been a little bit different.
Speaker Change: Um, but we assume that, you know, if if the rate cut cycle, persists and continues moving forward, we we get back to that level and it's, it's the it's the same drivers as as we've talked about in terms of our mix of institutional versus retail. Um, and so we we we still feel good about that assumption.
Speaker Change: Okay. And just you know given the moving parts that came through in the second quarter and the lower starting point, can you just help us understand 4142 like is there a bias on 1 side of the order that range and what would be the you know what would be the you know get you to the bottom or get you to the top? Thank you.
Speaker Change: Sure. So, um, you know, uh, in terms of the, the puts and takes obviously, uh, you know, the competitive nature of of where, uh, rates, uh, go on the deposit side. That that's going to be obviously 1 piece. Um, I wouldn't say in the third quarter of Fed rate cut or not is going to meaningfully, uh, Drive anything. Um, uh, different. Um, I think, uh, the long go growth, uh, uh, acceleration and cni and card is real. And that can definitely help and be more on the, on the plus side. The Strategic actions. We take have taken this quarter, um, certainly have helped as as well. And so, these are all things that are adding up, uh, for us to be, uh, uh, within that range for sure. And and in terms of bias, there's no bias 1 way or the other, we just have to see how things play out. But we, we set ourselves up very nicely for the quarter.
Speaker Change: Okay, thanks a lot John.
Speaker Change: Your next question comes from line of Sal Martinez of HSBC. Your line is open.
Sal Martinez: Hi, thanks for taking my question. Um,
Access liquidity. Um but it didn't seem to happen. Can you use John walk us through what happened?
Here and is that sort of a, you know, just a a 1-time, um, increase that should go away. But just, um, you know what, what's going on on the liability side Beyond deposits. That seems to be, um,
Sal Martinez: A dragger.
Sal Martinez: Sure, so, um, let me take the other side of the liability, uh, uh, part of your question so and I'll, I'll break it out. So, on the short term borrowings, we did have an increase this link quarter, and a lot of that has to do with the increase uh, to fund the um um uh, the security purchases. This is the growth up on the loan sale, so when we we, we put the loans in hell for sale. Uh, we also did our security purchases and we knew the loan sale would occur within a month or so or a month and a half. And so we just use short-term borrowings uh, temporarily to help support that. And so that goes away. That's part of the the Nim uh, story that I talked about earlier that that short-term borrowing cost goes away. Uh next quarter, uh long-term debt, we have uh steadily um uh improved our profile, in terms of our our debt coverage and things of that nature. We want to make sure we're in balance in terms of relationship between loans um deposit and long-term debt. We feel like we've
Sal Martinez: Grown into that. Uh, mix appropriately. Um, and so I don't I don't see us growing that um uh, from here on out at from this particular level, uh, any issuance we do will just be here to replace other um, other maturities and things like that. So, um, so the combination of those things are really kind of the get to the heart of your question.
Sal Martinez: so the short-term borrowing should revert next quarter and you have
You know should go away in terms of just just thinking about the the the dollar knee impact of that happening next quarter? Yeah, the the the short-term borrowings are going to be at at, on the margin on the higher end of the rate. So if you think about the 4:30 4:40 type of range, you know, maybe even more than that potentially. Um, it's going to be on the higher end. And so as we uh, had the loan, proceed, loan sale happened, we could also terminate the short-term borrowings associated with that, thus improving the margin
Sal Martinez: Okay. And so, I mean, I just, you know, outside of the details. It's worth just pointing out the why behind all of this? Um, it takes, um, a big chunk of, uh, loans that, um, um, that that we can redeploy to a much faster, nii trajectory, although it created noise in this quarter because of the double, you know, the double counting. So I do I do want to just emphasize that point that, um,
Sal Martinez: These were actions. We took um, in various parts of our balance sheet to just really evolved into a more attractive. Um, mix.
Speaker Change: Yeah, that's helpful. Then maybe just a quick 1 on on payments and and what the expectations are there. I mean, you know, the on the issuing side, I, I guess we're leapfrogging or laughing, sorry, the um, prepaid headwinds and should see some acceleration there in the second half, and, and just any color on.
Sal Martinez: How you're thinking about corporate payments, you mentioned just economic headwinds there. Um, but are are you optimistic that, you know, we'll see some improvement, um, on the corporate payment side. And so as we head out, as we go into the second half,
Sal Martinez: Sure. Yeah. On the on the corporate payment side, I think uh the themes that we saw on the spend levels within corporate tiny and and government spend um, um impacted this quarter. I would anticipate that, that that impact kind of continues into the into the third. But then after that, I think that abates. And and we have a, what we'll take over is our initiatives that we have, we have a strong pipeline, you can kind of see that pipeline, uh, well in advance of bookings, and so we feel uh, that will be very helpful and positive going forward. But maybe a little bit of short term here in the third quarter. On the issuing side of the equation. Um, it's going to be uh a continual continuation of kind of what you saw this quarter. Obviously we relapsed uh, many of the pre prepaid headwinds that we saw. And so, the growth rate that you see there is reflective of of just kind of where the market
Sal Martinez: Market is. And, and that's probably a good marker for where we are in the in the second half.
Speaker Change: and I can just add a little bit, um, stepping
Speaker Change: Both are.
Speaker Change: Got it. Thank you.
Your next question comes from line of Ibrahim.
Speaker Change: Is open.
Speaker Change: Hey, good morning.
Speaker Change: This is a couple of follow-up questions and apologies if I missed it all.
The pace of BuyBacks.
Adjusted. Ct1 hitting 8.9 I'm assuming cross is 9% next quarter. Does that mean anything? In terms of should we see by the 100 million, go to 15200? Starting 3Q means the streets. Pricing that or forecasting that row would love. Kind of how you're thinking about adjusted. Ct1 relative to the outlook for BuyBacks from here.
Speaker Change: Sure Ibraham good morning, you know. Um, you know, in terms of the buyback, um, you know, we had a 100 million which is consistent with the prior uh, quarter. Um, you know, we have been, uh, continuing to do a good job in terms of balancing growth in our Capital levels. As you pointed out, getting to 8.9 on XI is is is good.
Speaker Change: Thing, and we continue to glide into our new capital ratio, uh, but we're also focused on distribution, you know? Um, I certainly we anticipate growing that, uh, over time. Um, the question we have is for this particular third quarter as we are are more, um, upbeat about loan growth and things of that variety. And so we'd rather deploy it there than than, you know, uh, 50 million or 100 million on the share buyback. I'd rather deploy it. On the loan side of the equation at least here in the, in the short run. But over time, we are very much committed to, uh, getting back to that approximately 75% payout. And that's, that's really what we we are focused on is is is achieving that that goal um quarter to quarter will lay that out for you. But that's that's our intent.
Speaker Change: Got it and just 2, quick ones 1. When we talk about fees, I think if you go back a year or 2, there was a lot of excitement around commercial products Revenue. We saw sort of
Speaker Change: Pretty decent momentum. That's flatlined over the last 4 to 5. Quarters anything going on there? Like is there still a significant opportunity there or have? We kind of uh, captured most of it?
Speaker Change: Uh, sure. I I don't know if I acknowledge the uh, flat for several quarters. It was double digit growth last year and, and the last 2 quarters. Yes. It's been a little bit more subdued. Um, you know, I think the, uh, the activity we saw this quarter, um, uh, really was very strong in in some of our abs and new product capabilities Commodities, uh, derivative activity, uh, with the market movements. We saw a lot of great growth,
Speaker Change: There it was offset though by a little bit lower, um, investment grade underwriting, high yield underwriting, things of that variety. And so I I I view that as as temporary, uh, we still have all the all the conversations we've had on our Capital Market side is still very much in play. And we feel very, very confident about that. Going forward and Ibrahim, Allah be a very confident about the Capital Market story. The, and just as a reminder, our franchise is not include core Equity, trading or Investment Banking. It's a very defined group and the nature of the opportunities are very large balance sheet. That's being deployed with corporate clients that have very deep loyalty to us and this product said just helps us get our fair share of free revenue from the balance sheet that is already being deployed.
Speaker Change: So, the product build out is really a talent play. You have to get the right expertise in place and we did see some mut, um, muted growth. Just for the last 2 quarters and with the sentiment. We are hearing is just a little bit of a caution around the Tariff discussions, the rate movements to say, but if you look at the long-term trajectory and certainly, um, outside of the last 2 quarters the growth rate for some time has been very, very, uh, uh strong there.
In in this last 1, if I can ask both of you like your narrative around fees payments expenses sounds very very strong.
Speaker Change: I I think the fleet lacks confidence in the knee Outlook, right? We came in April, the account benefit felt like and I was going higher.
Speaker Change: Just talk to us your degree of confidence that as we kind of what you've laid out in terms of knee should grow from here. Like what could go wrong to not make that happen, especially as we think about the opportunity of getting the name to 3% over the next maybe 12 to 18 months. Thanks.
So Ibrahim we are, you know, we are a very few intensive franchise. We are at 42% of our total revenue which is really very intentionally up. That's what sustains our earnings stability over multiple business cycles and that's what sustains a very exceptional returns, you know, and 18 returns. So we are very committed to the fees side of the business, the knee side we have confidence, but we are also, uh, doing it in a very multi-serve client strategic way. So when we keep reiterating the points around how we are building out the treasury management capabilities, so operational, deposit capabilities on the, uh, on the institutional side and even on the consumer side,
Speaker Change: Really improving the mix there and client acquisition on the consumer side. Takes many forms. You know, it's expensive to build out branches. It's expensive to run marketing campaigns. It's expensive to retain deposits, through pricing and deposit based rewards. So we do have confidence that the entire franchise Works to deliver consistent EPS growth.
Speaker Change: Uh, over time, which is what you've seen over the last 2 quarters. Um, so that's the
Speaker Change: sort of the overall confidence in our Revenue growth story, um, and our EPS growth story while maintaining very strong return profiles. What would you add? John, you know, um, in terms of the net interest income as you as you mentioned, I I I I feel very confident about um, our ability to grow. Um, this quarter just given all the things that we talked about. Um and I won't repeat what gone just said, but but clearly, you know, we've taken actions that are going to position us much better. So if there are bumps in the road for whatever reason we we whether that and uh we we feel uh that way very confident.
Speaker Change: Well, that's good. That you feel confident because I I agree with gjan. Lots of good things going on, but you had 20 questions on knee and yields and all of that. So
Uh, hope we acknowledge that, right? We acknowledge that because, you know, we did 3, different transactions to position, the balance sheet takes a little unpacking. Or why did we? I I I I appreciate it. Erica asking the question on the liquidity because if there was any question mark that this was because of a liquidity, it wasn't but you I hope as we have had this conversation and as you understand what we are trying to do with the balance sheet, it's setting us up for a very attractive portfolio, both on the knee side and the fee side. So I appreciate the dialogue there and I appreciate that and I think there's a lot of skepticism and I'm hoping you give less, uh,
Speaker Change: Uh things to Skeptics to pick on and more to the non-s Skeptics. So hopefully uh We've made a shift there. Thank you so much, both of you. Okay, good advice. Good advice. Thank you.
This question comes from line of Bill karrasch of wolf research, your line is open.
Bill Karrasch: Thanks, good morning. Um, 1 final follow-up on the magnitude of the fixed rate asset repricing benefit that should persist from here. Can you discuss, where you still see the greatest repricing potential across the left side of the balance sheet and anything that you would say to, you know, give investors confidence. Um, you've addressed this in in different, um, questions. But but the idea that those repricing Tailwinds are going to show through and not be tempered by other actions that we saw this quarter or anything that you could say there. Thanks.
Bill Karrasch: Sure. Um, so what I would just say is that in the second half, we'll have more volume. So we we've given you ranges in terms of Investment Portfolio and and Loans. Um, uh, we were um probably on the low to mid side of that range. Uh, the first half of the year, we anticipate to be on the mid to high end of that range in the second half of the year, the spreads are holding in nicely. And so I feel like that we have uh, multiple good momentum on that. Um, as well as we're we're getting more juice from the uh, Investment Portfolio. Um, repositioning that we did of the billion and a quarter, uh, uh, sale there, as well as the 4.6 billion mortgage sale. So those are, uh, 2 key driver.
Bill Karrasch: drivers that are going to help uh, the overall, uh, positioning
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of uh, Chris McGrady of KBW. Your line is open.
Chris McGrady: Oh great. Good morning everybody.
Speaker Change: Um,
Just wanted to look at slide 16 for a moment on the on the capitol, a lot of questions and a lot of discussion about the operating leverage that's in front of the company. I guess. My question is, is there a scenario with the improved regulatory environment that you would consider another bank acquisition to help accelerate what you're trying to do on the knee front?
Speaker Change: the the the capital is building very nicely and as you know, we are um,
Speaker Change: Um we are flirting with the Cat 2 designation and 1 of our reasons for building out. The capital is to be ready for a cat to designation our Focus. Very much is on organic growth and our planning for the Cat 2 transition and the capital build is based on organic growth profiles. So I would say uh uh to your question, the capital is built to support organic growth as we as we transition to a cat 2 category, designation
Speaker Change: Okay, great. Thank you for that clarification. And then, um, maybe a reminder when the organic cross, um, any changes to where you're thinking about Crossing into Cat 2,
No, no, no changes there. We've talked about no earlier than 20, uh, 27. Um, and I, I think you can see where our asset trajectory is. And that's very consistent with what we've talked about in the past, so no change there.
Speaker Change: Great, thank you very much.
Speaker Change: Your next question comes from the line of Matt. Connor of Deutsche Bank. Your line is open.
Matt Connor: Uh, good morning, um any um, Outlook comments on credit the charge also been amazingly stable. You had a little clean up and, and CRA with the cni, I'll be having very well, but any thoughts on just the overall level of charge off, uh, and reserves going forward. Thank you.
Matt Connor: Sure. Thanks. Thanks Matt. And appreciate the credit question. Uh, the um, you know, on the Outlook there. Um, the the the environment is very stable, uh, to improving from a credit standpoint. We, uh, saw obviously a stable, uh, net charge off ratio of this quarter, but every all the other metrics are declining or in good shape, uh, even where we had things like a 90-day, uh, uh, up a little bit. That's all. Um, there's some administrative loans in there as well that have already cleared as well as, uh, some of the California fire impacts. So, all the metrics are pointing positively on the, um, things like card and net charge offs. Just in general, we expect, uh, on the card side of things to be this year, in 2025, a better charge off rate than 2024, we expect the net charge, operational to remain here or improve. Um meaning going down um in the coming quarter. So we feel very good about our credit profile right now.
Okay, just that last comment, um, the charge off. So the card charge offs lower this year versus last year and then, did you mean overall charge off, uh, overall the next couple overall and coming down, you know, there's some seasonality to charge up next quarter to go down. We expect that to happen, but just overall the when you look at 2025 net charge off, that's going to be lower than 2024 per card.
Matt Connor: Yeah. Okay. All right. Thank you.
Speaker Change: Your next question comes from line of Vic. Juna of JP Morgan, your line is open.
Vic Juna: I'm sorry to beat a dead horse. Just a little bit of clarity. I hear everything you're doing on knee.
Speaker Change: And remixing the balance sheet, uh, with the sale of the resi mortgages.
Speaker Change: Um, most of that, obviously, when I look at the segment data, which shows up in in the corporate segment, but when I look at your corporate segment and I hear you doing the multi-client and and, and operational deposits and all that, I look at the net interest spread and that continues to come down every quarter.
Speaker Change: And was down more sharply. So why given everything you've just said, why does that need to come down? Um, and by the way, it was, was down link quarter on the consumer side too, but more trying to understand first on the corporate side what's going on,
Sure. So, um, a couple, a couple things there and I I think you're talking about the vet, just to make sure the segment reports that we we provide and, and, and, uh, on the consumer side or consumer side, as well as the commercial, just to make sure I'm tracking, but the, um, yeah. So, a couple things are are going on in there. So, the more the mortgage sale will be, will be shown in, in the, uh, commercial on the, um, consumer side of the equation that will, that will take place in terms of the spread, uh, net interest, spread side of things, I think.
Speaker Change: Think what's going on there? More than anything is is on FTP. They're just, you know, there's less credit for those, uh, sorts of deposits, um, um, and that's just kind of given the pools and all that sort of thing. So, um, so I wouldn't, I, I think, looking at the broader, uh, picture of knee is really the way to go, uh, for that.
Speaker Change: Couple of other little questions.
Uh, the cni growth, uh, that you are talking about, what are you seeing in terms of growth to loans to nbfi? How much of that uh growth has come from from this particular segment?
Speaker Change: And and, uh, in in cni, it's probably for this quarter. Um, I would say close to half of the growth that we have there, but as I said earlier the there's growth in virtually every other category, whether its corporate, um, loans just in general, um uh Small Business Health Care expansion markets on the on the, uh, Middle Market side of the equation. Um, so but we've had a good mix of of all sorts of growth in in that area.
Great 1. Last just a confirmation you've talked recently about tech, spend running at about 2 and a half billion. Just want to confirm is that still uh the number at which it is
Speaker Change: Yes. Correct.
Speaker Change: Thank you.
And we have a follow-up question from Betsy. Grac of Morgan Stanley, your line is open.
Betsy Grasic: Yeah. Hey, I just wanted to make sure I understand how many more quarters or years you're planning on doing this balance sheet restructuring, you know, I see that the held for sale EOP went up QQ. So I'm assuming you're, you know, you're you're in train. But how long should we expect? This is going to be continuing for thanks.
Um, just to make sure I understand. I mean, um, yes. The hell for sale is up this court because of that loan sale, uh, that we had been talking about, you know, um, you know, the Investment Portfolio, uh, actions that we take, you know, are you know, we've done a few of these over the last couple of quarters, it depends on interest rates, we always are looking at the market. I don't have anything in the plan necessarily as I look forward. But you know, we we're opportunistic when things come our way and pay out, pay down or excuse me, the payback period is appropriate and and things like that, that that's when we take action and and so um, you know, I I can't answer, I don't think you're ever done Betsy re uh, positioning the balance sheet in the right ways that you want to to meet our client needs and make sure we're we're hitting our strategic objectives. That's that's really how we're how we're running it. Yeah, I know gungeon talked earlier about bringing down resi as a percentage of total which you have significantly over the past year. Um and I'm wondering if there's a Target resi percent.
Betsy Grasic: damage that you're
Speaker Change: moving towards, if the market is there, to help you move towards it,
Speaker Change: You know I just want to say we are very committed to the resi business. It's the core Financial product that is nearest and dearest to a lot of people's um financial affairs and it's been muted for some time. But in a different rate environment it is a very uh good source of fees and
Speaker Change: Uh, loan growth. It had just become oversized specially with the Union Bank acquisition as well. So this was opportunistically appropriate for us but there is not a Target to try and bring it down to its based on the needs of our customers and just making enough space on the balance sheet, to accommodate the business growth that will come shortly because it's been a few years of muted muted growth.
Okay, thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time. Mr. Anderson, I turn the call back over to you.
Speaker Change: Thank you, Joe. And to everyone who joins our call this morning, please contact the investor relations department. If you have any follow-up questions,
Speaker Change: You can add disconnect the call?
this concludes today's conference call, you may now disconnect