U.S. Bancorp (USB) 18 Oct 232023 Q3 Earnings call transcript

Welcome to the U.S. Bancorp Third Quarter 2023 Earnings Conference Call. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately 9:00 a.m. Central Time.

I will now turn the conference call over to George Andersen, Senior Vice President and Director of Investor Relations for U.S. Bancorp.

Administration good Chairman, With Officer; and President Vice and and Andy today Terry Chief Brad, Stern, Chair our John Cecere, and Chief Financial you, Officer. morning, Vice me everyone. are Dolan, Senior Thank Executive and President Officer; Chief Executive

During prepared available usbank.com. and release supplemental and schedules are remarks, John a at be referencing earnings their presentation. presentation, A our our initial on website slide copy Andy will of the analyst

during made change today's are Please assumptions SEC. note release, statements that XX-K in Factors of materially forward-looking risk our to can are X and the uncertainty. press subsequent our call and presentation, Page any subject forward-looking our reports today's Form with described on that on current file

Terry will that John prepared Following to take now the Andy, our have. you call remarks, questions Andy. turn over will I any and

Good Thanks, integration of share Slide items and our on for you begin to of reported George. per I'll we the morning, call. and $X.XX merger per everyone, quarter, related which included earnings In joining X. charges. notable thank third $X.XX, share

those we delivered earnings the quarter. per Excluding notable of $X.XX share items, for

acquisition results client activity. that quarter revenue linked Third benefited highlighted Bank, relationships Union and fee from year-over-year were quarter and by strong business our of deepening growth underlying

as are the identify efficiencies we expense to operational we cost manage anticipated synergies prudently from the We core achieving continue Union Bank and across business.

Union the X level Bank. Equity of ratio points increase Common of X.X%, to Tier quarter. XX capital this prior our it September same our XX, is As basis of was was acquisition This an

reflective this we in quality an on the evolving environment. $XX billion sheet further continues by to loss line or credit with Total to average increased X% and reserve, a loan linked-quarter our deposits basis. million adding of balance strengthened expectations, Credit quarter, normalize $XX

reduction and us given On with capital connection Category sheet from Bank our the commitments acquisition Union October Reserve the certain relief Federal made balance XX, full granted II in actions.

as we Category adopted, As banks capital III under to to or, related result, all Basel other now are subject requirements existing rules rules III the capital proposal. endgame if a transition same the enhanced

this in capital quarter proposed, I impacts would third approach a of transition starting will regulatory further adjustment and remarks. risk-based of period for AOCI the discuss in As XXXX. the decisions include these my closing X-year the expanded

X an adjusted ending in provides reported key on balances Slide average and statement results income and as metrics. other basis,

X Slide performance provides key metrics.

average common XX%. assets notable on Excluding and tangible was was our on equity items, return return our X.XX%

this in While current expectations, the net the interest X.XX% quarter, margin reach the our the to line cycle. rate-hiking NIM we as to continue with to fourth declined of points expect end in X basis quarter we bottom

us business Slide cycle. businesses X. A business XX%. grew earnings helps includes approximately of balance a On fee a benefit reduce model to great that a and income spread our Turning basis, through volatility year-over-year between our income noninterest

opportunities services, payment to distribution. across increased across capabilities expanding of digital businesses. we other continue ecosystem on Within integrated Emphasis to support our expanded and will in merchant processing optimizing services our our capabilities, continue growth payment partners and tech-led areas payments and invest

make strong capital and our Additionally, scale markets enhance positioning our businesses, trust, should investments we are to across mortgage growth our continuing strategic that already corporate banking and trajectories. which market leverage annualized

the synergies, million we in promising, deepen realize Bank to expect we Union cost approximately Early opportunities fully be our in are rate $XXX year highlights many to continue with and relationships track and as reflected to a into legacy with we which base loyal, expected client revenue be to post-conversion run XXXX. Bank. on head of potential indications of our and diversified affluent the X Slide energies few Union

quarter. the the on call now the will results who turn balance over provide details John, for more me sheet to Let and

Thanks, Andy.

respectively, ended Turning average average billion linked-quarter of and of $XX quarter billion down prudently Slide $XXX billion, as managed total X. and current $X quarter, a linked to $XXX and the billion, total We driven $XXX loans deposits, and on assets and X% basis billion, total with time were environment. balance Average regulatory seasonality market our representing growth a macroeconomic given deposits optimized deposit time accounts. by we sheet and money the increase expected in

by product. noninterest-bearing this deposits quarter, average decreased checking conversion interest-bearing upgrade from accounts Specifically, Union Smartly Bank noninterest-bearing to $XX.X our at billion primarily customer retail our driven Bank

have Excluding been would this $X.X billion. reclassification, the decrease

noninterest-bearing mix with operational on consistent core performance where the of based shift nature base. we stabilize the and of deposits our XX%, to approximately Our historical deposit to was expect interest-bearing mix

securities an provides X Slide portfolio. update investment on the

As total securities. of XX% our for XX, of sale our available were [ securities ] (sic) September XX%

We reduce which now of the effective years. less is AFS X.X than continue to duration the portfolio,

On Slide the a provide for summary earnings XX, we detailed quarter.

or $X.XX This quarter, reported adjusting per net tax of after earnings share per we share $X.XX common $X.XX diluted million per and diluted integration share. of charges or of $XXX merger for

a Net basis on interest of fully Slide totaled the taxable Bank. impact a XX. a and decrease Turning approximately a equivalent from increase linked-quarter rising rates and ago income year represented Union the which XX.X% to billion, basis $X.X to on a acquisition X.X% of due

impact The and the due margin shift, loan somewhat pricing deposit basis in net declined lower linked points better Our to offset assets, quarter funding spreads interest to primarily the X decline of quarter. by mix earning X.XX% and mix. third was

X.X% optimization Fee from revenues, actions. management previously income included year-over-year revenue, increased Slide XX servicing sheet balance higher million, mortgage trends XX.X% by service basis, banking by $XXX income or revenues. payment highlights commercial basis, executed other products investment a million $XX revenue which a and driven or and in On trust fees, fee driven on noninterest increased income. linked-quarter

in quarter investments $X.X marketing our adjusted, expense X.X% integration-related Slide by Reported noninterest million XX. a decreased which million included as of expense linked-quarter the driven and that or for offset $XXX on totaled to $XX charges. Turning billion, lower and somewhat basis Noninterest development. business expense, merger was by compensation

credit shows quarter. quality XX our Slide performance this

office in estate quarter to real conditions below this expectations, in continue metrics levels. and While remain segment, commercial metrics with the trend line key pre-pandemic reflecting our results asset quality changing

environment considerations, interest ratio as as office well for our we rate higher given Importantly, real to commercial estate portfolio other loans increased reserve XX%. the

Our ratio loans compared assets estate June X.XX% and X.XX% September year other ago. and at was to XX a X.XX% XX of with real at nonperforming

Our quarter points third third quarter net quarter charge-off of ratio level increased from adjusted, of second as to of when X a compared was X.XX% X.XX% higher basis a level X.XX%. XXXX and

of totaled as losses credit X.XX% period-end for or allowance loans. XX $X.X billion of September Our

Turning to Slide XX.

conversion accretion our and net point take September our a of basis XX optimization balance X.X% actions to of MUFG, to to improve capital resulted CETX action XX. continued with sheet ratios earnings from ratio last distributions quarter. quarter, combination as of increasing debt-to-equity this We our increase in The

ratio XXX regulatory basis capital CETX Importantly, now points our our capital above is minimum.

$X.X billion amortization million inclusive provide deposit to between of now be interest purchase adjusted, quarter and $X.X net of billion accretion. range expense, approximately guidance Union as income $X.X of approximately $XXX $X.X million as intangible estimated noninterest $X.X expect core Total will I the accounting adjusted, on forward-looking Bank Slide related of fourth we in acquisition. Total to is billion, to approximately is of including $XX billion, expected to In revenue, quarter, XX. fourth billion. the be

be full year we a XXXX. core with to XXXX basis, expenses On expect flat

tax taxable a income equivalent basis. approximately is Our rate on expected be XX% to

million quarter. charges expect to $XXX We integration of the $XXX million between and in fourth merger

it Andy hand closing remarks. I'll to now back for

John. Thanks,

related requirements Category several important capital Federal received to of considering with third full that X-year Bank banks, provisions commitments now into as capital Category Turning after us all they starting same other on quarter to approval made factors, III our acquisition in Union Slide risk III including XX. Bank and made II subjects position strengthen Union have conjunction a capital October our to us from decision to notified actions reduce of Reserve the the The granted the profile, Category us after XX enhanced the relief in rules phase-in XXXX. we AOCI on regulatory acquisition. This including

As interest potential further and rate our earnings to accrete activities. any will the impact securities of sensitivity optimization Measures with sheet carefully duration to balance capital need expected, continue will the manage continue. to we from balance available-for-sale to

been opportunities of strategic Since our our our business lines. and of continue Bank, be before growth of priority execution has each the will acquisition across capital-efficient Union to

we result positioned well disciplined activities our a balance our diversified and of further lending business profile Fed's earnings are now levels, mix our enhanced continue strengthen with As the our capital decision, and increase to sheet.

me needs and XX,XXX supporting Let than employees clients, shareholders. by thanking communities more for close to our of dedication their our the

to the call up We'll Q&A. now open

Poonawala [Operator with go Ebrahim to Instructions] Bank America. We'll of

and decision. guess further just I actions question, anticipates profile maybe and around assets In the to reduce risk reduce its the the I capital. the taking bank said, first increase Fed guess, Fed letter,

expect. should mind don't about talking you additional if what just we actions So

the here. about you mitigation Fed just forward should year? we think think else side what be into risk But move I how the neutral could mentioned impact from next expects that from as the we you on EPS

Thanks, Ebrahim. Sure.

as So is John. -- way this a

ability a background, Andy of the and our strengthen you As as actions our from the position. mentioned as to -- our we of full capital Category II us, that's as risk commitments, granted and Fed to our mentioned, of as relief actions, way well because reduce this,

of points And how challenging So think same get And high -- expectation III requirements our the really in XX be should capital. to we're to importantly, nothing and the to those transactions. accelerate I a full forward. flexibility this get or realize still time do still managing merger-related say, sheet the costs the the rate to XX meet as given and is optimization to going on time frame expecting of start so asset through terms executing downside going peers. regulatory the accrete basis We're we're we Bank additional to reduce fundamentally to risk-weighted that to still quarter. we in as that and in at is And increase us we merger-related environment. But new synergies. end going and average range, to capital provide the per We're be through costs it's Category Union as changes going building regulatory committed balance our additionally, the

flexibility the and over in way time do impact. our to low-to-neutral a have earnings that of we that now is terms in But

for all things. those to so those we And balance like in sheet feel of our have do sorts the reasons, we flexibility

we've XX optimizing to of exactly reflective under already sheet. And what the reducing that's is thing And balance of the risk add I part I'd capital, Ebrahim, terms done John. the want think not profile, all. is building cap of months for I be clear, last asset decision only are at the in we that the right, an

and been and that deepening focusing be continue cost of our the continue while that profitable managing most to high-margin, the will maintaining from exceed capital, remain balance capital, that businesses sheet on And focused clients. capital-efficient our And are and has We growth. and focus. flexibility to includes our we'll high-return relationships

in good NIM to expect you color. and question, Maybe the assumption feel just I I widening challenge -- So And separate a I John, NII the steeper in ] troughing heard just does you think around correctly, equals trough, mentioned NIM? quarter. terms I'm assumption shift, or a gives assuming the NIM That's to heard that? if yield -- around confidence of correctly to curve? that you fourth or NII behavior, [ trough And good curve in just about of you that mix you what consumer is

Yes.

interest the slow assets on to side, to other the your lot stable book betas is I start terms in down. will sort noninterest-bearing things is -- increase those in relatively immaterial deposit done not have a which rate is not we're risk rate what to or terms be and the not -- of all in or here start that's on Fed side will as positioning start a in December. we they're at reprice, level. since so an will Whether will embedded paid from our provided, the rate I happens rate say of includes that The whether the hiking, we relatively neutral slowdown, think this standpoint. I And whether fairly would of see rate loan guess securities we the our book, things. the or So forecast, then guidance balances of there deposit

NIM So and we will that's the really, here interest what bottom in gives the income out us perspective. fourth from a confidence, net that quarter

McDonald we'll to go Research. Next, John Autonomous with

you still NIM I expectations? you think the fourth What you you kind XX%, those you kind did I can what at mix correctly, talking terms follow XX%, where And beta, are looking the Do up of about? of have just quarter, John, on were out here in in settles the in roughly? deposit mid-XXs. are around of for just the hear

the to go couple Yes. questions Maybe just last to of you mentioned.

do at a where noninterest will XX%, bearing, we that about We're that's from expect yes, be. So we mix. about

are from goes it beta to that depending about the mid-XXs higher on here, perspective, that in but expect from be creep We good where feel range. we possible we the a up right in could It's now. And Fed that.

terms in the we of on anticipate that, pressure a net just then bottom like it'll where out question? quarter. interest the is feel in previous do here I fourth based then really we the little margin that made And point my and bit things But the comments more that

that's reflected guidance. in our income revenue And net interest and

Yes.

in little Okay. And And also the the how us lot Fed your you of capital how more John, happened -- with phase you swaps decision, in And terms the to trend quarter? then looks do this What a if can the burn-down like a color you just give do in now. AOCI line? recognizing, just you've got AOCI with time It what around you like on, what AOCI time obviously there? on maybe X%, pieces calculate that. something the are today? the affect more add could do

Yes.

think of points basis impact. about all is in, I -- So about XXX AOCI it's

would it. about say roughly probably where kind of I So think would I is X.X%

terms which the points, duration impact have basis in is the have or up in that about And our change that on rates the continued on book, our securities and an AFS, XX down. on of an we depending mortgages of the which book, at. had treasuries XX our to on end $X.X AFS curve, we obviously, wind billion of with the of In looking backed you're to basis after-tax -- consistent would expected long

mentioned I less comments, current our than is duration. in As -- about X.X years our

that. effect the that's of So

-- We or are will HTM continuing see AFS. continue to in we it's see paydowns whether the that to book,

quarter book, AFS or that things about the per we'll off reinvest time. side that and We approximately of have over so $X billion in rolls

Next, to we'll with Mike go Mayo Fargo Wells Security.

of were the much how clear, the $XXX results? savings third be million merger to Just quarter recognized in

probably terms Well, in -- we'll growing we rate what full of of in -- of that will the million so seeing. in of been run fourth range quarter. is or in $XXX it's we pull and It's the that see But probably through million. terms were to get a is full kind benefit the $XXX amount,

million of quarter expense So of XXXX relative see to the quarter, savings? could the first third additional $XXX

they course generated third been of been No, And they -- into third because quarter have we've the into accelerate savings quarter; quarter. the year. all second throughout fourth -- have fourth the and quarter, quarter and

more be So what's much in the expense cumulative quarter fully they're quarter? guess merger savings first third should to the there when savings? relative I realized how the

When year. flat expect this $XXX-or-so full has to the year, XXXX. we and that through have approximately see into gone embedded have we'll that's full coming between we'll savings, next XXXX that million and But then of guidance in the year our expenses

be our recognizing be on $XXX million way we will reflected the savings, think will of the quarter, Mike, run fully the savings, So consistent a which how Andy, And about expense in this a 'XX in of it, think is with investments by base. end make I we'll fourth XXXX base, 'XX about expense is plus rate continue including to the that flat business. we relatively those to in

it is And leverage? to XXXX think then so spot is the you of get up, then by next this too many merger positive operating coming you expenses, Because or sweet can too Or if question do parts? is, you quarter? right, the moving flat the savings have the big early

is And in I customer I spot. on Mike, that mentioned to you're relationships savings my base, opportunities The comments, the terrific. sweet great. think Union the right. a are Is that Bank deepen absolutely

doing was improvement are businesses. basis, category. businesses it our was markets, a up payments Bank. our across That fee of well. of capital a And frankly, extremely XX% number very On and our core little every Union businesses, to year-over-year that almost related Our across categories, trust, fee just corporate was

Loan is for and as pieces, and is the And one environment, for I in this challenge us interest -- overall. the a tepid The net industry you there's relatively moving us that lot say. speak and the for entire growth we for as that's industry of margin. income

that operating leverage, call. will it's So upon would it say in I too dependent be to of and positive early terms

last Okay. And follow-up.

to CETX less of at trade-off of earnings, in cost ratio a sheet increase balance assets, optimization due Your loan lot a come growth, less a There's did less that. in right?

a flexibility, little can now more do less you be may and too so that of of and much have your So is you turn, help much you're more a that under bit NII? in lax growth, in terms stretch? that of Or kind think pressure

Yes.

We the and we to low And flow do transactions those we billion impact. We've like optimize. have those our flexibility $X quarter. second neutral earnings to of have of on going this you be assets, do things that some some bit to identified and that that And relatively things. the things about plans terms little lower still earning of a of through of now are And that. in terms transactions did sorts of course, thereabouts you provision in as in saw the or mentioned, end quarter

go John we'll next, with Evercore. to And Pancari

there? you Can about around Category as the to know Why the change shifted XX maintain bps III, change no CETX the XX quarterly. I II the the you no Category regulatory generation expectation give there? meet talk the II us takes just maybe Cat why in and need change to in to despite requirement, to that

the all feel there's into like and that, regime, Well, we'll transition new which set time, over like, AOCI rules. will rule change things we include other have and so to the no I because new think given the

stream accrete like this quarter, that XX XX to And be we in will to points accrete. we're earnings mode And continue that going and to is our basis a that so capital, to it example, going higher have Union XX but for we to the as synergies. through XX merger-related points, and the costs on that of we the range we was basis end anticipate get

Okay.

benefit the So didn't expectation? BSO activities that materially less

I'm couldn't sorry. say Can you. you hear that? I

under The XX be expected? III meet efforts Category needed materially less generation now would optimization that the points need earnings did -- to to risk-weighted basis of asset the impact not XX

example, other not. of we well the No, basis example, you which had our did lower, actions, RWA some of included as No, this for reduction assets asset not. as saw did some XX points Like that for that earning transactions embedded. quarter,

So to core earnings about when have we RWA core we other points, from we transactions to XX XX earnings ability the were basis the separate talking out optimization that do.

Okay. OpEx And there III then now requirements side? of on the versus of impact expense separately, of any Category -- immediate to the is conform more Anything to Category II? needing the the

And then expect you of bottoming after in that Anything -- we trajectory see the margin your margin bottoming you into head comment. separately, on the the XXXX? on would in terms this as

Yes.

no there's So investment. terms OpEx, no, in further of

many that You tailoring, standards of may and recall, things. terms same in and all reporting we before of of sorts we those and had rules had rules the liquidity

the quickly we up from all to standpoint. built capabilities an operational can have level get So that or

there's there. So worries no

net rates, that the but little bottoming margin. and interest stable, interest out. of still then time. of quite We quarter depend in frankly, the terms point at on In pressure it mentioned will fourth in particular just a bit Likely

over next, Research. John And with [Operator McDonald Instructions] to Autonomous

with me. Sandler. We'll Scott Pardon to Piper go Siefers

the relates sheet as dynamic. balance to sort of Just growth it

your in of this frame that new there would In or risk the words, a kind clear. Fed organically to time see you exceed free of the come that and trying II you Cat into $XXX indeed is under with sure see would any assets II peers to out you'd Cat Do make contact before just that in any have you billion of just organically, other great rules restrictions other restriction. So get full levels? to I'm to subject that

thoughts So there. your just curious of

It is.

our As Andy cap, we forward. that flexibility so asset mentioned, there's going here on sheet have complete balance

in we or do So capital-efficient to want grow, want if so. manner, to to a grow we and we elect do will grow

low, sheet think we're is will type as and that, the that the I loan for that number time that loans different highlight here. loans a manifest a now, of is of And have us there. would in flexibility kind going have itself And I higher-return But to pretty be and confidence that right churns. environment deemphasizing The outlook assets. What just reasons gives say to more addition though, would demand lot quite we of emphasizing that I given balance the this is out in -- lower-return low.

Perfect. Yes.

on if that then I And expectations of maybe and cash sort earlier this of flow an the Okay. think and question, the duration re-walk AOCI touched can off the both And well? coming then book, you burn-down have have us of HTM think you might you through book but given sort in AFS books. as HTM might -- do but the you AFS I the the have for

Sure.

so, in AFS balances, and So about we a terms of -- in terms the $XXX about at on mentioned AFS the it's of in call, about we're HTM, of and as or and terms HTM. billion mix XX-XX

average just things So we quarter runoff I that and on have variety. per billion mentioned, interest rate current environment $X the about, of given of as

our able hedge of about book. of rate terms to AFS been the the portion In of XX% we've profile, fixed

driven agency book than mortgage-backed is securities, we what book have. so HTM That as principally longer X.X And the lives. -- has duration less all which X.X of that years in the particular have that's

in more the it's X.X the duration of in terms range X so, so of that book. And or

next, go And UBS. Erika with to we'll Najarian

first you. my question is Andy, for

balance about the combining where the buybacks. through now can yesterday's right think at I'm growth relief this that regulatory Specifically, And CETX to announcement I now okay, world. with best, in in environment, And is looking new the a right, an return capital you And as terms level, now we my minimal level win sheet looking back is are target you now at environment in shareholders of, what is tighter for are at what big generally at? company. a

by you if XXX X, the account there's guess we take right? only I final get that wondering July date XX% there's I'm have of just by John into GAAP to XXXX, because adjusted gave, your a then to that then. But -- CETX, printed

So there's moving a lot pieces. of

that plus this what you that transitional about So what's hit as new would the to that your made, parts capital through fully And relief, target? phased or investors returning could bogey Is look buybacks? the before think that your all investors you've in? forward is

first we're to build. Yes, X.X%, of back I X.X% which the we're went highlight, all, basically before want And a less built to the able across is just we from a great XXX Erika, company. and to thought points We understand basis was than the where and started in question. to X.X% deal year, which I effort

the one which one what that form target items. our way, clarity we terms III to of on on X In in have capital -- endgame finalized we be CCAR. new once levels. of down. shape And I about. are to rules or X finalization continue and target yet the will, sets clarity Basel second set of is there's Number are shape those those increased to one our rules, targets think We'll is, short-term as coming is Remember, talked build,

And to CCAR capital, June on to until adjusted until the the a at so of on going GAAP quickly see SCB? at results, At basis, regardless the build then, least least you're be either until an to just continue you and pause XXXX how buyback the CCAR or follow on we up here.

clarity want We Erika. the importantly. expectation, my the the finalization of CCAR, Basel on and III That's

the of and buffers have rules. So we'll be activity clarity we capital that on more the once build and all continuing and to finalization targets our capital determine

one more John, may. clear. if for just very That's And it. Got I

what be income good is In fourth think mitigation. trajectory, the days thought terms to interest of more the RWA quarter net we ago, relative news, especially I bottom which would X

about impactful we EPS, are that's to you which we pool, securitizations? As has to ahead to terms or in going more -- in continue to so you early you credit-linked similar RWA about spread? assume of we XX.X% saw and think mitigation I the year of cost the SOFR what notes, use the plus less think should actively the Are it

hearing do thinking could to how as LCR you on as those we're think have about pretty HTM anticipate we you significant banks? for be about warehouse regional like dynamics, there liquidity haircuts they're also feel more as And rules Because HQLA. we that

Erika, have that last with On your it what We that to feel of is we're scenario the LCR, will terms point. is I'll wait very maybe we'll side, in feel whatever to that to we'll achieve start able side capital that comfortable Sure. on we'll what potential of be the work said into in on that addition -- to LCR. is, so able any Andy and whatever going be changes come and liquidity to see change that we out it. achieve

part talked from post, to by will at you net are it's -- we of where the to reiterate, terms goes interest We In in time about in there, income. of point interest depend this in rates. looking kind the that of again, fourth feel just like -- particular for bottom And quarter. kind it

on And it. congratulations release commitments. the Got of

Thanks, Erika.

Gerard with go Cassidy we'll next, And RBC. to

as because numbers normalization that. out reputation talked coming credit. frame such if exclude you for if Bancorp the the bank because great Andy, folks. has being And past guys on every pandemic environment we a developed underwriter, the you could wondering is can did of U.S. obviously, credit and control out strong moment with about this a you just us we've because of in had was obviously, about none a I you talking the And of economy,

been to cycles I'd for really what compare a we've it seeing you Obviously, few and can you vantage cycles. But us? in And around share from competitive of underwriting. been a in or in it from that may are can compare be curious, I'm standpoint as with could guys terms 'XX-'XX if 'XX-XXXX? past But you have today point, Any guy's your color it. is risky it interested as there

very the Let also savings from companies highlight to entering level. from but specifics. of accounts businesses normalize say, in cycle would that the think, standpoint, in and big what is very say strong to picture, starting they are consumer activity, are shape me I ask balance have. pre-pandemic, to I'm to shape. all I give Terry going and perspective The would a normal some good you The a I this spend normalize, small the

very increased which area reserve the one estate focused that areas all our real we're office, The that we to. is is one commercial of on

As you know, it's at quarter. XX% in this

So maybe, into Terry, some you can specifics. go

that Yes. underwrite other add would to we when stress of we interest in happen through know, could about could Gerard, I economic perspective, an as underwriting, that, or the terms try And really into consideration what factors rising underwriting play. a take rates from cycle. We to you come what in think into

standards we adjusted I haven't we as that's good a seeing the like out been particular looking cycle. that, that end on thinking about we we're I Certainly, shape. have when pretty do are underwriting lot tightening to standpoint, think But there. some is we feel there from this a extent. in at up going competitive our some So industry, you think

estate, you probably said, If Andy that we're is as end the specifically. looking up at monitoring our space real office area the commercial situation, most

We XX% overall have about a reserve that's of there. balance the

because likely a going to We to that pressure that, and have been we're that's to be continue point. increasing increase

points. overall from at starting if portfolio, starting we're think the we're -- you But about fairly low

XX basis loans loans. points Our of only nonaccrual is total

low X.XX%. are at increasing. strong Our allowance still is at levels, Delinquencies relatively though

have, position terms and up. normalization we're and go we that that nonperforming will will as in move will we really feel continue I about that, good expectation our Delinquencies allowance is to up into the we in good that. a of think move continue kind And of continue. pretty coverage assets to XXXX But

to Good Terry. voice, your good. hear Very

sense lending from you up the the to by competitive on when nonbanks. was do saying, you was the done what extreme, all some Just crazy a banks, course, but of were 'XX-'XX, being of -- follow also standpoint,

poor there Or competitors from nonbank the underwriting decision, just banks look impacts I'm so you the 'XX, there. not doing that players second at that the included, derivative a the because the standpoint. made but banks? foolish was it are now are really of out suffering are that did just rogue again, When we're like competitors, suggesting a and not crazy there things But the banks, guys a something bit? comparison Not yourself any

equation rational. fairly space, anything. people in issue the it's both in that much of of so bank I and demand is Part on the think side the nonbank that think I being maybe as the as more are the

I in inflationary to what to being see until And with therefore, where interest think more America And has been they like, cautious environment soft. relatively think America there. out corporate waiting I looks the rates settle certainty relatively is interest relatively corporate still rate demand at. is respect They're cautious. see

I seeing, point nonbank we're in the particular But say, on this crazy bank would or time. side the things what on at not either

probably we're looking probably end at -- if the pullback commercial a real across fact, In board. you up seeing estate,

and they rationality follow-up a second with the lot back strict. was of they endgame far hope great that III my of any -- that and it that is may kind about Is you the with too as then Or Andy, release. to where and regulators sat that be actually obviously of guys release those had stretch? criticism make the to Do there decision is pare Basel that news there their question, any And Obviously, to regulators, may yesterday some are been some There's seemed a fairly get requirements? proposals in you darn see change. we of think the read-through down Great. pretty you rational read-through?

for individually. regulators both The the I asked and have think provide feedback, collectively banks will feedback.

our think I focus on because the feedback. of area And think going lot I very good be terms of is that of the that's the customers. to our in a pointed we're feedback of feedback consequences to

to that, to listen to and our And And we're my will categories, that around a that's the our friction serve hope. that's anticipation perspectives. is rule focus. And certain then in and set able sure to the my where Fed customers, we create we're want going from standpoint, some will make banking that

can was -- to going be with low- and particularly say just punitive base. it customer I in to moderate-income respect

You that don't this see punitive -- that at credits time. some rules in capital renewable particular to seem energy tax related make point

I there's of for do think there's number So areas a where opportunity different adjustment.

Next, Juneja JPMorgan. with we'll go Vivek to

mid- couple get just of lot progress help to business. corporate or -- quarters. Andy, more the that up the high others normal single you thoughts wanting Because from would What made last of talked, double color get need given gears to some Shifting digits, payments. in your or what high the of change to back the really capital, the grow in on you to any digits; there? Payments, low Any case been a merchant processing you and that single high -- about you've there? you digits, hasn't how on do like

going I'm start, to I'll ask then to John add in.

Sure.

the that quarter, strong So merchant over have single been in a the -- years have there's to sort has The of of numbers high of happening. making thing. investments are normalization we terms been terms been but of that and digit in merchant processing, expect this number continue

been And the and several there's all quarter-to-quarter here, a nuances of -- out quarters, last so sorts those of the in of coming COVID lot things. the quarter the the

and strong. you been are corporate hotels tickets T&E, have and and That think those So normalizing. very said, about services been but strong, have they if airline retail

print constructive. -- so yesterday and we that very And saw the retail was

make, to good feel our projections we to that -- believe addition there's there. So there, in investments we continue to underpinnings like confidence the in that give and in

of X Vivek. think important I And investments, those

Our tech-led base increase. which think be huge priority new business lot from you the confident why ecosystem, from opportunity company base customer what is Bank, our getting which that continues our Union in And well of a that talked as business for perspective customer initiative, which revenue of is add about, then secondly tech-led a we've I higher what to in now I a that's a this is right our top because think commercial for single-digit payments banking as we're X/X about base. And activity. it's is we're

markets. that? to you're you're another of up mentioned days in your on level revenues what capital to business You've markets. fee expanding, you there of debt terms from doing the you're you are color always syndications capital anymore, loan the doing not and then investor that that? that step expand had Since Okay. any And else doing What

This Sure. John. is

we and and and frontline, this systems investments And we the make area in back-end -- things. for it's continue this to us, of story these great where a in been invest continued sorts we forward. another going to have the So -- is acquiring talent all and

especially high rates is in the products -- very interest that's along needed. as rate are been in what as been market, strong, for quite our yield has have high-grade derivative where highly other well this around areas hedging bit, moving a time clients, there's and underwriting, that providing And with that interest a service

Foreign as exchange a been component well. has here growing

base And particularly Bank, customer more with of Coast need. foreign more have West now a Union exchange and we

the businesses some we -- corporate side, with as the work of we as Europe you know, trust well. that to addition businesses have in have In we in

So there's exchange, always so some growth a there. foreign seen form we've and of lot of

the been gaining to in and we've share that, investment-grade yield. high market In addition business

Over XX the investment share. had top grade think we've of terms an in coming the now days, market I in

that has it's good that item us. continued to been advance a So business has and business been and a slow for us for steady, --

[Operator Instructions] go with O'Connor Bank. Deutsche And we'll to next, Matt

synergies to was Slide you UB I revenue the was big that over that the related what how could is wondering related X any The frame shows to be, and there of X, some wondering time revenue the that to -- outlined Slide UB -- you might opportunities. on frame? that way I deal size if deal.

that each which for is payments highlight, greatest priority we is high Bank. U.S. a businesses. a of our our card The Probably the is is priority of strength business one opportunity. first It credit

be where think as that you card Our with focus. think continues clients penetration that terrific, well, it the it material and a and business and that. area and for still each working we'll I But impact. is a we started, offering and from increase we've And about But the exactly is focus through a of on businesses. timing, to then our already had continue a sizing priority to a we're is update

bit But look at of of then years, a X.X duration question, through technical when I only book little forget the CFA materials. than 'XX, of how first of less we securities the duration some Remind burning think separately, XX% a you're of but Okay. the not And a math much burn-down up as is And is and 'XX. that me the of in years. couple burn-down kind all step about that the we works. pretty Because the short does right? down

the curve -- I'd or curve changed of of number that them, as flatten average say the is rate Yes. we lives. longer have out the securities have this saw on to fixed really quarter. obviously that function longer a What we durations are a quite The bit that

very, how the it's with so rate so of It's of and X have And portion -- low-duration. number floating where -- months swapped -- has a the then we that very index. we our have security because swaps, or

as $X auto book, on some about rate book. -- So the some as -- as fourth have added in to addition in repack addition of some this billion of that, the the to very second as transactions year, of in quarter did last security we've we've that so floating of quarter we year well that the of short is securities or of within we when well the

for part kind the of how terms of the in a the which gives type that the the rates. that about us gives value a in shape burn-down, duration just of change book. within of which and securities will a more -- it, But that you depend approach, of move barbell So it's in interest are

all relevant but the we're Okay. decision, given still tracking. That's Fed's now helpful. Obviously, something less

can go we Usdin Jefferies. next, with And to Ken

just the I follow-up want one just sure Category on II more we're clear. make So news. to super

bind stop But billion to to forever? prior frame. potential cross $XXX being question, wondering. have you does the So Or prior just obviously, a the don't on time

don't You said cap. an have -- there's asset you

fits on Just mean how natural So a you clock news cross to forward II do time does that going you Bank with in having Category in yesterday. still get wondering when naturally, comply? now non-thing the the of that that Or got any you U.S. is for period?

current which But rule III the set Category which $XXX go we're said. to II; on. is, Ken, would is rule after bound, is set bound billion, then the we're Basel you you of current as yet So X finalized, new to an the quarters set, by rule of what or be average

hurdle categories, to focus but a important, is, not do asset $XXX million So continued growth where growth. what we optimization is saying as we're see our that be, our will still given on businesses, we high-return in think given given certain

Understood.

That's what wanted I clarify. Okay. to

questions, no over I'll with hand Andersen. George call back the And further to

contact the any have Brad. questions. everyone, earnings for you follow-up listening to Investor Thanks, our Relations Please department Thank if you, call.

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