Huntington Bancshares Incorporated (HBAN) Earnings Call Transcript & Summary

Okay, everybody. Thank you very much for joining us for afternoon session. First, a research disclosure for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Well, it's -- this is going to be the most memorable session of the conference as we are going through the Fed announcement. So we'll have some live updates during our session. But before we get there, I want to just let everybody know we're delighted to have with us today from Huntington Banc, Zachary Wasserman, CFO of Huntington; and Scott Kleinman, Co-President, Commercial Banc of Huntington. Thank you so much for being with us.

Thank you. Our pleasure.

All right. We're going to go through some slides, and then we'll move from there into the Q&A. Thank you.

Well, good afternoon, and thanks, Betsy, and thanks to Morgan Stanley for hosting us today. I'd like to start by welcoming everyone listening today, both here and on the phone. We really appreciate your interest in Huntington. For today's event, as Betsy mentioned, I'm joined by Scott Kleinman, Co-President of our Commercial Banc. Before we get started, let's turn to Slide 2. Please review this slide regarding forward-looking statements we will make today. Let me start off with a couple of brief opening remarks related to our strategy and recent initiatives then I'll turn it over to Scott to make a few comments related to our commercial banking strategy and our acquisition of Capstone, which we closed today. Before handing it back to Betsy for questions and answers. Starting on Slide 3. At the core, Huntington is a purpose-driven company with a vision to become the country's leading people-first, digitally powered banc. Importantly, many of the topics we'll cover today are directly related to that overarching objective. Slide 4 summarizes the 4 key points I want to cover today. First, we're executing on our plan for 2022, which we believe will deliver robust financial performance. We're driving sustainable revenue growth over the course of the year, and we're increasing our guidance to reflect the acquisition of Capstone as well as updated rate curve assumptions. Second, we have fully realized the cost savings from TCF and are on track to deliver core expenses for the second quarter of $1 billion, consistent with our prior guidance. Third, credit continues to perform exceptionally well. To date, we're experiencing -- we're not experiencing degradation and continue to see stable credit outlook. Fourth and finally, we've added capabilities through bolt-on acquisitions in both Capstone and Torana. These acquisitions are great examples of the complementary capabilities we are adding to our existing businesses, in many cases, where these firms accelerate our existing organic growth plans. Moving to Slide 5. I'll share a few other strategic updates. On the topic of delivering profitable growth, we continue to be deeply focused on growing our pre-provision net revenue. This has been driven by our disciplined and proactive approach to expense management, which has allowed us to reinvest the net savings to self-fund our strategic revenue growth initiatives. We're pleased to complete the TCF cost savings program this quarter and expect to achieve the $1 billion core expense level for the second quarter. We're driving sustained organic growth, having entered 2022 with momentum in our core and benefiting from additional growth opportunities from the TCF acquisition. We have a powerful call to action for our teams to go to market as One Huntington and the entire bank is fully aligned to drive our plan. And we're seeing the results with broad-based growth in nearly every business line. Loan pipelines are up over 80% from a year ago and have grown 20% since the end of March. This reflects the power of the Huntington franchise as well as the incremental teams and expertise we've added. Through the end of May, average loan balances have increased quarter-to-date, and we're on track for our high single-digit outlook for loan growth by Q4. On the deposit front, we have seen growth in average deposit balances through May compared to the first quarter. We remain focused on executing deposit growth initiatives across both consumer and commercial, while maintaining deposit pricing discipline. These growth initiatives help to support our forecast for modest deposit growth during 2022. Additionally, strategic areas of focus for fee income continue to perform well, including our payments, capital markets and wealth management businesses. On credit, our portfolios continue to perform exceptionally well with low charge-offs and stable credit outlooks. We're monitoring the evolving macroeconomic environment given inflation and interest rate trends. And even as there is clearly macroeconomic uncertainty, we continue to see the strength of our borrowers as we work through our portfolio management reviews. Recall, Huntington has a long-standing disciplined approach to credit, along with our aggregate moderate to low risk appetite through the cycle. This discipline and rigor, coupled with strong client selection, we believe, positions us well should the economic environment change. We announced in early June the formation of an enterprise payments organization. Establishing this central payments team spanning across all of our payments business lines including card, treasury management, B2C and B2B payments, bill pay and real-time payments will enable us to accelerate our efforts around the payment space. Across the company, we believe that payments is one of the largest opportunities to expand our service offerings and drive fee revenues. Additionally, we've bolstered capabilities around payments with the acquisition of Torana in May. Torana is a digital payments business focused on business-to-consumer payments and adds capabilities for commercial customers as they are increasingly moving away from paying customers via check and ACH to more real-time payments and other digitally enabled payment channels. We also launched a refreshed consumer cash back credit card in March and are seeing exceptional early results. We're pleased to continue to be recognized as recently as last week, where Huntington was named #1 in customer satisfaction for our mobile banking app by J.D. Power amongst regional banks. This is our fourth consecutive year as the #1 ranking and reflects the essence of our people-first digitally powered vision. We also recently earned the Forbes Best Large Employer Award ranked #7 for Banking and Financial Services, which highlights the strength of the Huntington culture. With those opening remarks, let me pass it over to Scott to update on our commercial banking strategy as well as Capstone.

Thank you, Zach. Good afternoon, everybody, and thank you for choosing us over the Fed. We really appreciate your interest in Huntington. Let me pick up on Slide 6. As Zach mentioned, our pipelines remain very robust as we enter June and reflects the same demand from commercial customers. We continue to see this broad-based across middle market, asset finance as well as across our industry verticals. In general, we see strong balance sheet with solid liquidity profiles. Our customers are doing well despite inflation, labor and well-documented supply chain issues. We're seeing customers hold higher levels of inventory when they can get product and customer CapEx and business investment remains solid. To date, our customers have been able to push through price increases to offset margin pressure and demand for their products and services remain strong. As Zach noted, we are actively monitoring the portfolio and through our portfolio reviews, we are not seeing degradation broadly. Debt service levels are holding up, rating classifications are generally stable and we are not seeing early warning signs on revenue losses or change to payment status. We continue to feel confident in our outlook and believe the level of commercial loan growth we have seen is sustainable. Now turning to our top commercial banking priorities. Today, I will focus on our initiatives to grow our capital markets capabilities. The recent acquisition of Capstone represents a meaningful step function both in our capital markets capabilities as well as revenues. Moving to Slide 7, which details Capstone Partners and its impact on the scale of our capital markets business. We announced the acquisition on March 1, and we are pleased to announce that we have closed the transaction effective today. We are proud to welcome nearly 175 new colleagues to Huntington. And importantly, the addition of a top-tier national middle market advisory firm is a strong complement to the existing set of capabilities we have today. On the right side of the slide, you can see the impact Capstone brings to our total capital markets revenues. With the addition of Capstone, our revenue base grows to over $260 million annually. Importantly, this reflects our current scale of the capital markets business, and we believe there is tremendous upside from here over time as we continue to invest in revenue-generating activities. Turning to Slide 8. Let me share a few synergies we see as we pair Capstone with the commercial banking teams across Huntington. Through the acquisition, we are adding colleagues with expertise across 12 dedicated industry groups. In many of these cases, the expertise of Capstone directly aligns with many of our focused industry groups, such as industrials, health care and tech and telecom. In other areas, Capstone is bringing new industry expertise we do not have today. This opens up a substantial opportunity set as we look to construct and scale new industry verticals. We believe there are 3 primary areas where we can drive incremental value from the Capstone acquisition. First, we will leverage the depth of Huntington commercial relationships in order to integrate the Capstone expertise to this book of business. We have approximately 10,000 mid-market customers today across the commercial bank. We know that over the last few years, we have identified upwards of 100 instances where our customers have conducted transactions, whether that be the sale of the business or a substantive acquisition where Huntington did not have the advisory capability to participate. Being able to bring the expertise to our customers when there is an ownership transition represents an immediate revenue opportunity and facilitates a deeper and broader relationship with the firm's ownership. Second, we will bring the industry expertise of Capstone into Huntington commercial customers. As I mentioned, Capstone's expertise today covers 12 industry groups where they are well known and well respected. That expertise paired with our existing industry specialization is a natural fit and only accelerates the expertise we can bring to bear alongside our customers. Third, the focused approach on targeted industry verticals brings the foundation to leverage for future expansion of dedicated industry vertical groups. This expertise within certain industries is key for us as we move increasingly upmarket in corporate banking. Importantly, there is a multitude of new industry verticals we may explore, and we intend to leverage the Capstone expertise to further build out new and additive industry specializations over time. In closing, we are excited to have Capstone join Huntington. This transaction bolsters the foundation as we look to grow and expand our capital markets business over the years to come. Back to you Zach.

Thank you, Scott. Finally, on Slide 9, let me share our updated outlook. This reflects both the additions of Capstone and Torana as well as our updated rate curve assumptions. The guidance we provided in April assumed continued economic expansion aligned to market consensus as well as interest rate yield curve expectations as of the end of March. Our updated guidance continues to assume the consensus outlook for economic growth during 2022 and the rate curve as of the end of May. With the loan -- with our loan growth outlook continue to point to high single-digit growth in Q4 and with the benefit of higher yield curve outlook, we now expect core net interest income on a dollar basis, excluding PPP and purchase accounting accretion to grow in the high teens. This is on the higher end of our previous guidance of mid- to high teens. In fee income, we now expect low to mid-single-digit growth for Q4 '22 compared to Q4 '21. This now reflects our expected revenues from Capstone. In addition, we continue to see encouraging trends in our payments capital markets businesses, which helped to offset the near-term industry-wide pressures on mortgage banking. On expenses, excluding notable items, we expect to deliver on the $1 billion level for the second quarter and as we move through the rest of the year, having completed the TCF cost savings, we expect to see a return to more normal level of expense growth. On core expenses, excluding recent acquisitions, are forecasted to grow modestly by the fourth quarter compared to the second quarter. This is driven by a combination of expenses related to revenue-producing initiatives, including continued hiring of frontline bankers and normal expense inflation. In addition to business as usual core expense growth, we expect the additions of Capstone and Torana will add approximately $25 million to the quarterly run rate starting in the third quarter and continuing at that run rate in Q4. We remain focused on disciplined expense management, guided by our commitment to positive operating leverage, while provided for sustained investment in key strategic growth priorities. Even as we now fully deliver the TCF cost savings, we're identifying numerous new opportunities to optimize operational processes and drive further efficiencies and will remain dynamic to do so. It's important to note that our guidance reflects the impact of inflation, which we believe can be successfully managed within our guidance to deliver on the expenses as we've noted. We remain confident that we'll achieve our medium-term financial targets in the second half of the year. With those opening remarks, let me turn it back over to Betsy to get to your Q&A.

All right. Thanks so much. That was a great presentation. Zach and Scott, really appreciate the detail there, especially the baseline dollars that you put on the slide is very helpful for us. Just to kick off where you left off, which is on the outlook, the updated guidance, just one question I've been getting is on the expense line, and I know you addressed that, that includes the impact of inflation that you're anticipating. I did get a few questions on -- is there a tone shift in the new guidance because of using the word modestly versus 2Q [ '20 ].

Yes, I appreciate the question. I'll take that one. Just overall, in the guidance, we're really pleased to be able to refresh the outlook and ultimately continue to add to our objective of growing pretax pre-provision earnings. That's the core objective of the firm, and we're pleased that we're continuing to incrementally add earnings outlook as we move forward. On the topic of expenses, didn't intend this as any change in tone at all just to answer your question specifically, rather, now that we've gotten through the program of delivering on the TCF cost synergies, we're back to a more business-as-usual mode of managing investments, which I would say, frankly, even before this quarter and back even into 2021 as we were completing the integration, we were already on a mode of very rigorous underlying expense management program all the while funneling every available expense unit that we can into our key investment categories of technology development, marketing and new personnel ads, which requires us to continually reengineer down kind of the base expense levels of the company, which we're doing. And we think the net result of that will be continuing to drive positive operating leverage, growing expenses at a rate that's less than revenue. In this case, modest for the back half of this year, I think low single-digit or digits, very, very well-controlled expenses, relative to the quite robust revenue growth that we're forecasting back half of this year.

All right. That sounds to me like 1 to 3, but I won't ask you to confirm that number. On loan growth, you outlined a really nice continuation of loan growth and, in particular, even a bit of an uptick here in the second quarter. Can we start on the consumer side? What is it that you're seeing in consumer that's driving that acceleration in loan demand?

Yes, sure. And maybe I'll just, just frame it a little bit more broadly back even just from that just for one moment. Just across the whole portfolio, really pleased to see loan growth sustaining and the momentum on the loan growth side across the business continuing on at roughly the same pace we saw in Q1 and continuing to have that same outlook for the balance of this year. And I think the form of it is pretty similar to what we've seen over the last couple of quarters. It's commercial led. It's driven by new production, line utilization relatively stable. And really quite broad-based across customer segments and product types. So I feel great about that. I'm sure we can double-click on that with Scott here in just a minute in terms of commercial, but I think generally quite encouraging signs on loan growth there. On the consumer side, as you noted in your question, we also continue to see loan growth. And I think it's at a lower level than commercial, but continuing to be additive overall as we move forward. A couple of things I'd point out, one is our auto business continues to produce steady growth in new loans. Part of that is driven by lower prepayments that we were facing as a headwind in 2021, but also just continued steady production as we continue to grow that super prime auto book going forward. Secondly, our RV and marine business. This is a smaller business for Huntington but is again a consistently nice grower and you're talking about ultra-super prime for that business, really great quality assets. And then lastly, we're benefiting to some degree within the mortgage market from the shift to purchase and the higher incidence of non-saleable jumbo mortgages that are coming on to the Huntington sheets. So those are all the drivers on the consumer side, but overall loan growth really quite constructive at this point from what we're seeing.

Scott, maybe we could double click, so to speak, on to commercial. I know you gave some indication of what's going on. One question that I have for you is, what does it look like in the seat you're in versus prior recovery cycles, is this demand for commercial different? Or is this a similar type of improvement in demand that you've seen in prior cycles?

Yes, it's an interesting question. It's very interesting being here in New York too because so much is focused on the tape and what happens around whereas middle market customers in general are focused on owning and operating that business. And the wealth is tied up in that business as well. So as we're coming through this cycle and demand increases, what we see is that sentiment manifests itself in the loan demand and the loan demand is significant and it's sustained. That's how I think about the sentiment. I do think there is one difference. We talk a lot about onshoring, reshoring and things of that sort. I think that coming out of this cycle will be materially different. Zach and I sit in Columbus, Ohio, Intel is going to spend roughly $20 billion to manufacture chips perhaps up to $100 billion if the chip stack gets funded, which we think it will. Obviously, at Huntington, we're not going to be Intel's bank, that's not our aspiration. But when you think about the ecosystem that comes around that, and what that opportunity set is we made our first commitment to an Intel-related client yesterday. So getting back to the root of your question, it's not necessarily different this time. I do think there will be some overarching secular trends. And I think we stand to benefit especially from this onshoring phenomenon in the Midwest, and we're well positioned to do that.

It's very exciting. It feels like we haven't been in this type of cycle in a couple of decades.

Well, we haven't had inflation like this in a couple of decades either, right? So Zach and I are Pollyannish, obviously, things are very good for us right now. We will work closely with our clients. And I will say one more thing. And I've said it to some of the US who visited us COVID, there wasn't a lot of good that came out of it. But if you talk to our clients, how they run these businesses, how much efficient, more efficiently they run these businesses how much more resiliency they have, they're better operators for it, and they're probably much better positioned to handle what may come not only in the recovery, but whatever may come next year and beyond.

Got it. Okay. Maybe we could shift to deposit growth. And I think you mentioned the outlook for -- is it mid-single-digit deposit growth?

We use the term modest.

Okay, modest. Got it. Okay. And we've had some peers come in with outlines for maybe a little bit less than modest, some folks having maybe not as positive an outlook as you are. And I'm wondering, what are you seeing on the deposit side that sets you apart that gives you that confidence that deposits are going to be growing here?

Yes, it's a great question. It's certainly something I'm glad we're able to highlight here. Look, it's in fact, modest growth. We saw growth in deposits in Q1. We're seeing growth in deposits through the first 2 months of this quarter. And that my expectation for the balance of this year to continue to drive that modest growth, i.e. kind of low single digits is the way to interpret that, which we feel really great about. I think there's a couple of things I'd highlight. One is we have been -- we're benefiting from our long-term focus on primary bank relationships and gathering operating accounts. And really from the investments we've made in 2020 and 2021 to accelerate customer acquisition coupled with the TCF revenue synergies, we're continuing to see robust and continued acquisition rates across consumer, business banking and commercial. So as we grow those new customer accounts, those are coming on with those primary bank deposits, those high-quality, sticky commercial operating accounts. And that's really the fundamental driver of that deposit growth, all with very disciplined pricing at this point through the cycle. We feel great about how that's driving. The other thing that I think is probably worthy to point out and perhaps more of a differentiator against the industry more broadly for Huntington is that during 2021, we were much less focused, I think, than the industry writ large on gathering nonoperational deposits, particularly on the commercial side. And so whereas the industry overall, I think took on that liquidity on sheet and benefited from those deposits last year. Now they're seeing a much higher degree of runoff of those deposit accounts in 2022. Huntington just simply not exposed to that level of headwind as we go forward. So the underlying level of acquisition-related, really healthy acquisition-related deposit growth is what you're seeing. And so that's what really, I think, is the funnel driver of our forecast.

Okay. Maybe we could then layer on the question around deposit betas. What you're seeing right now and how we should think about deposit betas as we move past the first 100 bps of rate hike. And by the way, today was 75.

Well, that's the announcement live here for the room. So look, I think on deposit betas, as we've said for a while, we think that the course of this entire cycle will be pretty similar to what we've seen in the last cycle for Huntington, in particular, that was around 30% beta, and so that's sort of our general operating assumption. But our focus is really on less around trying to forecast what exactly it's going to be and rather deep, deep operational planning and execution, managing through the cycle at a highly segmented basis, looking at client segments, looking at different accounts at the client level and really with a focus on driving for primary bank relationships and driving the kind of incentives that will have us manage beta very well through the totality of the cycle. I will tell you that what we're seeing thus far with the relatively early innings here is essentially on our plan, and we feel good about the ability to kind of manage that as we keep going through the cycle.

And as rate hikes continue to come through, should we expect the deposit betas pick up?

Typically, through the course of the cycle, they start lower and they end higher. So I think this is a good baseline assumption. And clearly, the more we see these large rate moves, the more likely they are to be higher than lower in the near term. With that being said, what we're seeing right now across the industry is very well disciplined, and certainly, that's the way we're operating, up to this point? I mean can you expect to do so going forward as well.

Let's turn to credit quality. I've been asked probably every day multiple times a day. Where can I see any stress in the system? And I have to look to deep subprime consumer as the only bullet point that I can fill in. How about yourselves, any evidence of any sign of stress due to the inflation being high or government stimulus coming off?

Allow me to say a few words, and I'll pass it over to my partner to add on. Broadly speaking, the answer is no. The portfolio is performing exceptionally well. Charge-offs in the first quarter were a record low and the charge-offs -- my outlook for charge-offs in the second quarter is going to be quite low and really quite pristine credit. With that being said, as Scott noted, we're not polyannish as we recognize the warning signs that are on the horizon. But as we do our deep level of portfolio reviews, we're not seeing signs of stress or pressure in the portfolio right now. I don't know, Scott, do you want to tack on to that?

Yes. I would add, our front-end guidance or how we think about underwriting in our aggregate moderate to low risk appetite doesn't change through the cycle. We do deep dives on a consistent basis. We just did our office deep dive. It's less than 2% of the book but if you're trying to look around the corner and think about what return to work might look, you might start there, and what we see is consistent with our normal book, strong sponsors, access to liquidity, access to additional capital, type A office space. And you just don't see the stress yet. We recently looked at our auto suppliers as well, again, Tier 1 critical source supplier. So we'll continue to remain vigilant. We're not economic prognosticator, so it's difficult for us to see around every corner. But we're comfortable with where we are. We're comfortable with the discipline and the rigor that goes in the book. So we think we're very well positioned.

Okay. Turning to payments. We have talked in the presentation about Torana, which you recently acquired, and I think you're rebranding it as Huntington Choice Pay. Is that right?

That's correct.

Okay. Can you talk a little bit about how Huntington's Choice Pay will fit into the broader payments offering at the banc?

Sure. Sure. Payments is one of those three legs of the stool around our fee revenue growth strategy, capital markets, our wealth business and payments. So we feel great about the ability to add to that core strategic priority, and we've been investing in the payments business at Huntington for a while, a very strong debit card program, just launched a brand-new consumer credit card that's doing really well, as I mentioned before. And so this ability to add now a business to consumer payment capability is a terrific new capability for Huntington. The initial use case that we've got for this capability is to support the business we have within Scott's commercial business that supports the legal settlement space where there are large volumes of class action lawsuits that get paid out to consumers over the course of any given year. And being able to do that electronically is a great customer experience and a great use case for our clients. Over time, I expect that there'll be opportunities for us to extend that to other industry verticals, not to mention to harmonize that capability with other great capabilities that Huntington has been investing in like real-time payments and things of that nature. So I think it will be a sort of emblematic of the kind of investments we're going to be making in that payment space to stay really innovative and drive the kind of revenue growth that we think we can.

Okay. On to TCF integration. So the integration well done. And on the cost saves, you've done a great job lowering the run rate expenses to what about [ 1/4 ] on a quarterly basis of $1 billion, is that right?

Correct. That's right.

What levers do you have at this stage to pull your overall expense growth in line with your expectations, given the high inflation backdrop, what is it that you're doing to hit your targets?

And I touched on this a little bit, but let me sort of expand on it. Just firstly, on the order of inflation, where do companies like Huntington see inflation, it's usually in a couple of places. One is in kind of the cost for personnel and the traction and retention of great talent. Certainly, we're seeing a little bit of that. We, during this -- the course of 2022 planning added about 1% of additional expenses into the budget than we would have normally have done to try to do in a very targeted way, handle that kind of pressure within the business. And we think we've got it now fairly well boxed. It's included in the guidance I've already given you. The other place has kind of been in sourcing and procurement. And actually, in that area, we're seeing ability to reduce costs. I think it's part of a multiyear effort we have in really ramping up the strategic nature of our sourcing and procurement and benefiting from the additional scale from TCF that we can get in our sourcing from suppliers. So we're actually seeing a reduction in cost there. Over the longer term, the way we look at expenses is to look at the totality of expenses and really try to take the portion of them there are investments, technology, marketing, additions of personnel for key strategic initiatives and grow that as fast as we can. It's certainly faster than the total expense base, which requires us to take the rest of expenses and reduce them down over time or certainly to manage the growth of them over time to be lower. And we think there's plenty of opportunities to do that. It's about leveraging automation, simplification, taking waste out of the system and really driving efficiency throughout the totality of the operating expense base of the company, which we are doing on a systematic basis. So the goal ultimately over time, and I believe this model will be certainly able to be executed is to drive positive operating leverage to drive expenses lower than the growth rate of revenue essentially doing we just said, funneling expense capacity into investments to drive that revenue growth over time.

Okay. A question on fees. One on mortgage banking and then one on wealth. Just we've heard from some others this conference that there's some pressure on mortgage banking revenues. Maybe you can give us your sense of what's going on there at mortgage banking for Huntington and what are the opportunities to outperform as mortgage originations and gain on sale margins across the industry come down?

It's a good question. On the topic of mortgage banking, clearly, we benefited very significantly during 2020 and during 2021 from the really incredibly strong pace of both home purchase and refinance activity that was going on at that time. What the whole industry is going through now is a normalization back to frankly, a more normalized level. I think if you look at the Mortgage Banker Association and other industry groups, they would forecast very significant reduction year-on-year in refinance activity, and we're seeing similar things. Purchase those holding up pretty strong, albeit somewhat lower, but sort of in the arc of history actually quite -- continue to be robust. And so that's a helpful driver. But overall, revenues in mortgage will be lower. As I mentioned, it's included in the guidance I've given. So we're pleased that overall, fees will continue to grow this year, and it's really a testament, I think, to the driving of our strategic strategies around wealth, payments and capital markets, not to mention a great bolt-on acquisition that Scott just talked about a few minutes ago on Capstone.

I do want to hit on just this whole topic around AOCI, long rates and capital. Obviously, the long is backed up again this quarter. How are you managing that?

Our plan around securities is to hold the balance of the securities relatively constant as a percent of total assets as we move forward over the next few quarters. And we do that even as we're trying to protect as much as possible capital from potential further increases in interest rate and the interest rate environment by leveraging hedging and by leveraging the held-to-maturity book within the securities portfolio, which likewise, I expect to hold to be approximately the same level in the second quarter as we saw in the first quarter. So let's say of the levers that we use. Ultimately, over time, AOCI is an accounting phenomenon. We will get back this capital over a period of time and the binding constraint with respect to the way we manage the business is CET1. But it matters, and we manage it through those hedging and HTM options even as we manage liquidity through the overall securities books.

And given the backup in rates this quarter, something similar to 1Q's impact, you think?

Approximately, I think that's probably a fair assumption.

Okay. That's great. Well, I know we are just about out of time here, and I really appreciate the availability of you to meet with us during Fed Day. Thank you so much. Zach and Scott, appreciate your time with us.

Thank you, Betsy.

Thank you.