U.S. Bancorp (USB) Earnings Call Transcript & Summary

Good morning, everyone. There we go. I'm Gerry Benson with Fidelity. And presenting today, we have U.S. Bancorp, a financial services holding company with international operations and it's the parent company of U.S. Bank. It's headquartered in Minneapolis and is the fifth largest bank in the United States with $686 billion of assets at September 30. Presenting today for U.S. Bancorp is John Stern, the Senior Executive Vice President and Chief Financial Officer. John has been with the organization since 2000. And prior to becoming the Head of Finance last year, he held various leadership positions within the company, including President for the Global Corporate Trust and Custody business as well as Corporate Treasurer. Joining John today is Stephen Philipson, Senior Executive Vice President and Head of Wealth, Corporate, Commercial and Institutional Banking. Stephen has been with the organization since 2009. And prior to becoming the Head of the WCIB this year, he led Global Markets and Specialized Finance Group within WCIB. He has more than 20 years of financial services experience, including working in global capital markets at Morgan Stanley and fixed income trading at Wachovia, where he was Director of the Financial Institution Syndicate. So please join me in welcoming John and Stephen.

Good morning. Thanks, Gerry.

You bet.

Good morning, everybody. Thank you for being here with us. I'll start here just as a quick reminder, as comments that we make may be forward looking, and so those are subject to risk and uncertainty, subject to the safe harbor that we have on this page here. So it's just been a little under 2 months since we saw many of you. Great to see you all again. We had Investor Day, and so it's great as we see all of you. So a lot of this may be old news in that sense. But we want to give you a quick refresher in terms of our company and our business. Of course, here from a -- the way we are positioned, we have -- on the left-hand side, you see our retail presence. We are active in over half of the states in the country, moving into our national product set, which is the middle column. We have a number of national products, and that includes anything really in our payments ecosystem, cards, corporate cards, things of that nature, our commercial and corporate businesses, things related to mortgage and things alike. And then if you think about internationally, we do have presence there as well. And that includes our merchant processing systems and things of that -- those capabilities as well as our global corporate trust and our global fund services. Our diversified business model set is the scale that we need along with all these businesses is how we serve all of our clients. We have, as you can see on this page, 13 million consumer clients, nearly 1.5 million on the business side of things. And we utilize all these different businesses really to serve our customers holistically. And we can do that with scale and with unique product offerings where many banks don't have the same product offerings. Our payment ecosystem would be a component of that along with our institutional services that Stephen will touch upon earlier today. In addition to that, we can distribute these items in a capital-efficient manner. You saw the branch network that we had on the prior page. But we also are being involved, obviously, in building client centers around the country. Our digital capabilities, obviously, can reach on a national scale. And on top of that, we have strategic partnerships. And of course, we've named a couple of those of recent -- with State Farm a few years ago and now Ed Jones more recently. In terms of a page here of how we kind of reshape the revenue components, we used the prior page to share on the business line side the 3 different unique business lines that we have. On this page, it's -- we like to carve it out in this fashion because it's helpful to think about how we position our balance sheet and how that serves the different businesses that we have. So what I mean by that is on the left-hand side of the page, we have our balance sheet, the traditional balance sheet, loans and deposits and everything that goes along with that. And as you think about that side of the house, it really has about a very low amount of revenue associated with fees. But we utilize that balance sheet to help propel and create capital efficiency by going into more of the businesses on the middle and the right-hand side of this page, particularly in the transaction-related businesses. That's basically our payments ecosystem. So you can think of the merchant processing cards, corporate cards, that sort of thing as well as our institutional businesses. On top of that, as you can see, we have nearly 60% fee growth in those particular transactional businesses where there's a lot of money movement and activity and administrative know-how that we utilize there. And then on the right-hand side, we have our wealth and capital markets, more of our advice-related businesses that have been growing very nicely for us. And that, again, has over 60% of it related to fees in terms of that revenue set. So here to talk more about the middle and the right-hand side of these is Stephen Philipson, who Gerard just introduced just a moment ago, who's our Senior Executive Vice President and leader of our Wealth, Corporate, Commercial and Institutional Banking. So Stephen?

Thank you, John. When you look at our WCIB businesses, it is a great example of where we deliver on those 3 pillars across the balance sheet: transaction services, wealth, capital markets. And as you might recall, our WCIB business, it was formed about 1.5 years ago when we brought together what was our legacy Corporate and Commercial Bank and our Wealth Management and Investment Services businesses. And the idea was to serve all of our institutional and wealth clients in an interconnected manner across our balance sheet and fee products. And I'd like to say it was our guinea pig for interconnectivity to see how we can work across what had been previously siloed revenue lines to deliver a better client experience and drive revenue growth, and it's gone quite well so far. We've got a lot of scale in these businesses. See on the right-hand side of the page, in our institutional businesses, 90% of the Fortune 1000 bank with us. In our investment services business in corporate trust, we're #1 in every market that we serve. And even in some of our more nascent businesses that we've built out over the last 10 to 15 years like wealth management and capital markets, we built scale. You'll see earlier this year, J.D. Power ranked our wealth business #1 in the market. And it was great third-party validation of the business that we've built there and continue to build. And in capital markets, in the investment-grade syndicated loan market, we're consistently #4 or 5 in that business as syndications drive a lot of the activity across the capital markets. We've got a lot of depth and breadth across this business in terms of the clients that we serve. We've got 0.5 million wealth management clients. We serve tens of thousands of governments, institutions and companies ranging from middle market companies to global mega-cap corporations. We've got great reach. Every one of these businesses is national. Our wealth management business in the last few years has gone national. And we're leveraging some of our expansion markets and client centers that we're building out across the country to bring that business beyond the branch footprint. And as John noted, we're global in a number of these businesses, in particular, in our investment services businesses and parts of our capital markets business. We do have a differentiated product set, and we really feel that makes us stand out in this space. When we go to market, we're not just building a relationship around traditional lending, deposits, capital markets. We're able to bring other products like fund services, corporate trust and custody that deepen our relationship and really allow us to stand apart from our competitors. And when you think about it, that is something that -- where we stand in sort of a different spot in the marketplace. And like a lot of trust banks, we've got these great investment services businesses, but those banks don't tend to have the balance sheet businesses, the capital markets businesses that we have. And then like traditional banks who have those balance sheet, capital markets, wealth businesses, they don't tend to have the strength in investment services that we have. So we have this unique offering. We like to say that in terms of companies', institutions' financing needs, we're able to serve their needs cradle to grave from providing a loan, taking it out with a bond, providing hedging on that bond, serving as corporate trustee on that bond and then helping them invest those proceeds in -- with our asset management business or deposits. And it's a really unique offering to be able to serve them across that full life cycle of the transaction. So what I'd like to talk about a bit in the next few slides, there are just some areas aside from our differentiated product set where we expect to see differentiated growth in the years to come. And one of those is capital markets. And we talked about this a bit on Investor Day. We built this business coming out of the financial crisis, saw a great opportunity to attract talent and build scale in a very unique environment. And it's been a differentiator for us the last few years. As you can see in the last few years, we've been growing at a 15% CAGR. And we feel we can continue to grow at a similar type rate in the medium term. And we're doing that through client depth, product expansion and expanding our reach. And in terms of client depth, we're continuing on a strategy that we've done since we started this business, and that's uptiering our client relationships, going from a participant bank to a lead bank. We talked about this a bit at Investor Day. We have 2,500 syndicated relationships. 10 years ago, we were a lead on 23% of those relationships. Today, we're a lead on 44% of those relationships. And we feel there's continued opportunity to uptiering more of those relationships. Just over the next year, we have line of sight on 87 relationships that we feel we have an opportunity to uptier in and see at least $1 million in capital markets opportunities near term in each one of those relationships. And historically, when we've gone from a participant bank to a lead bank, we tend to grow revenues by 4 to 5x. So we think there's a really good opportunity there. The other is offering comprehensive solutions to some of our fast-growing segments. And a great example of that is the private capital space where about 1.5 years ago in our Institutional Client Group, we started a private capital coverage effort. And it was going from sort of a productized coverage effort where every segment was covering these firms from a different spot at the bank to a consolidated relationship manager that was delivering the whole bank to these clients. And we've gone from a -- in the capital markets businesses as a result, with these firms historically in the capital markets business is we may have been a participant on an acquisition deal or we may have been a participant in a bridge and gotten some bond takeout fees. But as we're going to market and delivering the whole bank, now in the capital markets, we're not just getting those loan and bond fees with these private capital firms. We're doing a lot of foreign exchange derivatives, commodities and structured credit. So we're really expanding our relationships there. And then in terms of products, as I mentioned at Investor Day, we continue to have opportunities to build out products that our clients are using that are well established in the marketplace, and we just haven't expanded into them yet at U.S. Bank. And good examples of that the last couple of years have been commodities and ABS or structured credit, where we launched capabilities in these products in the last couple of years. And it's an immediate meaningful fee run rate leveraging the credit commitments that we already have in place and just getting our share of wallet with these clients and these products. Now it's nice to take commodities, which we launched midway through last year. We're already expanding off that expansion -- off that product expansion. So we started with helping out our clients who are producers of commodities, helping them with their hedging needs. We're now expanding into helping companies that are consumers of commodities and as well as private capital. So lots of growth within these new product areas. And then lastly, we're expanding our reach within existing products. And an example of that is foreign exchange. We've got a great foreign exchange business. It's been growing. It's doubled in size the last few years, but we actually see an even better opportunity going forward as we plug it into our payments ecosystem through an effort called global transaction services. So global transaction services is really just partnering with WCIB with our payments team and helping serve our clients globally. And I'll give you an example of where we see this in foreign exchange. So you see on the left side of the page today, we facilitate about $1 trillion in cross-border payments. So as of the end of last year, we were executing the FX conversion on just 8% of that volume of payments on the number of transactions. With this more focused effort this year, we've already grown that to 12%. For every 1% growth, we had $4 million to $5 million in FX fees. And how that works and how that example works in practice is we have a company that goes into our treasury management system, say, to pay an invoice from a vendor in Europe. What they -- what those customers have been doing historically is just sending dollars to a receiving institution over in Europe that they don't have a relationship with. That receiving institution converts it to euros to pay the vendor. What we're doing with this new global transaction services sales team is educating them instead of sending dollars through our treasury management system, convert the dollars to FX with U.S. Bank and send euros overseas. And as a result, the clients -- the client is our clients. We're going to get them a better conversion rate than they'd be getting from a third-party institution on the other side. And we generate the FX revenue. So it's better client experience, and it results in revenue growth. And we're doing this across the products where we have global capabilities and can serve our clients like global trade, FX, foreign deposits, derivatives. And across these businesses where we're executing around this global activity, we generated about $250 million in revenue last year. We feel by 2028, we should be able to double it with this cohesive interconnected sales approach across WCIB and payments. Another area that's going to continue to grow for us that has been a differentiator and will continue to be a differentiator for us is in our investment services business. As you can see, we've got great scale in these businesses, corporate trust, fund services, institutional trust and custody. These businesses have grown at a really nice rate, particularly from a fee standpoint, over $3 billion in total revenues. And where we stand out in this business is we have the scale, but we don't have the global complexity that a lot of our peers have. In terms of the geographies we serve, we're in the U.S. and Europe, the 2 most attractive markets. We also -- our investments in these businesses are at a steady state. We were an acquirer for 20 to 25 years. We modernized and integrated systems, and we've built scale across the businesses. And we're going to continue to leverage that scale to grow our market share. In an area like corporate trust where we're #1 in every market that we serve, we still have opportunities to grow, leveraging our high-touch service model as well as this interconnected approach across the bank. And then another sort of example of where we're differentiating ourselves. I mentioned that private capital effort. And again, this is a real differentiator for us. Everyone is exploring the ways we work with private capital. And we think that we have a real differentiated approach because we have that investment services product as a gateway, where we are a preferred service provider for these firms as they continue to grow. And what we're doing with this new private capital coverage group is really delivering the whole bank. And it's allowed us over the past 3 years to grow at a 30%-plus CAGR, and we feel strongly we can sustain that growth. And what I wanted to share was just a client example to demonstrate how we're doing it. So this is an example of a private capital firm that 3 years ago, they were a single product client. We were just working with them in corporate trust, and it was a nice relationship, $1.5 million a year in revenue. You fast forward a few years, we've connected in the whole bank. We're now bringing structured credit product solutions to them as we've added that capability. We're seeing capital markets activity where we're leading some of the syndications of things like capital call facilities. We're executing foreign exchange across our portfolio companies. It's now a 7 figure a year foreign exchange environment -- foreign exchange client. And we've expanded our corporate trust relationship where we're now doing escrow. We're doing some of their securitizations. And then we've introduced our corporate payments partners, and we've got a partnership across our portfolio companies to provide corporate cards. So you take it from $1.5 million relationship 3 years ago to first 9 months of this year, it's a $20 million-plus relationship. And this isn't just a cherry-picked example. This is what we're seeing across this portfolio as we start to execute and deliver the whole bank to these clients. And then last piece where we're really seeing interconnectivity come to life is our wealth management business. This has been a good, steady growth business for us the last few years, but we really haven't historically leveraged the interconnected opportunity in this business. Just in the past year, we've started to institutionalize referral programs into this business. An example of that is in our branches where we put in place a digital tool of pop-up so that a branch banker gets a digital pop-up on their screen that encourages them to refer a client to the wealth management team. It allows them to set up real time an appointment with a wealth adviser. And from that tool, we've, just year-to-date, had over 100,000 referrals from the branches into wealth management. It's resulted in 12,000 new funded relationships. A lot of those relationships coming out of the branches are in the emerging affluent space. And we define affluent as $250,000 in investable assets. And 8 million of our U.S. Bank customers fall into that segment. And we think that's a great opportunity to plant seeds for the future in this business. As we build those wealth accounts and those clients accumulate wealth in the years to come, it's going to provide a nice growth trajectory in this wealth business. And then the last big opportunity for us in wealth is in our expansion markets. So we saw a nice growth trajectory since 2022 in our expansion markets. A lot of that was driven by the union opportunity in California, but also some of our expansion markets outside of our traditional footprint like Florida, like Texas, the New York tri-state area, where we can leverage referrals from our institutional business to grow that wealth platform beyond the traditional branch footprint. So the nice thing about these strategies is to grow our wealth business, we don't need to go out and acquire expensive teams. It's really just leveraging the opportunity within the 4 walls of U.S. Bank. So if you can build the customer base from that -- the wealth customer base from our existing customers within the bank, you're growing AUM and effectively growing adviser productivity, which allows for that positive operating leverage in this business as you grow it. So in closing, we've built a very comprehensive institutional and wealth business. We're leveraging our differentiated product set to grow at a meaningful rate and to build scale in these businesses. And we're just getting started on this interconnectivity concept. These businesses on a standalone basis are very attractive businesses. But when you leverage that ability to interconnect the whole bank, the opportunity is that much more meaningful. And we've got good execution momentum in these businesses. We've been growing at an attractive rate the last few years. And we've got a lot of tailwinds. We've got the tailwinds of the capital markets, which feeds activity in a lot of these businesses, and we have tailwinds from the seeds we planted for growth across the businesses. So we're very excited about what we've been doing the last couple of years, but even more excited about the go-forward opportunity. Thank you.

Thanks, Stephen. My mic. Well, John, maybe we can start with you. Reported a strong third quarter net interest income growth followed by the expectation for that to remain relatively stable in the fourth quarter. Maybe you can touch upon the main puts and takes underlying that outlook.

Sure. So just as a reminder, from the third quarter standpoint, we saw good growth there. We saw a little bit of asset mix improvement. We saw more exposure to cards and things like that, that have higher yields. Our fixed assets were repricing at a good clip. And importantly, our deposit pricing was very well disciplined. So that kind of helped generate that in the third quarter. So if you look at about the fourth quarter, we expect relative stability overall, as you mentioned. And a lot of that is just having to do with loan growth being flat. We don't see a lot of loan growth, particularly at this juncture. And so our earning asset base will be -- we expect that to be on a flat basis. And then in terms of our asset repricing and liability repricing, obviously, those 2 things are moving with the Fed now in tow and moving in rates, we find those things to be equally offsetting. Part of that is, of course, here the SOFR catch-up because of the Fed or the market wasn't really expecting the 50 basis point cut in the third quarter going into the fourth. So it's things like that, that are moving -- that calls for that relative stability.

I guess just following on that, does it matter much whether the Fed goes 25 or another, say, even 75 this year?

We benefit from rate cuts in the sense that we have that ability to reprice the deposits immediately. We have more of a bend than probably most in terms of our institutional deposits. So we have more of a 50-50 mix of the deposits that can get repriced almost immediately, and then the retail side will come. So that will be helpful. And I think it's ultimately the shape of the curve that -- where we actually end up to the extent that I always look at kind of the SOFR versus the 5-year treasury. And right now, that's still inverted. To the extent the Fed starts cutting and the curve kind of stays at this level or higher or whatever the case may be, that's always going to be beneficial to us.

Right. Okay. And then just switching over to the fee income growth. You reiterated your fiscal year mid-single-digit fee outlook at the lower end of the range. I'm just curious what gives you confidence in the outlook for the fourth quarter, given factoring in the near-term headwinds in payments.

Sure. So Stephen touched on a lot of these things and why we have confidence in our call for mid-single digit, albeit on the lower end for the full year. And really, our core businesses are doing quite well. You think about the capital markets business is growing, as Steve mentioned. We have leadership positions in our fund services and in our corporate trust businesses that are -- have been a very nice growth that really tails off the capital market activity that we're seeing. Mortgage has been doing well this year in certain areas. Payments, while it had a lower growth rate on a year-over-year basis, this past quarter has some of the headwinds that you just mentioned with prepaid card and the like. But we expect some growth out of that as well as we kind of move forward, particularly in our corporate payments and things like that. I would also say we had some headwinds in the -- by exiting the ATM cash servicing business. We're approaching the lapping of that quite soon. So even despite those headwinds that we face, we still feel like we're going to comfortably get into that low single -- or that lower end of the mid-single-digit range that we talked about.

Okay. Stephen, can you just -- you highlighted how U.S. Bank has reported very strong growth in the capital market space over the past several years. Maybe you can elaborate, some of the key focus areas that support the outlook for 12% to 15% revenue growth in the medium term and just help us in defining medium term as well.

Yes, Gerry, I define medium term as the next 5 years. And what gives us confidence is sort of a proven formula that we've had between going deeper with clients and that uptier opportunities that we continue to see. And that uptier, when we uptier with clients in those syndicated facilities, the most immediate beneficiary is typically our capital markets businesses. When you go from being a participant to a lead in the loan facility, you tend to lead the bond deals, you tend to lead the hedging activity. So it's that depth opportunity that -- and from a client perspective, but it's also expanding the breadth of products. And we continue to see these opportunities as we've seen in commodities and structured credit over the past year where our customers are asking us to get into these products. And commodities is such a good example where there's just such pent-up demand for a new counterparty that we flip the switch and turn the product on and are immediately getting a nice fee income flow. And we have other opportunities like that. We added -- we have picked up talent with some product expertise in areas like the fees and structured notes, where we're just putting these teams in place. And we can see the go-forward growth areas like customer repo, which we haven't historically been in. So we've got a nice pipeline of products and initiatives in addition to that client uptiering that gives us a lot of confidence. And that's -- these can be volatile businesses. And one of the nice things that we've experienced over the last several years is that opportunity to continue to uptier and continue to add products is a nice offset to the natural market volatility.

Right. Are these new initiatives, are they ramping at this point? Or are they '24 or are they '25 contribution?

So some of them have been '24 contribution like commodities and structured credit, although they're going to grow further in '25. And some of these were just getting up and running, you'll see '25, '26 ramp-ups.

Okay. And then within private capital, you announced the new private capital and global asset management division earlier in the year. Can you discuss USB's primary focus and where you see the growth opportunities ahead?

Yes. Our primary focus is really partnering with these firms in providing complementary -- we view them as complementary partners. We don't have the same -- they're not the same existential threat to us as they are to some others in the industry because we've never had a big leverage finance business. So some of the customers that are exiting the banking sector to go to that private capital space are not in the credit box that we would normally be going after. So we don't have that competitive threat. So it's more how do we support their growth. And we're doing that with our investment services product, which they highly value. I mean we are a provider of choice, and these firms want to do business with us. They prefer to do business with us. So it's leveraging that as a gateway to then introduce the rest of the relationship, introduce the structured credit lending, introduce some of the capital markets, hedging activity, introduce payments. And again, it's working out really well because the more that segment grows, we're actually a beneficiary. It creates annuity-like revenue in our investment services businesses. And as we tack on some more of those fee businesses, it just builds upon them.

And when you say private capital, is it all a cap stack? You got private debt, private equity?

Private equity, private credit.

Okay. Great. Actually, let me pause and see if there's any questions from the audience.

John, I was wondering if you'd be willing to do sort of a mini teach-in on the accounting for cash flow, interest rate swaps. And I'm not interested in the fair value, just the cash flow. And the reason I ask is you, like many other banks, have a couple of hundred million of losses from cash flow interest rate swaps that are going to be amortized into NII over the next 12 months. And I'm just trying to understand what's the process that leads you to realize those losses? And then second, if you could address in your Investor Day, you had a slide up there that showed a lot of forward interest rate swaps coming on in the future. What determines whether those forward swaps are going to lose or make you money?

Sure. So on your first question on the cash flow swap, let me give you an example of a cash flow swap that we're kind of talking about. So we'll have a floating rate commercial loans, so it's tied to SOFR. And we will elect to do a receive, fix, swap on to that. So we'll receive, fix and pay floating. So it will be kind of the offset there. So the mark-to-market value is the value that you're talking about there in terms of the -- so when we -- when you see our financials at every quarter end, you see $100 million or whatever the case, that's the mark-to-market of that derivative at that particular point in time. Whether or not you actually realize that through your P&L over that time will depend upon where the rates actually end up. So as an example, if your received fixed rate is 3% and the Fed is -- SOFR is at 5%, you're going to lose that delta 2 percentage points over that time. So that gets into your second question, which is really the forward-starting nature in our investment deck, which we had forward starting swaps. Now the mark-to-market is displayed in the financials, as you pointed out, but the accrual component of that has not hit until you hit that forward starting date. So nothing is really touching the NII component of it until there's actually -- you're within the start date and that effective period of that swap, whatever, it's 2 years or 3 years or whatever that time period is. And the accrual component is just your SOFR rate less the -- or plus or minus that fixed rate component. So that's the difference there.

Just a follow-up. So if you put on a forward swap when the marketplace was expecting 200 basis points of [indiscernible] and let's say you only get 50, how -- does that end up as an unrealized loss [indiscernible] at some point you recognize?

Yes, that's right. So if you put -- that's under that -- to your point and your example of if you have a 3% fixed rate versus the 5% environment and the expectation at that time was that the Fed would cut down to ultimately 2%, but that didn't materialize, then you would take that accrual through that. But the big picture on the swaps and why we have that is because what we're doing is protecting in downrate scenarios because on the other side of our hedge program is a pay fixed swap to hedge our investment portfolio. So we're utilizing both of those. So yes, obviously, there's mark-to-market and accruals and moving in and out. But we look at it holistically in terms of our received fixed portfolio as well as our pay fixed, and those 2 things help offset each other, but they serve 2 different purposes.

Just can I just follow up on Charlie's question and that's if you stand back and look at your total hedging program, say, over a 10-year period sort of 3 related questions. One is if you look at the cumulative net interest income over that 10-year period, would the hedging program have added to, subtracted from or been neutral to net interest, the aggregate dollars of net interest income? Two, did it, in fact, reduce volatility because my sense is like the volatility it's created in the last 2 years has kind of swapped out the -- whatever benefit there might be. And three, if you think about it, for how long does it really give you protection? I mean if short rates were to go to 0 and stay there for 2 or 3 years, presumably most of your swaps would burn off, and you'd ultimately end up where you're going to end up anyway.

So holistically, again, and to answer your question on the neutral positive or negative, let's take this instance right now where we are right now. We've been relatively neutral because we have virtually an equal amount of received fixed swaps to pay fixed swaps. The hedging is really just to help in the 2 different portfolios, meaning we have pay-fixed swaps that help protect our investment portfolio. So when rates scoot up as they have, obviously, in the last several weeks here, then we're protected. We're not exposed as much to that AOCI hit ultimately when that comes into capital. And so -- but if we just did that pay fixed swap component, and we did nothing else, then we would be really heavy one-sided on our interest rate risk profile, which we don't want to be. And so on the other side of that, we have received fixed swaps. Ultimately, the accruals of that are pretty neutral from an accrual standpoint. And so we look at it as a balance. And so that's really what we're trying to accomplish. How we actually perform on net interest income is way more impactful in terms of things like our deposit pricing and things like that, the shape of the yield curve, ultimately, how loan growth is going and all those sorts of -- the mix of our portfolio, et cetera. So I look at the hedging as really just to help put a bow around our interest rate risk profile, our balance sheet management. And I don't look at it as it's helping or going to help us or hurt us on that. It's more to hedge and help us holistically manage the balance sheet.

Mike?

The 4 words that stick with me that you both have said is beyond the branch footprint. So Stephen, as it relates to wealth, examples of where that really works. And once again, back to consumer, State Farm and Edward Jones, digital expansion without the branches. We've seen that at so many banks for so many years. That's failed so many times. So why are you going to be the exception? Or do you expect to eventually add some branches for that wealth and consumer business?

Do you want to start?

Yes. I'll start on the wealth side. I mean what's different for us is we have this great national institutional franchise. So we have middle market banking, corporate banking that's national. We're all over the East Coast outside of the retail footprint. And we put in these client centers, whether it's in Houston, in Naples, Florida or Sarasota, Florida, where we can leverage our relationship from a commercial banking standpoint and refer clients into the wealth management business. And we've seen good success with that. I mean again, that's been growing. We've been doubling that expansion market, growth in wealth management. And it's leveraging that existing franchise that we have. And the beauty is we can go in with these client centers where we can serve wealth, we can serve commercial banking, mortgage without having to expand and build a big branch footprint. And we just opened this client center in Houston. It's one physical spot. If we wanted to go into Houston and build wealth through a branch footprint, we'd have to build 2 dozen branches. So it's much more capital efficient, and we're seeing good growth, leveraging that national institutional franchise.

So Mike, 2 points I'll give to you. First of all, on the branch just to be consistent to what we've said in the past. We are focusing our branch efforts on our current branch locations and optimizing that. So that's just point number one. Second point is in terms of these partnerships, I think what it is pointing to is really the theme of this conference, which is about scale. And we have developed a lot of digital tools and capabilities over the last several years. And what we can do is use that technology and port it into the other partners that we have. So Ed Jones as an example, when we get fully up and running with Ed Jones, what's going to be powerful there is they have locations in virtually every county in the country. And a lot of their clients don't have an appropriate checking or other account to really move money. And so this is an opportunity while that client is in their branch to open up an account. Along with that, we not only have the deposit component relationship of that, but we also have opportunity then, therefore, to build on cards and other products as we kind of move forward. And that's going to be really powerful for us. So it's the ability to scale and utilize the technology that we have in-house already and power that forward. So that's how we kind of think about it from a digital reach standpoint.

Julian?

What's your initial take on what's changed for you this week? I mean the market is saying higher economic growth, higher inflation, share prices are higher, so profitability is higher as well, presumably less regulation. But what's your initial take? What are you expecting?

We're expecting to maintain our execution and being really laser-focused on that. Clearly, the environment is changing and shifting. I don't have all the answers about what that all looks like just as -- I have ideas about that, just as I'm sure you all do. But obviously, regulatory agencies will change and shift that will move some things perhaps favorably for the banking industry. But the other side of that as we saw interest rates increase, that may shy away people from taking out loans because that's become, again, more expensive on the mortgage side or on the commercial side or whatever the case may be. So I see puts and takes to this. And obviously, there's going to be some positives out of it and perhaps some negatives with it. And so we just have to take it in stride. What we are doing is what can we control in-house, and we have a long execution list. Stephen talked about a few of those points on these slides that we are laser-focused on. And that's really what we are going to be all about in these upcoming quarters and years.

Yes. And I think the biggest change is just that there's some certainty in the environment. One of the things that we hear from -- that we've been hearing from institutional clients for the last years, hesitancy to invest in CapEx, inventory build just because of uncertainty around the election. And we have certainty. That had been a drag on loan growth. The offset, as John said, is if that CapEx picks up, the governor on that is we do have higher rates. But I think that certainty is just helpful in general for our clients.

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I think this certainly helps companies have a little more confidence in investing CapEx, but that could be offset by higher rates.

All right. Thank you. We're actually out of time. That was great. We really appreciate it. Thank you, John and Stephen.

Thank you.