Welcome to the U.S. Bancorp second quarter 2025 earnings conference call. Following a review of the results, there will be a formal Q&A session. If you would like to ask a question, please press star, then one on your phone. If you wish to withdraw your question, please press star, then one again. This call will be recorded and available for replay beginning today at approximately 10:00 A.M. Central Time. I will now turn the conference over to George Andersen, Director of Investor Relations for U.S. Bancorp. Thank you, J.O., and good morning, everyone. Today I'm joined by our President and Chief Executive Officer, Gunjan Kedia, and Vice Chair and CFO, John Stern. In a minute, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release, and all supplemental analyst schedules can be found on our website at ir.usbank.com. Please note that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that can materially change our current forward-looking assumptions are described on page two of today's earnings presentation, our press release, and in reports on file with the SEC. Following our prepared remarks, Gunjan and John will take any questions that you have. I will now turn the call over to Gunjan. Thank you, George, and good morning, everyone. If I could please turn your attention to slide three. In the second quarter, we reported earnings per share of $1.11 on net income of $1.8 billion. Core growth across our diversified fee-income businesses and continued expense discipline more than offset a lighter spread of income. We delivered strong year-over-year EPS growth, as adjusted, of approximately 13%. Total fee revenue growth of 4.6% year-over-year reflected broad-based strength across our businesses and ongoing focus on execution and organic growth. John will discuss how we are navigating the current higher-for-longer interest rate environment and taking action to strategically position our balance sheet for near-term margin expansion. Notably, on an adjusted basis, we delivered 250 basis points of year-over-year positive operating leverage, the fourth consecutive quarter of revenue growth outpacing expense growth. We generated an 18% return on tangible common equity, a return on average assets of 1.08%, and improved to a high- 50s efficiency ratio. Asset quality trends and credit metrics remained stable, and capital levels came in well above regulatory capital minimums. Turning to slide four, we provide a high-level view of U.S. Bancorp today. A few things to highlight for this quarter: fee income now represents approximately 42% of total net revenue. We saw good sequential growth in total purchase volumes within payment services, and a Fortune 500 ranking improved from a year ago. Slide five provides an update on expense stabilization. This is one of our three major priorities. On the left, you will see that we have successfully delivered now seven consecutive quarters of stable expenses on an adjusted basis. We are driving meaningful productivity while also self-funding our investments in the franchise. For example, increases in payments and technology expenses were offset by reductions in personnel and occupancy costs. On the right, we have highlighted a few of the digital investments we have made over the last five years to create modern, secure, and scalable platforms. We are now harvesting these investments to drive long-term productivity and sustainable positive operating leverage. Slide six profiles our businesses and the strategies we are deploying to drive organic growth, our second major priority. The businesses highlighted in light blue represent areas where we are pursuing new strategies or transformative approaches. In our capital markets business, we are focused on introducing new product capabilities that leverage our existing balance sheet, such as ABS bonds, commodity hedging, and repo. The structured lending capabilities we are building are also delivering attractive growth in our C&I loans. In our payments business, which is our third key priority, consumer spend remains resilient, especially in the non-discretionary spend where we are slightly overweight. Corporate and government spend was muted this quarter, reflecting caution around economic uncertainty. Merchant Payment Services revenue, which is less than 7% of total firm-wide revenue, grew 4.4% year-over-year, supported by our tech-led strategy and strong focus on five strategic verticals. The businesses highlighted in dark blue are areas where we expect continued growth through a sharper and more urgent execution focus. Finally, the mortgage, auto, and commercial real estate business portfolios, highlighted on the slide in gray, are core to our long-term growth strategies and are well-positioned to grow when macro pressures ease. On slide seven, we provide a snapshot of how our fee mix has evolved over the last 10 years in a positive way. While fee revenue, as a percentage of total revenue, was slightly higher a decade ago at about 45%, our revenue was skewed towards consumer fees, which have elevated exposure to market volatility and regulatory pressure. These dynamics contributed to fee income as a percentage of total revenue, falling to 38% in 2023. We have been quite intentional in our strategy to invest in growing our trust and investment wealth, and capital market advisory services, and today institutional wealth and payments businesses collectively represent more than 75% of fee revenue. These are stable and profitable fees with underlying positive macro growth drivers, which support our sustainable revenue growth objectives. Turning to slide eight, we are approaching the evolution of our balance sheet in an equally deliberate manner. At quarter end, C&I and credit card portfolios represented 47% of the balance sheet. This is up from 43% at the end of 2023. This quarter, these average loans grew 6.6% year-over-year, vastly outpacing total loan growth. These portfolios also support a higher percentage of multi-service clients at 51%, and we are prioritizing growth in these segments. To further optimize our balance sheet, we divested approximately $6 billion in mortgage and auto loans this quarter, taking advantage of a favorable rate environment for these asset sales to strategically reposition the balance sheet both for stronger growth and in support of deeper client relationships. Let me now turn the call over to John, who will provide more details on the quarter and forward-looking guidance. Thanks, Gunjan. Good morning, everyone. This was a good quarter for us as we made meaningful progress towards achieving our medium-term financial targets and worked to position ourselves for future growth. If you turn to slide nine, I'll start with some highlights followed by a discussion of second quarter earnings trends. We reported earnings per share of $1.11 and generated $7 billion of net revenue on flat expenses. Ending assets of $686 billion were impacted by seasonally elevated quarter-end deposit flows. Credit quality metrics remained stable. A modest reserve release of $53 million this quarter was largely reflective of favorable loan portfolio sales we executed to reposition the balance sheet. As of June 30th, our CET1 capital level was 10.7%. Slide 10 provides key performance metrics. As the slide shows, we are making steady progress on our medium-term profitability and efficiency targets. Linked quarter, we delivered an improved return on average assets of 1.08% and saw our efficiency ratio fall to 59.2%. While net interest margin declined six basis points sequentially, approximately half of the decline was temporary in nature and will not carry into the third quarter. This decline was driven by strategic loan portfolio sales as well as high residential mortgage paydown activity in April. The remaining impact was driven by elevated deposit pricing pressures and rotation into higher-rate products. Importantly, we remain focused on action and initiatives to strengthen net interest income, and those efforts are fully reflected in our guidance. Slide 11 provides a balance sheet summary. Total average deposits decreased 0.7% linked quarter to $503 billion. In line with seasonal tax payment outflows and our emphasis on relationship-based deposits. Balance sheet management supported a funding mix that prioritized both non-interest-bearing and low-cost consumer deposits. Average consumer deposit balances increased $2.4 billion, or 1.1% linked quarter, while the percentage of non-interest-bearing to total deposits remained stable at approximately 16%, and the deposit beta was 42%. Average loans totaled $379 billion, a decrease of 0.1% on a linked quarter basis. Balances were impacted by the sale of approximately $4.5 billion of residential mortgages and approximately $1 billion of auto loans. Excluding these sales, average loan growth was approximately 0.4% sequentially and 1.6% year-over-year. Notably, we strategically grew our C&I and credit card average loan portfolios 7.1% and 4.4%, respectively, on a year-over-year basis. At June 30th, the ending balance on our investment securities portfolio was $174 billion, an increase of $3 billion from the prior quarter end. Fixed asset repricing and reinvestment of proceeds from our residential mortgage sale into investment securities resulted in an eight basis point increase to the average investment portfolio yield. Consistent with efforts to reposition the balance sheet, we opportunistically restructured approximately $1.25 billion of investment securities this quarter, resulting in a $57 million loss. The payback period on this transaction was less than two years and enhanced our net interest income trajectory. Turning to slide 12, net interest income on a fully taxable equivalent basis totaled $4.08 billion. Linked quarter, the competitive deposit environment more than offset the benefits of fixed asset repricing. Slide 13 highlights trends in non-interest income. Total non-interest income totaled $2.9 billion, reflecting security losses of $57 million from the repositioning of the securities portfolio. Excluding security losses, total fee revenue of approximately $3 billion increased 4.6% year-over-year. This was driven by core growth and new business momentum across payments, trust and investment management, and other fee revenue. Turning to slide 14, non-interest expense was $4.18 billion, as we prudently managed expenses and further captured operational efficiencies across the business. Slide 15 highlights our credit quality performance. The ratio of non-performing assets to loans and other real estate was 0.44% at June 30th, an improvement of one basis point linked quarter and five basis points better than a year ago. The second quarter net charge-off ratio of 0.59% and allowance for credit losses of $7.9 billion, or 2.07% of period-end loans, remained stable sequentially. Turning to slide 16. As of June 30th, our CET1 capital ratio was 10.7%, a two basis point decline linked quarter. Given strong capital levels and earnings accretion, we elected not to replenish a maturing credit risk transfer, keeping our CET1 capital ratio flat sequentially. Results of this year's stress test, which revised our preliminary stress capital buffer to 2.6%, further demonstrated the company's ability to withstand a severe economic downturn, which is a testament to the strength, quality, and diversity of our balance sheet and prudent approach to risk management. Importantly, our CET1 capital ratio, including AOCI, improved to 8.9%. At the top of slide 17, we show a comparison of second quarter results to our earlier guidance. As expected, slightly lower net interest income was more than offset by better-than-expected fee income of approximately $3 billion and prudent expense management. I'll now provide forward-looking guidance for the third quarter and full year 2025. Starting with the third quarter 2025 guidance, we expect net interest income for the third quarter on a fully taxable equivalent basis to be in the range of $4.1-$4.2 billion. Total fee revenue is expected to be approximately $3 billion. This compares to the second quarter total fee revenue of $2.98 billion. Total non-interest expense is expected to be $4.2 billion or lower in the third quarter. We expect to deliver positive operating leverage of 200 basis points or more on an adjusted basis. I'll now provide full year 2025 guidance, which is consistent with our previous guidance. Compared to full year 2024, we expect total net revenue growth on an adjusted basis at the lower end of our 3%-5% range. Our guidance assumes two rate cuts in 2025. For the full year, we expect to deliver positive operating leverage of 200 basis points or more on an adjusted basis. Turning to slide 18, we continue to make measurable progress toward achieving our medium-term targets. As you can see on this slide, year-over-year, we have improved both our return on average assets and efficiency ratio while delivering high teens return on tangible common equity and mid-single-digit fee growth. Let me now hand it back to Gunjan for closing remarks. Thank you, John. Let me close on slide 19. Second quarter results were supported by a unique mix of diversified businesses that delivered strong sequential and year-over-year EPS growth this quarter. The resiliency of our business model offset some rate-driven softness in spread income with good growth in fees and continued expense discipline. Notably, we executed on our key expense initiatives and delivered meaningful positive operating leverage for the fourth consecutive quarter. We are intentionally evolving our business mix to be more fee-intensive and attractive to greater diversification, while also shifting the balance sheet to support a higher percentage of multi-service clients and improved spread revenue. As we head into the back half of the year, we are well-positioned and executing with urgency on our three key priorities: expense discipline, organic growth, and transformation of our payments business. Efforts this quarter supported meaningful progress towards our medium-term financial targets and ability to deliver sustainable EPS growth. I am often reminded that the true strength of this company is driven by the day-to-day actions and choices of our talented teams. So, on behalf of all my U.S. Bank colleagues, I would like to thank our clients and our shareholders for their loyalty and support of our exceptional company. With that, we will now open the call for your questions. Thank you. At this time, as a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Scott Siefers of Piper Sandler. Your line is open. Morning, everyone. Thank you for taking the question. John, we're hoping to start out on some NII dynamics. Maybe if you could spend a moment discussing where the margin goes from here off the 2.66% base. I think you mentioned part of the linked quarter decline was sort of transitory based on the actions you took in the second quarter. So, what do you see as the best launching point, and kind of what would it take to move it higher or lower from here? In other words, the main puts and takes. I guess the final piece of it is maybe where we stand on the 3% medium-term margin aspiration. Sure. Thank you, Scott, and good morning. First of all, yeah, you're right on the net interest margin. We had 3 basis points of the 6 was really attributed to transitory things related to the sale that I mentioned, kind of a grossing up of balance sheet. So, we expect that to reverse. I also expect sequential net interest income growth here in the third and fourth quarter as we move forward. We have a lot of positive momentum on the asset side, driven by a lot of strategic actions that we mentioned throughout our remarks. We do have fixed asset repricing that will accelerate and be better than the first half of the year. The strategic actions we took in terms of the loan sales, as well as the investment portfolio repositioning, is going to help net interest income trajectory for the next several quarters. And then loan growth, we feel the pipelines are strong on C&I and card. We've been growing C&I at a 7% year-over-year clip, card at 4%-5% year-over-year clip. And CRE is starting to turn t he tide there in terms of not being as much of a drag in terms of growth. And in terms of deposits, we're being active in remixing our deposit mix. We intentionally moved out of some high-cost corporate and single-serve client. And we had moved into more of our consumer deposit base, highlighted with our Bank Smartly product. So, we feel very good about the trajectory of all these moves. And so, that's going to help us both on the net interest income and margin side of things go forward. And I would just say, in terms of our 3%, there's no change. Obviously, we know the margin dip this quarter, but it's never linear, and we have those drivers that I just mentioned that are going to help us see through that 3% over the medium term. And Scott, let me add one other point. Even on deposit mix, even on our institutional side, you will observe very healthy growth in treasury management fees and our corporate trust fees. These are processing businesses that bring operational deposits that are also favorable to our mix. So, that focus will also help our NIM trajectory. Perfect. Okay, good. Thank you for that color. And then maybe as the follow-up, John, when you talked about. Or Gunjan, when you talked about expenses being, I think, $4.2 billion or lower in the third quarter, maybe just a second on where that flex could come from if necessary. And kind of more broadly, I guess one of the concerns I hear from investors is that cutting costs to meet the operating leverage targets might just be preventing some necessary investments. Can you just sort of address that? I'm certain you all don't feel that way, but maybe if you could just spend a moment addressing it, please. Sure. We certainly don't feel that way. We feel all the initiatives and investments we've made, we are harvesting that for all these sorts of things. And as Gunjan mentioned in her comments, we are self-funding in a number of the initiatives that we have. And so, we feel very good about the levers that we had. It's coming from things like the real estate that's going to be a continual driver. Combining of certain areas have found us efficiencies within our operations and other sorts of technology-like groups. The productivity changes we've made and platform enhancements we've made. AI is certainly a buzzword, but there are things that we are deploying that have been helpful and will continue to be helpful going forward. There's just a lot of efficiencies and things that we are executing on on the expense side that's been helpful to us. And we have continued our investment. We continued our investment in terms of our tech spend, in terms of our investments in the business. That has not changed. And we feel really good about these things being pointed at our strategic objectives where we want to grow. And I'll just add, Scott, you've covered our company for a long time, and you've seen us operate very effectively at an efficiency ratio much different from where we are today. It's a very streamlined, simple business mix. We are quite big in the businesses we are in. So, our conviction that we can operate the company and invest in the future growth at a slightly lower efficiency ratio is very real. And in addition to the digital investments that John talked about, I do want to say that the real productivity that is coming from having spent more than $5 billion in digital investments over the last five years is very real. And you will observe certain line items over time increase, like technology, sales and marketing expenses, investments in our payments businesses, because those are our strategic areas. And the real productivity will be in some other categories. So, we very much take the question that the productivity is not coming out of under-investing in future growth. Perfect. All right. Thank you very much. Your next question comes from the line of Steven Alexopoulos of TD Cowen. Your line is open. Hey, good morning, everyone. Morning. I wanted to start, so Gunjan, for you, a bigger picture question, if you will. So, if we look at the guidance you provided to the market, hold expenses flattish, deliver positive operating leverage, 200 basis points or better, that's been the guide. You look at this quarter, you basically did that, right? 250 bps POL, maintain the outlook. Despite that, the stock, we'll see where it goes, is down 4%, right now pre-market. When you think of the financial targets, right, the desire to create shareholder value, is 200 basis points enough of an objective to get the stock working? And do you need to do more on the revenue side, right, to start moving the POL needle? It's a very thoughtful question. Thank you. 200 basis points of positive operating leverage is very healthy in the long term. The opportunity is in revenue growth. If you look at our portfolio, and we really tried to disaggregate some of our business lines so you can see the underlying strength of how we have evolved the portfolio, the opportunities for growth are very, very real. And that's where you will see us sort of flex the EPS growth. The expense side was an important area of focus for us just to get the positive operating leverage in place. And I look back and reflect also on why the stock reaction. And it's less about the targets not being appropriate, but whether there is enough sustainability and consistency of delivery against it, which is why we report out sort of how we are progressing towards our medium-term target. We are very confident that as the confidence grows in our ability to march towards our medium-term targets in a consistent fashion, the stock would react to that. Okay. That's fair. Maybe for John, even though l oan growth was negatively impacted by the mortgage sales, you guys did have very solid underlying C&I growth. And I guess this goes to Scott's question a minute ago. But if we look at your funding, right, assuming C&I loan growth continues to be strong, which was what we saw out of PNC yesterday, M&T, same thing, talk about what is going to change from what happened this quarter where you saw a migration to higher-cost deposit products. How can you fund that with lower-cost deposits and drive NIM expansion, say, in the back half of this year? Thanks. Great. Yes. Good question, Steven. I think your observation is correct, and we do expect, as I've mentioned on the previous question, growth in C&I and card and things like that that are going to position us for higher growth on the asset side, coupled with all the other things that I said, so there's certainly the asset side we feel good about. On the deposit side, yes, we saw an increase of cost in that, but I think where we're leaning in is on the consumer side, which is appropriate because what we're doing is we're looking at things like our Bank Smartly product, which is a fantastic product for us. It's a product where clients set up both a card and a checking and/or savings account, and we have seen through this over 50% of the people that use this product as new to bank. We see that the multi-service client statistics on this type of product are 3x what we would normally have on the retail side, and our acquisition cost is a lot lower. Nearly a third of the cost we can take out in terms of acquisition with this product value proposition that we give to the clients, and so, over time, what we are seeing is an improvement in our deposit portfolio and improved flexibility of our ability to price as we move forward, and that's really going to be the drivers of how we will manage over the long term our funding costs. Got it. And John, I'm newer to your story. Why didn't that help this quarter? The Smartly product? Why is it going to help next quarter but didn't help this quarter? The deposits side was on the commercial and retail side. So, I'm not going to say it's just all retail. This is a deposit story. What I'm referring to is I think about the go-forward deposit portfolio position. It's really about our flexibility and to move pricing as we think about the different deposit levers that we have, whether it's CD or the savings rate as the Fed moves rates and things like that. We have more ability than we would have otherwise in our retail book as a result of this. And then on the commercial side, we have a high beta, already a high beta type of product. So, when the Fed does move, we can cut those rates or move those rates appropriately. Got it. Thanks for the color. Your next question comes from the line of Betsy Graseck of Morgan Stanley. Your line is open. Hi. Good morning. A couple of follow-ups there. One is on the C&I book. And can you give us some color on the driver of that acceleration in growth and where we stand now with line utilizations, q/q? That would be helpful. Yeah. You know, Betsy, it was the growth really in C&I was everywhere. It was very good to see. I could give you the laundry list, but the highlights would be the utilization rate did tick up a little bit. It's about 30, 40 basis points, and it's a continuation of what the trends that we saw last quarter. We saw strength in our ABS lending portfolios. We saw strength in small business led by healthcare and things of that variety. SBA as well. Our expansion markets, middle market that we've been growing in various areas have been providing us nice growth year on year. And so, there's just been a lot of good growth, and we have a lot of momentum, and the pipelines are strong. And Betsy, let me add just one other thing to your question. For the last few years, we've been very intentional with also introducing new product capabilities, more structured credit capabilities, just reflecting a more sophisticated client base and their needs. So, you're seeing the impact in these recent quarters of the groundwork that was laid over the last few years. And similarly with credit cards. Yeah. Go ahead. Go ahead. So, that's advancing the private credit side of the business. Is that partly what's going on with the structured credit? That's helping too. Helping as well. But it's broader than that. And then just a ticky-tacky question, but were there any gains or losses on the asset sales you did? No. There's nothing meaningful other than the reserve release that you saw this quarter. Okay. Thank you. Your next question comes from the line of Michael Mayo of Wells Fargo. Your line is open. Hey. I think these are for you, John. Still on the NIM, did you say there was deposit competition that was one of the drags on the NIM? And also, I think I see RWA up $9 billion in a quarter when loans were flat and didn't quite understand why that happened. Thanks. Sure. Let me go to your second question first on the RWA. Yes, $9 billion up. I commented, and just to reiterate, we had a couple of things happen. One, we elected to have some of the credit risk transfers that we've done in the past to roll off. That was about half. And the other half was commercial loan growth that we saw at the end of the quarter. We saw strengthening, which is why we're commenting on C&I growth and saying that the pipelines are strong. There's a lot of activity. We felt like confidence improved throughout the quarter. So, those were the underlying drivers for the RWA component. On the net interest margin side of the equation, I would say the deposit market is competitive. It has been for some time. I don't think anything is unique about this quarter versus others. Obviously, there was the market turmoil that started at the beginning of the quarter, but very quickly, people bounced. The clients have been very much resilient, and we feel like the pricing is appropriate and rational. All right. No, just because we hear from some others that yield-seeking behavior has really died down quite a bit. But pulling the lens out just on asset liability management generally, I guess you're not running the firm just for the NIM or NII. You're running it for revenues and value creation over time. I get it. But is there anything that you need to change holistically with asset liability management or that you've done over the past year that may show some results? Again, I'm just looking back a couple of years, and you guys were caught with the unrealized securities losses, and that was an issue. And now here it's NIM falling short in its deposits. And it just seems a little bit not in sync with the industry. Maybe, as you said, it's going to pick up the next couple of quarters, and this thing will be in the past. But just any general thoughts about the process of ALM at USB? I acknowledge your comments, Mike, but I think that what we're doing is a lot of the actions that we're taking right now are about positioning for the future, some of the sales that we talked about, the positioning on the securities book and everything like that. These are active actions that we're taking to move ourselves forward, to get our—we had some charts in there about where we want to take the balance sheet and how that has grown into more support, multi-service clients and things of that variety. We have the ALM processes in terms of managing interest rate risk and things of that variety, so we feel very good about those capabilities. I'd just also add, Mike, that we are strategically evolving both sides of the balance sheet to support a higher NII trajectory. So, we have a very big mortgage book. It grew a lot during the post-COVID era. And that's why the focus on credit cards and commercial C&I loans, which have a better yield characteristic. On the deposit side, we are, in addition to the consumer deposit focus, you see we are defending those. And defending market share there. We're also really growing out the treasury management and the corporate trust franchise so that the institutional deposit profile is very good. So, there's a lot of strategic efforts to create a faster NII trajectory. And just lastly, the 3% NIM, is that something that could be seen in a year, two years, five years, any sense? Well, for all the drivers that we talked about, we continue to expect that to be in the medium term. I would say that we have about four cuts over the cycle remaining within that assumption. More cuts are more helpful. Fewer cuts make it a little bit more of a slower pace. So, those are kind of the puts and takes to how we think about it. Otherwise, the initiatives that we're talking about here are positioning ourselves for that net interest income trajectory going forward. Great. Thank you. Your next question comes from the line of John Pancari, Evercore ISI. Your line is open. Morning. Morning. Just on the balance sheet trends, I appreciate the loan growth color you gave and some of the deposit dynamics. In terms of the growth outlook from here, is it—I know previously you had pretty much described it as modest growth on both fronts, I believe, on loan growth and deposits. Can you maybe just update us how you're thinking about it now, particularly since you're seeing some acceleration in the underlying trends within commercial and you're seeing some growth in card? How are you thinking about that now? Thanks. Yeah. Thanks, John. I think certainly when we started the year, as we were thinking about the budgeting, we looked out and assumed a modest pace of loan growth that more or less has transpired. But what we're saying and seeing is that there's been acceleration and strategic focus on C&I and card for us, which you are seeing play out in terms of our 7% C&I year-over-year growth. And we continue to see that and expect that to continue. The card growth, we continue to expect to see that as well. So. As I sit here today, we're better positioned on the loan growth side, or we see better growth opportunities than we did at the beginning of the year. Okay. All right. Thanks. And then i n terms of your revision to the 3%-5% revenue guide, I know you cited the lower end now. How much of that decision to revise that was coming from the NII headwinds? And I guess also put the other way, what are you seeing in terms of your growth expectation as you look at the trends in payments and fees? Are you comfortable still with the mid-single-digit growth level for overall fees and within the payments businesses as well? Sure. Absolutely. Yeah. Let me start. So, total revenue, obviously, is the two parts, and I'll start on the fee side. We feel very good about the momentum that we're building. Gunjan highlighted a number of those items on her comments. On the institutional businesses side, trust and fund services, we continue to gain market share, market activity. So, that's going well. Treasury management, Gunjan highlighted with our newer capabilities. Merchant processing, we feel very good. They've had a couple of quarters now of increased year-over-year growth. We continue to, or we expect to see that to continue to improve. Given the strategies that we're putting in place there. Our tax credit activities within the other revenue have been growing very nicely for us this year. And I would expect our other revenue to be north of $150 million for the remainder of the year. And so, all these things are really at that, plus the things in capital markets and other areas. We feel very good about our fee trajectory going forward, and that's embedded in the guide that we provided to you. On the net interest income side, I think. Sure, it's been a little slower than at the beginning of the year, but we think that there is acceleration that it can grow because of the things that we talked about. It's embedded in our guide for the third quarter. And I'm not going to repeat all those things again, but that's the essence of it and why we feel like we'll be at the lower end of the range. Right. And then thanks for that, John. But back to the fees and payments, so still comfortable with a mid-single-digit range? Yes. Yes. Absolutely. Okay. All right. Thank you. Your next question comes from the line of Erika Najarian of UBS. Your line is open. Yes. Hi. Good morning. My first question is for John. John, I'm wondering if you could share your LCR ratio. I guess to continue on the theme that a lot of analysts have brought up, we're all scratching our heads because so far, none of your larger or similar-sized or smaller peers have really talked about this outsized commercial pricing pressure. And given sort of overall flattish loan growth in the quarter and then the sale of some of those loans, I guess I'm wondering why. Was there any sort of liquidity optimization reason behind paying up for those deposits? No. There's no liquidity concerns. We have very healthy LCR ratios. We feel very strong about our portfolio. These are all actions we're taking to help our business objectives as well as our strategic objectives that we've talked about, as well as our positioning for net interest income going forward. So, it has everything to do with that and nothing to do with the liquidity side of things. Got it. And my next question is for Gunjan. And I think Scott asked this in the beginning of the call, but I just wanted to maybe re-ask it a different way. Clearly, you're embarking upon an inflection point for the company. And the stock hasn't yet reacted. I think a lot of the discussion with longer-term investors has been really honing in on the focus going forward. So, what I mean by that is it struck me that you mentioned in your prepared remarks expense management as number one and organic growth as number two. And you also printed the word harvest, which is not necessarily a word that we've heard from someone like JP Morgan. I guess the question here is, did we just really underappreciate the modernization that USB was going through over the past five years and that there's a lot of sort of excess expenses to recycle? Because it just feels like focusing on expenses to drive positive operating leverage may be good for the near term. But as I think about your longer-term shareholders and what they own, they typically own some of the revenue outperformers like a JP or a Morgan Stanley and such. Erika, good morning. And thank you very thoughtful question. And I appreciate the opportunity to just react to the totality of the thesis here on us. And just, I know you know our company very well, but I'll just go back a few years to describe the reason for the priorities. We did a very attractive acquisition two years back. We were very efficient to integrate it. But we went into the banking crisis with a depleted capital base. And our focus at that point was to very quickly rebuild our capital, which we did. It caused some trade-offs in terms of expenses because we had just integrated a big bank. And just not enough attention to the revenue growth story. My focus on the expenses is entirely short-term because it's the fuel that helps create positive operating leverage and also helps us invest in our growth businesses. I would say that our portfolio of businesses is actually very attractive. There's an extraordinary amount of organic growth opportunity in our 10 core businesses. And they're very balanced across multiple business cycles. So, we definitely expect to be a growth story. But you really do have to build credibility and positive operating leverage and bring the efficiency ratio down because that's the model we want to scale over time. To your point on, did you underinvest the productivity benefits of the technology? Yes. These are very real. And on top of that, we are seeing the power of the AI tools that we are deploying. So, we expect productivity to be a meaningful contributor to bottom-line growth. You know, I'm hearing your questions and the concerns around it. But if you just step back, we had 13% growth in EPS. We had very healthy positive operating leverage. We are down to 59.2% for our efficiency ratio. We had very strong fee growth that are strengthening over time in all the right ways. And the portfolio mix, both the fees, the balance sheet, is all strengthening and improving. So, outside of the day-to-day noise of this particular quarter, if you just look at the trajectory of the franchise, we are in a very, very good position. Thank you, Gunjan. And I think investors will be warm to what you said about focuses on expenses is entirely short-term and that you're looking forward to growth. Thanks for taking my questions. Thank you, Erika. Your next question comes from the line of Gerard Cassidy of RBC. Your line is open. Hi, Gunjan. Hi, John. Morning. John, I may have missed it, and I apologize on the strategic sale of the portfolio that you identified. Can you share with us why that action was taken? But second, could there be further or additional sales later in the year of parts of the portfolio? Sure. I'll start on the mortgage side. That was about $4.6 billion in total. So, consistent with our comments around growing the balance sheet, we obviously have a slide in our deck talking about why we want to position our asset mix to multi-service clients. The mortgages were legacy Union Bank transactions with a single-service type client. And they were a certain vintage. It was a certain yield type that we found an opportunity with the right markets, etc., this quarter to effectively get out at par. We have reinvested those proceeds within the investment portfolio and gained a spread of probably 1.25 or so. And we got a little less than half a quarter of the benefit this quarter, and we'll pick up the rest a full quarter, obviously, in the third quarter. But it's really about the mindset here is really about shifting the balance sheet, being intentional about our asset mix, and moving our balance sheet to support more multi-service clients, which is going to drive fee revenues, net interest income trajectory, and all those things that we've been talking about. Very good. Thank you for the color. And then, Gunjan, maybe you can share with us. What's your view and the bank's view about the stablecoins? It appears that it's very likely stablecoins with the potential passage of the Coin Act down in Washington will be real soon. And how do you think that might impact your payments businesses as well as your deposits? Thank you. We are expecting that the bills will pass and stablecoin operators will be operating in the industry. In some ways, it's one more payment rail. And so, the first level of focus is just interoperability. So, when it starts to be operational, we should be able to accept and process stablecoins as well as interoperate within the banking system. So, that's sort of what our focus is. We are quite ready to pilot our own stablecoin. There's a lot of partnership capabilities in the industry that allows you to stand that up. So, we accept that this will be here. The use cases that we hear most about why this was needed or why it was important are cross-border in nature today. And as you know, they are institutional in nature. And we do not really have a big institutional cross-border payments business. Our payments businesses are a large card-issuing business. And there are a large merchant, which is very focused on the small business and largely focused on the U.S. So, we do not expect it to be sort of material to our payments business anytime soon. I think the issue, though, is if it does become a consumer day-to-day P2P type of a product or a pervasive institutional payments product, then it would compete with treasury management services. Gerard, I'll tell you, there are a lot of things to be yet sorted out, both from a technology standpoint and the market structure. So, I would just say at this point, we are quite ready to participate in it, quite ready to engage in the industry discussions around stablecoin, but not anticipating immediate revenue impact to any of our businesses. Thank you. Your next question comes from the line of Ken Usdin of Autonomous Research. Your line is open. Thanks. Good morning. Morning. John, I just wanted to ask you real quick on the third quarter NII outlook and a little bit on the wholesale deposit cost. So, I think you had mentioned in the conference circuit that there was just a kind of a hold back on giving customers some deposits. So, I'm just wondering on that first point, you mentioned that you can start to bring down wholesale deposits when rates come down. But is there anything different about how you see that going in terms of a beta perspective? You guys used to be one of the faster up-and-down beta companies. It's a little slower this cycle so far. So, what's changed or what's the nuance in the current environment about that? Thanks. Sure. So, the comment at the conference was really about at that moment in time, there were some conversations regarding that. I would say that largely abated. And I would say that as the quarter moved on, the quarter became all about just a general deposit environment that is competitive, which is constantly competitive. So, we're always competing. We were very intentional this quarter, as I mentioned, in terms of growing our consumer deposit base. And we have been focused on that for some time. It just shows up more now this quarter than it perhaps has because we also let go of some higher-cost deposits on the institutional side. Nothing really fundamentally changes on the beta side of the equation. We, at the beginning of the cycle, had talked about getting around 50% or getting to 50+ in terms of the beta. That assumed, of course, some sustained rate cut cycle. Obviously, this cut cycle has been a little bit different. But we assume that if the rate cut cycle persists and continues moving forward, we get back to that level. And it's the same drivers as we've talked about in terms of our mix of institutional versus retail. And so, we still feel good about that assumption. Okay. And just given the moving parts that came through in the second quarter and the lower starting point, can you just help us understand $4.1-$4.2? Is there a bias on one side or the other of that range, and what would be the—what would be the get you to the bottom or get you to the top? Thank you. Sure. So. In terms of the puts and takes, obviously. The competitive nature of where rates go on the deposit side, that's going to be obviously one piece. I wouldn't say in the third quarter a Fed rate cut or not is going to meaningfully drive anything d ifferent. I think the loan growth a cceleration in C&I and card is real, and that can definitely help and be more on the plus side. The strategic actions we have taken this quarter certainly have helped as well. And so, these are all things that are adding up for us to be w ithin that range for sure. And in terms of bias, there's no bias one way or the other. We just have to see how things play out. But we set ourselves up very nicely for the quarter. Okay. Thanks a lot, John. Your next question comes from the line of Saul Martinez of HSBC. Your line is open. Hi. Thanks for taking my question. A lot of focus here on deposit costs and deposit competition. But if I look at the actual increase in interest-bearing liability costs, the much bigger impact came in short-term borrowing costs, which were up $32 million, and long-term debt costs, which were up, I think, close to $60 million. So, in aggregate, those two things were up close to $90 million, or about three times the impact on funding costs with deposits. And it all entirely was due to much larger balances there. So, just normally, you would have a corresponding positive impact on the asset side in terms of things like excess liquidity. But it didn't seem to happen. Can you just, John, walk us through what happened here? And is that sort of just a one-time increase that should go away? But just, what's going on on the liability side beyond deposits that seems to be a drag here? Sure. So. Let me take the other side of the liabilities. Part of your question. And I'll break it out. So, on the short-term borrowings, we did have an increase this linked quarter. And a lot of that has to do with the increase to fund the securities purchases. This is the gross-up on the loan sale. So, when we put those loans held for sale, we also did our securities purchases, and we knew the loan sale would occur within a month or so or a month and a half. And so, we just used short-term borrowings temporarily to help support that. And so, that goes away. That's part of the NIM story that I talked about earlier. That short-term borrowing cost goes away next quarter. Long-term debt, we have steadily improved our profile in terms of our debt coverage and things of that nature. We want to make sure we're in balance in terms of relationship between loans, deposits, and long-term debt. We feel like we've grown into that mix appropriately. And so, I don't see us growing that from here on out from this particular level. Any issuance we do will just be here to replace other maturities and things like that. So, the combination of those things are really kind of get to the heart of your question. So, the short-term borrowing should revert next quarter, and you'd have a little bit less pressure there. And is there a negative spread on those incremental short-term borrowings that should go away in terms of just thinking about the dollar NII impact of that happening next quarter? Yeah. The short-term borrowings are going to be on the margin, on the higher end of the rate. So, if you think about the 430, 440 type of range, maybe even more than that potentially, it's going to be on the higher end. And so, as we had the loan sale happen, we could also terminate the short-term borrowings associated with that, thus improving the margin. Okay. And so, I mean, just outside of the details, it's worth just pointing out the why behind all of this. It takes a big chunk of loans that we can redeploy to a much faster NII trajectory, although it created noise in this quarter because of the double counting. So, I do want to just emphasize that point, that these were actions we took in various parts of our balance sheet to just really evolve it to a more attractive mix. Yeah. That's helpful. Then maybe just a quick one on payments and what the expectations are there. I mean, on the issuing side, I guess we're leapfrogging or lapping, sorry, the prepaid headwinds and should see some acceleration there in the second half. And just any color on how you're thinking about corporate payments. You mentioned just economic headwinds there. But are you optimistic that we'll see some improvement on the corporate payment side as we head out, as we go into the second half? Sure. Yeah. On the corporate payment side, I think the themes that we saw on the spend levels within the corporate T&E and government spend impacted this quarter. I would anticipate that impact kind of continues into the third. But then, after that, I think that abates. And what will take over is our initiatives that we have. We have a strong pipeline. You can kind of see that pipeline well in advance of bookings. And so, we feel that will be very helpful and positive going forward, but maybe a little bit of short-term here in the third quarter. On the issuing side of the equation, it's going to be a continuation of kind of what you saw this quarter. Obviously, we lapped many of the prepaid headwinds that we saw. And so, the growth that you see there is reflective of just kind of where the market is. And that's probably a good marker for where we are in the second half. And I can just add a little bit, stepping back from any one of the businesses. Both our payments leaders are now in place since February. The transformative strategies are very much in place. We are supporting their efforts through this productivity that we are creating in many, many parts of our business. So, there's the CPS, the corporate, while they are looking at the muted spend this quarter, their sales pipelines are very robust. The product is very attractive in the market. Even merchant is very steadily posting strengthening fees. So, we feel very good about the initiatives underway in payments and the execution against those. Got it. Thank you. Your next question comes from the line of Ebrahim Poonawala of Bank of America. Your line is open. Hey, good morning. Morning. Just had a couple of follow-up questions and apologies if I missed it. On the pace of buybacks, adjusted CET1 hitting 8.9%, I'm assuming plus 9% next quarter. Does that mean anything in terms of should we see the $100 million go to $150-$200 million starting 3Q? I mean, the Street's pricing that are forecasting that. So, would love kind of how you're thinking about adjusted CET1 relative to the outlook for buybacks from here. Sure, Ebrahim. Good morning. In terms of the buyback, we had $100 million, which is consistent with the prior quarter. We have been continuing to do a good job in terms of balancing growth in our capital levels. As you pointed out, getting to 8.9 on ex AOCI is a good thing. And we continue to glide into our new capital ratio. But we're also focused on distribution. Certainly, we anticipate growing that over time. The question we have is, for this particular third quarter, as we are more upbeat about loan growth and things of that nature, so we'd rather deploy it there than $50 million or $100 million on the share buyback. I'd rather deploy it on the loan side of the equation, at least here in the short run. But over time, we are very much committed to getting back to that approximately 75% payout. And that's really what we are focused on, is achieving that goal. Quarter- to- quarter, we'll lay that out for you, but that's our intent. Got it. And just two quick ones. One, when we talk about fees, I think if I go back a year or two, there was a lot of excitement around commercial products revenue. We saw sort of a pretty decent momentum. That's flatlined over the last four to five quarters. Anything going on there? Is there still a significant opportunity there, or have we kind of captured most of it? Sure. I don't know if I acknowledged the flat for several quarters. It was double-digit growth last year, and the last two quarters, yes, it's been a little bit more subdued. I think the activity we saw this quarter really was very strong in some of our ABS and new product capabilities, commodities, derivative activity. With the market movements, we saw a lot of great growth there. It was offset, though, by a little bit lower investment grade underwriting, high-yield underwriting, things of that variety, and so, I view that as temporary. We still have all the conversations we've had on our capital market side is still very much in play, and we feel very confident about that going forward. And Ebrahim, we are very confident about the capital market story. And just as a reminder, our franchise does not include core equity trading or investment banking. It's a very defined group. And the nature of the opportunities are a very large balance sheet that's being deployed with corporate clients that have very deep loyalty to us. And this product set just helps us get our fair share of fee revenue from the balance sheet that is already being deployed. So, the product build-out is really a talent play. You have to get the right expertise in place. And we did see some muted growth just for the last two quarters. And with the sentiment we're hearing is just a little bit of a caution around the tariff discussions, the rate movements, to say. But if you look at the long-term trajectory, and certainly outside of the last two quarters, the growth rate for some time has been very, very strong there. And just last one, if I can ask both of you. Your narrative around fees, payments, expenses sounds very, very strong. I think the state lacks confidence in the NII outlook, right? We came in April, day-count benefit, felt like NII was going higher. Just talk to us your degree of confidence that as we kind of what you've laid out in terms of NII should grow from here. What could go wrong to not make that happen, especially as we think about the opportunity of getting the NIM to 3% over the next maybe 12-18 months. Thanks. Let me start, and then, John, please add on here. So, Ebrahim, we are a very fee-intensive franchise. We are at 42% of our total revenue, which is really very intentionally up. That's what sustains our earnings stability over multiple business cycles. And that's what sustains our very exceptional returns, an 18% ROTCE return. So, we are very committed to the fee side of the business. The NII side, we have confidence, but we are also doing it in a very multi-served client strategic way. So, when we keep reiterating the points around how we are building out the treasury management capabilities, the operational deposit capabilities on the institutional side, and even on the consumer side. Really improving the mix there. And client acquisition on the consumer side takes many forms. It's expensive to build out branches. It's expensive to run marketing campaigns. It's expensive to retain deposits through pricing and deposit-based rewards. So, we do have confidence that the entire franchise works to deliver consistent EPS growth over time, which is what you've seen over the last two quarters. So, that's the overall confidence in our revenue growth story and our EPS growth story while maintaining very strong return profiles. What would you add, John? In terms of the net interest income, as you mentioned, I feel very confident about our ability to grow this quarter, just given all the things that we talked about. I won't repeat what Gunjan just said, but clearly, we've taken actions that are going to position us much better. So, if there are bumps in the road, for whatever reason, we weather that. And we feel that way very confident. Well, that's good that you feel confident because I agree with Gunjan. Lots of good things going on, but you had 20 questions on NII and yields and all of that. We acknowledge that, right? We acknowledge that because we did three different transactions to position the balance sheet. Takes a little unpacking of why did we. I appreciate it, Erika, asking the question around the liquidity because if there was any question mark that this was because of the liquidity, it wasn't. But I hope, as we have had this conversation and as you understand what we are trying to do with the balance sheet, it's setting us up for a very attractive portfolio, both on the NII side and the fee side. So I appreciate the dialogue there. And I appreciate that. And I think there's a lot of skepticism, and I'm hoping you give less things to skeptics to pick on and more to the non-skeptics. So hopefully we made a shift there. Thank you so much, both of you. Good advice. Good advice. Thank you. Your next question comes from the line of Bill Carcache of Wolfe Research. Your line is open. Thanks. Good morning. One final follow-up on the magnitude of the fixed-rate asset repricing benefit that should persist from here. Can you discuss where you still see the greatest repricing potential across the left side of the balance sheet? And anything that you would say to give investors confidence. You've addressed this in different questions, but the idea that those repricing tailwinds are going to show through and not be tempered by other actions we saw this quarter, anything that you could say there? Thanks. Sure. So, what I would just say is that in the second half, we'll have more volume, so we've given you ranges in terms of investment portfolio and loans. We were probably on the low to mid side of that range the first half of the year. We anticipate to be on the mid to high end of that range in the second half of the year. The spreads are holding in nicely, and so I feel like we have good momentum on that, as well as we're getting more juice from the investment portfolio repositioning that we did of the $1.25 billion sale there, as well as the $4.6 billion mortgage sale. So, those are two key drivers that are going to help the overall positioning. Thank you. Your next question comes from the line of Chris McGratty of KBW. Your line is open. Oh, great. Good morning, everybody. Just wanted to look at slide 16 for a moment on the capital. A lot of questions and a lot of discussion about the operating leverage that's in front of the company. I guess my question is, is there a scenario with the improved regulatory environment that you would consider another bank acquisition to help accelerate what you're trying to do on the NII front? Good morning. The capital is building very nicely. And as you know, we are flirting with the Cat II designation. And one of our reasons for building out the capital is to be ready for a Cat II designation. Our focus very much is on organic growth. And our planning for the Cat II transition and the capital build is based on organic growth profiles. So, I would say to your question, the capital is built to support organic growth as we transition to a Cat II category designation. Okay, great. Thank you for that clarification. And then maybe a reminder of when the organic cross. Any changes to where you're thinking about crossing into Cat II? No, no changes there. We've talked about no earlier than 2027. And I think you can see where our asset trajectory is, and that's very consistent with what we've talked about in the past. So, no change there. Great. Thank you very much. Your next question comes from the line of Matt O'Connor of Deutsche Bank. Your line is open. Good morning. Any outlook comments on credit? The charge-offs have been amazingly stable. You had a little cleanup in CRE, but the C&I behaving very well. But any thoughts on just the overall level of charge-off and reserves going forward? Thank you. Sure. Thanks, Matt. And appreciate the credit question. On the outlook there. The environment is very stable to improving from a credit standpoint. We saw, obviously, a stable net charge-off ratio this quarter, but all the other metrics are declining or in good shape. Even where we had things like a 90-day up a little bit, that's all. There were some administrative loans in there as well that have already cleared, as well as some of the California fire impacts. So, all the metrics are pointing positively on the things like card and net charge-offs just in general. We expect on the card side of things to be this year and 2025 a better charge-off rate than 2024. We expect the net charge-off ratio to remain here or improve, meaning going down in the coming quarter. So, we feel very good about our credit profile right now. Okay. Just that last comment, the charge-offs. So, the card charge-offs lower this year versus last year. And then did you mean overall charge-offs? Overall. Coming down in that couple of quarters? Yeah. Overall and coming down. There's some seasonality to charge-off next quarter to go down. We expect that to happen. But just overall, when you look at 2025 net charge-off, that's going to be lower than 2024 for card. Yeah. Okay. All right. Thank you. Your next question comes from the line of Vivek Juneja of JPMorgan. Your line is open. Hi. I'm sorry to beat a dead horse. Just a little bit of clarity. I hear everything you're doing on NII and remixing the balance sheet with the sale of the resi mortgages. Most of that, obviously, when I look at the segment data, which shows up in the corporate segment. But when I look at your corporate segment, and I hear you doing the multi-client and operational deposits and all that, I look at the net interest spread, and that continues to come down every quarter and was down more sharply. So, given everything you've just said, why does that continue to come down? And by the way, it was down linked quarter on the consumer side too, but more trying to understand first on the corporate side what's going on. Sure. So, a couple of things there, and I think you're talking about, Vivek, just to make sure the segment reports that we provide on the consumer side, as well as the commercial, just to make sure I'm tracking. But yeah, so a couple of things are going on in there, so the mortgage sale will be shown in the consumer side of the equation that will take place in terms of the spread, net interest spread side of things. I think what's going on there more than anything is on FTP. There's less credit for those sorts of deposits, and that's just kind of given the pools and all that sort of thing, so I think looking at the broader picture of NII is really the way to go for that. Okay. A couple of other little questions. The C&I growth that you were talking about, what are you seeing in terms of growth to loans to NBFIs? How much of that growth has come from this particular segment? Sure. NBFI is a part of the growth that we saw this quarter in C&I. It's probably for this quarter, I would say, close to half of the growth that we have there. But as I said earlier, there's growth in virtually every other category, whether it's corporate loans just in general, small business, health care, expansion markets on the middle market side of the equation. But we've had a good mix of all sorts of growth in that area. Great. One last, just a confirmation. You've talked recently about tech spend running at about $2.5 billion. Just want to confirm, is that still the number at which it is? Yes. Correct. Okay. Thank you. We have a follow-up question from Betsy Graseck of Morgan Stanley. Your line is open. Yeah. Hey. I just wanted to make sure I understand how many more quarters or years you're planning on doing this balance sheet restructuring. I see that the held for sale EOP went up q/q, so I'm assuming you're in train. But how long should we expect this is going to be continuing for? Thanks. Just to make sure I understand. I mean. Yes, the held for sale is up this quarter because of that loan sale that we had been talking about. The investment portfolio actions that we take are, we've done a few of these over the last couple of quarters. It depends on interest rates. We always are looking at the market. I don't have anything in the plan necessarily as I look forward, but we're opportunistic when things come our way. And the payout paydown, or excuse me, the payback period is appropriate and things like that. That's when we take action. And so. I can't answer. I don't think you're ever done, Betsy. Positioning the balance sheet in the right ways that you want to meet our client needs and make sure we're hitting our strategic objectives. That's really how we're running it. Yeah. I know Gunjan talked earlier about bringing down resi as a percentage of total, which you have significantly over the past year. And I'm wondering if there's a target resi percentage that you're moving towards if the market is there to help you move towards it. I just want to say we are very committed to the resi business. It's the core financial product that is nearest and dearest to a lot of people's financial affairs, and it's been muted for some time, but in a different rate environment, it is a very good source of fees and loan growth. It had just become oversized, especially with the Union Bank acquisition as well, so this was opportunistically appropriate for us, but there is not a target to try and bring it down to. It's based on the needs of our customers and just making enough space on the balance sheet to accommodate the business growth that will come shortly because it's been a few years of muted growth. Okay. Thank you. Thank you. There are no further questions at this time. Mr. Andersen, I turn the call back over to you. Thank you, J.O. To everyone who joined our call this morning, please contact the Investor Relations department if you have any follow-up questions. You can now disconnect the call. This concludes today's conference call. You may now disconnect.