U.S. Bancorp (USB) Q3 2026 earnings call transcript

I will now turn the conference call over to Brian Monney, Director of Investor Relations for U. S. Bank Corp. Thank you, operator, and good morning, everyone. Today, I am joined by our Chairman and Chief Executive Officer, Gunjan Kadia, and Vice Chair and Chief Financial Officer, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks.

A copy of the presentation are press release and 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 could materially change our current forward-looking assumptions are described on page two of today's earnings presentation, our press release, and reports on file with the SEC.

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

Thank you, Brian. Good morning, everyone. Beginning on slide three, we delivered another strong quarter highlighted by record next revenue of approximately $8 billion and diluted earnings per share of $1.34 up approximately 10% from a year ago. Results in the quarter reflect strong execution against our three strategic priorities. Net revenue grew 8.7% year over year. Discipline productivity drove 240 basis points of positive operating leverage and in payments are transformation efforts continued to gain traction, the total payments revenue growing 6.5% year over year.

Turning to slide four, fees continued to grow nicely and contributed 44% of total revenue again this quarter. Our fee complex is diversified and deepens client relationships, generates attractive returns, and contributes to a more balanced earnings profile.

While fee growth does come with higher expenses, productivity initiatives, including from our AI programs, helped improve our efficiency ratio and increased return on average assets year over year.

On slide five, we spotlight global capital markets and attractive growth opportunity across a range of economic scenarios. We close the BTIG acquisition in June and it contributed $226 million of free revenue in the third quarter. Our combined businesses are off to a wonderful start and already working very closely together to broaden how we serve our clients.

We expect capital markets to grow from eight to 10% or more of total company revenue over the next three to five years by focusing on three strategies. One, continue to drive robust core organic growth across both franchises, in line with their historical performance.

Second, deepen wallet share with our clients where we deploy significant balance sheet resources. The addition of BTIG strengthens our ability to serve a broader range of needs and capture greater fee revenue over time.

And third, by adding product capabilities across both platforms. We look forward to sharing more on our capital market strategy at a conference later this fall and are committed to providing more disclosures in due course as the business becomes a larger part of our revenue mix.

With fees and expenses in a healthy place this year, we have increasingly turned our attention to strengthening net interest in common margin. An important lever of this growth is expanding our consumer and small business franchise, which provides a highly attractive source of funding.

Slide six is a busy chart. It captures our footprint and expansion strategies. We are densifying our branch presence and leveraging client centers that have long supported our national businesses.

We are supporting this ground game with targeted brand investments, including through our NFL partnership and new brand ambassadors, such as Fernando Mendoza, Christian McCaffrey and most recently, Jessica Alba for our small business segment.

Turning to slide seven, we highlight small business banking. We serve more than two million small businesses through a scaled interconnected platform that contributes meaningfully to company revenue and is an invaluable source of stable, well-priced deposits.

Over the past several years, we have built a unique foundation of banking, payments and cash management capabilities. This quarter, we launched several major initiatives to expand and reach with small businesses as we onboarded the Amazon Co-brand partnership, expanded the business essentials, suite of products and established new banking teams in expansion markets.

We have a truly differentiated set of products and an enviable client footprint with small business. And this segment will be an important priority going into 2027.

Finally, on slide eight, I want to spend a moment on corporate payments and treasury management, which together represent approximately 6% of our company revenues.

The corporate payments landscape has the potential to be transformed by the growing convergence of treasury management rails like ACH and Wires, card rails and new stablecoins and tokenized deposits.

These businesses have delivered a strong quota, benefiting from market share gains, as well as tailwinds from fuel price increases in our fleet and freight businesses.

Earlier this quarter, we launched our first USBDC stablecoin pilot. While these trends are emerging, we are uniquely positioned to succeed in corporate payments and we are investing to create interoperability across these rails to deliver both the benefits of new technologies and the safety and soundness of the banking system.

Let me now turn it over to John.

Thanks, Guingen, and good morning, everyone. Third quarter results reflected another strong quarter and demonstrated continued execution against our strategic priorities, generating meaningful revenue growth and significant positive operating leverage. Results remained firmly within all of our medium-term target ranges.

If you turn to slide nine, we provide highlights for the third quarter. We reported earnings per common share of $1.34, with approximately seven cents the impact from reserve build this quarter. This equates to 10% year over year EPS growth or 16% excluding the reserve build. Revenue was a record $8 billion of 8.7% from a year ago or up 6.4% adjusting for BTIG and securities losses.

Meanwhile, expenses grew 7.1% year over year or 2.0% excluding BTIG, implying 440 basis points of positive operating leverage excluding BTIG. Balance sheet trends remained constructive. Loans grew 1.0% and deposits grew 2.2% sequentially while the net interest margin expanded five basis points to 2.84%. Credit quality metrics remained healthy across the board. Linked quarter, non-performing assets decline 1.6% and that charge offs declined two basis points to 51 basis points.

CET1 ratio remained stable at 10.8% and tangible book value per share was up 5.4% year over year. Slide 10 provides our key performance metrics. Our profitability metrics continue to move up and to the right. While our efficiency ratio improved toward the better end of our medium-term target range.

Slide 11 provides a summary of our loan and earning asset mix evolution. Average loans grew 8.0% year over year and 1.0% sequentially. First is the prior year. Growth continues to be driven by CNI, credit card and commercial real estate. Categories that typically deepen relationships and deliver incremental fee opportunities.

The Amazon Small Business Credit Card Portfolio contributed approximately $900 million and $1.7 billion to the third quarter average and period end loans respectively.

Importantly, our focus in these loan growth areas is naturally positioning our balance sheet to become more asset sensitive. For example, floating rate loans comprise 36% of earning assets as of quarter end, up from 32% four years ago.

Slide 12 provides a summary of our deposits and funding mix. Total average deposits grew 2.9% year over year and 2.2% sequentially. Growth was driven by another record quarter of consumer deposits, along with strong growth in relationship-based deposits in businesses like investment services. Importantly, we achieved growth while staying disciplined with respect to pricing.

Deposit costs increased seven basis points sequentially with approximately two basis points of impact from the September Fed rate hike. Notably, our total funding costs are up just one basis point quarter over quarter as our funding mix continues to improve.

Turning to slide 13, net interest income on a fully taxable equivalent basis increased 5.6% year over year and 2.3% linked quarter. The increase was driven by continued relationship-based loan and deposit growth and improving earning asset and funding mix and ongoing benefits from fixed asset re-pricing. Net interest margin improved five basis points sequentially to 2.84% driven by improving loan yields and fixed asset re-pricing benefits.

We currently expect net interest margin to increase by a similar amount in the fourth quarter. Slide 14 highlights fee revenue trends within non-interest income. A total fee income increased 14.9% year over year with broad-based strength across most fee categories. Capital markets growth of 69% year over year reflects a full quarter contribution from BTIG and approximately 10% growth across legacy capital markets.

Moving to slide 15, non-interest expense increased 7.1% versus the prior year, reflecting BTIG and continued investment in growth initiatives, marketing, technology, as well as compensation associated with the strong revenue generation for this quarter. These increases were partially offset by ongoing expense discipline across the bank.

Slide 16 highlights the broad-based favorable trends we are seeing in credit quality. On the right side of the page, we highlight the longer-term evolution of our credit card portfolio. Card balances have increased at a brisk pace in recent years as our payments transformation takes hold. At the same time, FICO bans have marginally improved and that charge-offs and delinquencies have trended lower.

In short, we are growing the portfolio without compromising on underwriting standards. Turning to capital on slide 17. As of September 30th, our common equity tier one capital ratio was 10.8%, stable compared to the prior quarter. Adjusting for AOCI, the CET-1 ratio declined 30 basis points to 9.1%.

On slide 18, we break out the components that drove the sequential changes in the AOCI-adjusted CET-1 and tangible common equity ratios this quarter.

As it pertains to the adjusted CET-1 ratio, strong earnings generation, meta-dividends, added approximately 30 basis points of capital. This was offset by $12 billion of risk-weighted asset growth associated with heavy loan demand in the quarter and impact from a recently on-boarded strategic small business partnership.

Additionally, the significant increase in treasury rates and widening credit spreads during the third quarter impacted the ratio by an additional 40 basis points. Conversely, the tangible common equity ratio remained stable at 6.6% at quarter end. Strong earnings growth and lower ending assets offset the AOCI-drag from higher rates. Despite a sharp move in rates this quarter, we maintained healthy capital levels and continued to have flexibility in how we manage the balance sheet.

We expect our capital ratios to build from here, positioning us to resume Sherry purchases over the next quarter or two.

Turning to forward-looking guidance on slide 19 for the fourth quarter and full year 2026. For the fourth quarter, on a year over year basis, we expect net interest income growth of six to 7% on a fully taxable equivalent basis, total fee revenue growth in the range of 13 to 14%, with roughly half of the growth coming from BTIG, and non-interest expense growth of approximately 8%, or closer to 4% excluding BTIG.

For the full year 2026, we now expect total net revenue growth of eight to 9% compared to the prior year, or six to 7% excluding BTIG. This is improved from our prior guidance range of five to 7%. We now expect to deliver approximately 300 basis points of positive operating leverage for the full year, or approximately 400 basis points excluding the impact from BTIG. This is up from prior guidance of 200 and 300 basis points, respectively.

Moving to slide 20. This was another strong quarter for us, reflecting continued execution comfortably within all of our medium-term target ranges. We continue to see momentum across our business, which gives us confidence in our ability to build on these results and deliver consistent, sustainable returns over time. Let me now hand it back to Guinjian for closing remarks.

Thank you, John. As we look to the end of 2026, we are executing well against the strategic priorities we outlined at the beginning of the year, and seeing that progress translate into stronger performance across the bank. Our diversified business mix, customer-centric approach, and disciplined execution position us to deliver attractive returns and long-term shareholder value.

With that, we'll now open the call for your questions.

Sure. Good morning, John. You know, we're going to see similar themes in the fourth quarter that we just saw in the third quarter loans have been strong and they remain strong from a pipeline standpoint, so we expect similar type growth there. Of course, as a reminder included in that, we have the Amazon small card book that we get the full quarter impact as well.

Deposes are performing well. We continue to see nice growth in our consumer franchise, as well as small business, and we see continued trends there. And then, you know, in terms of the net interest margin, we made the comment that margin should increase by a similar amount this next quarter, and that's going to be just aided by the funding and asset mix that we have that is improving, as we've been talking about. So, you know, there's a lot of momentum that we have, and that's going to be reflected in our guide and what we discussed.

And just to follow up on that, in terms of the net interest margin drivers, could you give us a little feel for how rate, rising rates impacts it, maybe an update on fixed asset reprice and your deposit data assumptions?

Sure. So, you know, we aim to be as neutral as we can be from an interest rate risk perspective. However, given this environment, we have been shifting more into asset sensitivity, and you're starting to see that come through in terms of loans. We've been shifting more into C&I, commercial real estate and card, all predominantly floating rate assets, as you know.

And then in the investment portfolio, that has been coming down, and we've been doing more in cash. So, we have been shifting there a bit. In terms of, I think you asked about fixed asset repricing, I would say there that we continue to see about 10 billion or so of per quarter of fixed rate assets that reprice, whether that's in the securities book or in the loan book. And that's coming on probably at about 125 basis point improvement or so.

And that's improved a little bit, just because of the backup and rates as we've seen. And then finally, you asked about deposit betas. You know, we think that betas pick up right where they left off from the last rate hike. So, we're assuming about a 50% or so deposit beta to start out with and likely to continue as we see a couple of hikes kind of coming up in our forecast. So, those are kind of the main points.

Got it. Thanks, John. Thank you.

Yeah, sure, Scott. Yeah, I mean, from RC, obviously we had strong growth in revenue and that has been increasing and gaining momentum as the years come on. And so that's going to be the fundamental driver for why the increase in operating leverage this year from that 200 basis points now to 300 basis points. You know, we've obviously had been onboarding a lot of revenue with the Amazon Cardbook and BTIG coming online that's north of a billion dollars of revenue we've onboarded. And we signaled this at the beginning of the year. We said that operating leverage, we wanted to be more of a driver from revenue growth because we know we can manage the expense side.

We have a lot of leverage to do that. So, you know, as we look forward, you know, and we're early in the budget process. So we're not giving any guidance, but we anticipate operating leverage next year just kind of giving similar drivers that we're seeing this year.

And Scott, I would just add that we have runway on productivity initiatives. As you know, we have materially invested in our digital capabilities over five years and that just delivers ongoing productivity. And we continue to be very intentional about how much we spend on technology investments. All in all, I would say it's not a trade off. We don't think about operating leverage for shareholders or investing into the business.

The business model is capable of generating both of them in balance.

Sure. Yeah, so maybe just to recap, you know, the third quarter had a lot of unique events in it for us. We had strong loan growth. We obviously had the Amazon book that added some capital demands and then obviously the large rate move, which we all saw, of course. But, you know, for us, you know, given our unique position and just our prudent nature, we decided to pause. But we have a high degree of confidence in our ability to generate capital. I mean, this quarter, after dividend distribution, we generated 33 basis points of capital. So we know we can build that back very quickly. I would just say what we're looking for this quarter is we're looking at loan demand.

Where does that actually end up shaking out? Obviously, we believe that there will be growth, as I mentioned in a previous comment. But interest rates, we're watching that very closely. And then obviously you have the added components of regulation we anticipate some new rules coming down. So, the combination, all that, we are watching and that will be the driver of whether it's this quarter or next. But in the meantime, we obviously are very much committed to the 70 to 75% payout from a capital distribution standpoint.

Sure. Thanks, Manana. You know, what I would say is that the underlying core C&I growth was very healthy and strong. We did have some runoff and some balances related to more in that NDFI space. And some of this is just new deals coming to market, didn't hurt all, you know, areas. And we've been more thoughtful on that of late. And so that's really the reason that you see the C&I component being pretty flat on a link quarter basis. We do anticipate that to increase as we look into the fourth quarter. So the pipelines remain robust. And it's in all the areas that we've talked about in terms of food and beverage and energy and technology.

Those are, you know, obviously very, you know, strong demand for loans at this point. So those are kind of the core things I'd say on the C&I line.

Manana, I would add that the only place we've seen a little slowdown is commercial real estate and residential mortgage continues to be very muted. But otherwise, C&I loan demand is quite robust and broad based.

Yeah, I mean, that's a component. Obviously, you know, we're going to, we're all anxious for Basel III and game. We've signaled that that's about a 5% or so improvement to the RWA, but that's from the proposal. You know, things can change. So we need to see that. The tailoring is comments have been in the news. And so, you know, we're watching for that to see if anything comes online.

In that regard, so those are incremental pieces of information, but also, you know, it's going to be rates and RWA slash loan growth. I mean, those are the three main components and we'll clearly update you. But it's clear, we're going to be, you know, we'll be starting that back up and we'll glide back up into that 70 to 75% as we just mentioned, we have a high degree confidence in our capital build.

Good morning, Ibrahim. So I'll just start by saying we do see value in branches and we do see them as anchoring very high quality customer relationships. Just to back up a little bit, we had been on a journey for really a decade to transform a branch network from what used to be a lot of small tier three service outlets to more advice hubs with most of our products being represented there. That was a renovation strategy that is finishing up now. And we are beginning to lean into new branches.

We have shared that our branch investment has increased from 200 million or thereabouts on average to 300 million, which is what we expect to do going forward. And those will be more new branches. Our first phase of that work is to densify within our own footprint. As you see from the blue dots, we are in a vast territory and we have real meaningful opportunity to get to 8 to 10% branch share in those markets within a footprint that have high household formation rates.

There our brand is already known. We are our operations already established and the return is very high. It is fully our expectation that over time we will inch out from that footprint to other branches.

The client centers on the other hand are an interim answer that is faster for us to establish national presence. This is not a new strategy. Our commercial teams, our wealth teams, our mortgage teams and our commercial real estate teams have been operating out of our footprint. The North East is a big site for capital markets type of businesses as well. And what we have done more recently is to say small business can also operate out of client centers.

So the strategy is both and it's a matter of sequencing.

We hope to make them less lonely Abraham.

Thanks, Abraham. Yeah, you know, it's a topic that comes up frequently for us we are looking to see if there's clues as to how much of growth and credit impact there is related to AI. I mean, obviously you have adjacent sectors like energy and telecom and things like that areas that are seen benefit in low growth. But then there's other areas that are more broad base that are beyond that in terms of retail and food and beverage and insurance and all these other sorts of things. So it is broad based. And I would actually add on top of that small business with SBA loans and things like that.

Just a lot of there's a lot of momentum in the business community to want to grow. And so that is on the on our mindset right now. And so we're watching for that, but it is a topic we we certainly look at.

Sure. So yeah, a couple of things there. So I'll start on the treasury management and corporate payment side. Obviously saw some very strong growth on that side of the equation. You know, the, you know, there's obviously in the corporate payment side we are saw about 19% year on year growth. Most of that is new business, as well as the spending from corporates and government is up quite a bit from last year. At this time, recall this time last year there was the impacts of tariffs and all that sort of thing. So that we've laughed all that. And so there's good growth there. There's a little bit of fuel spend as well in there, but that's pretty nominal in terms of the growth rate.

So we do expect continued growth in the CPS or corporate payment side of the equation. And then the treasury management side is continuing to see nice growth in that mid-single digit area. It's an important business. We've been making a lot of investments of late. And so we are doing a lot in terms of the payable and digital channels and capabilities. And so, you know, going forward, we have high hopes in these two areas, for sure.

On the capital market side, we continue to see strong growth there into the next quarter. Obviously, we had a very strong growth of 69% or so this quarter. And we, BTIG, will continue to be a strong component of that in about 200 million or so. But our core, thick or legacy capital markets, led by commodities, foreign exchange and impact finance are really showing some nice growth. And that's gonna help us get some, you know, more in the double digit type of growth on a year over year basis.

So we feel very good about those areas.

Sure. The answer's gonna be pretty boring. We're not seeing a whole lot of change in both the deposit and the loan side of the equation from a pricing standpoint.

The post hike, the pricing that we are seeing is very consistent with what you would expect. There's nothing out of the ordinary. And I would say similar on the loan side, there are, you know, loan spreads by and large tend to be pretty stable and it's competitive, of course, but it's completely, it's manageable.

You know, on the C&I side of the equation, as I just mentioned, some of those things just didn't hurtle. And some of that is a little bit more, we've been more prescriptive with the businesses in terms of making sure that things hurtle. And so it's a little bit of a dial turn for us that that occurred, but, you know, we see broad-based growth in the C&I portfolio.

Good morning, Ken.

Sure. Yeah, so, you know, we are, you know, the fourth quarter from a year over year growth standpoint is going to look a lot like the third quarter with a couple of exceptions, which explains the slightly down growth rate, although it's still very, very strong. You know, mortgage is going to be impacted by higher rates. And so we anticipate there to be more of a limited or low year on your growth. If any.

And then other revenue, we did have some gains that were more, you know, unique to that this quarter. And so our other revenue tends to be in that $125 to $150 million range. So we anticipate that to kind of normalize into that. So other than that, I think things like, you know, corporate trust continues to be very strong.

I talked about capital markets and many of the payments lines. We see strong growth in corporate as well as retail cards. Merchant will probably be still in that 0% area for the next couple of quarters, as we've talked about. And then, you know, all the other areas are about as expected. So it's shaping up to be a lot of momentum for us in the fee side of the equation.

Yeah, you know, can we see a lot of, we see continued to see a path on the 3% Nim at some point in 2027? You're starting to see that thesis play out, as we've talked about. It's a constant formula of just consistent asset re-pricing, as I've just mentioned. Obviously, the asset and funding mix is continuing to improve, and then we're just being thoughtful in terms of deposit acquisition versus cost. So those are the formula, that's the formula and the ingredients that we need to continue to do what we're doing on the Nim side.

You know, obviously, the curve and deposit competition may have something to say about that in the end, but we have a lot to like about in terms of the trajectory we are making on that path. So we feel good about it.

You know, I'll add one thing that we are very disciplined about improving both the deposit mix and the loan mix, which is helping the Nim situation. And for the fourth quarter, we have the full year impact of the Amazon deal, which is a nice tailwind. But we are continuing to focus on credit card receivables, which are going very well, the CNI loan and CRE.

And as that becomes the bigger part of our loan book and deposits become more relationship oriented, it gives us strengthening Nim and NII growth for some time.

Sure, Maureen, Chris. So, you know, on the credit side, you know, we haven't really seen a whole lot of change in that. It's obviously a watch item when we think about the impacts of higher rates. Right now, we're not seeing anything on the consumer side. Spend levels are high, employment is strong. So there just continues to be strong patterns there, despite sentiment and things of that variety. So, and then on the commercial side, you know, corporates and commercial clients are well managed. They have strong balance sheets. They've been going through a lot and over the last several years, and they've been very nimble. I think the area we are watching, obviously, is going to be in the commercial real estate side.

You know, you always want to watch when rates go up. And obviously, when we underwrite, we build in cushion for rate moves. So, it's well understood and managed, but we, you know, it's going to be an area that we watch, but nothing at this point to call out.

Yeah, you know, I think we're doing the actions and we, I would just anticipate continued action from us. We, in this environment, you want to be very active in your management of the balance sheet. And I've already mentioned several of those things that we've done. Maybe some other things you've probably noticed. You've seen that our long-term debt fell a few, a couple billion dollars as well as the investment portfolio. We did repay some, some home loan bank advances that were long-term debt, but really there wasn't much maturity left in them.

So we're just being, and as I mentioned, the investment portfolio, we've been lowering that amount and going more into cash. So we're just doing a lot of things to kind of optimize the balance sheet for the rate environment that we're entering. And we feel good about taking action as needed.

Thank you, Gerard. It's actually gone very well. As you know, when we did the BTIG deal, the biggest questions were around cultural fit and the chemistry is very good and the substantive ability to deepen relationships is very good. As you know, we deploy a very significant balance sheet to our corporate relationship. And having more product to get your fair share of free revenue is an important part of the interconnected pieces. And it's coming through very nicely.

It's also been very encouraging to see it on the other side. We have developed a very sizable book in leveraged ETF and a lot of the trading opportunity that comes from that helps BTIG too. So we expect that this will be a very good deal for us and we're very confident in getting the combined capital markets business to about 10% of total net revenue or more over time. And that completes our product set.

I'll also answer a broader question on interconnectivity which is really playing out with deposits right now. There's a lot of discussion around deposit costs, deposit betas and the smartly product that we launched about two years back now, just around the investor day, connects our banking products to our credit card products and allows a person to optimize their card rewards based on their deposit relationships.

That product has been very successful for us. You've seen the funding mix improvements based on that. And that's exactly the thesis we are taking now to small business.

So this theme of interconnectedness is very present in the company, it takes incentive changes, some changes to org structures, some development of skill sets, but we've had a lot of momentum there and will continue to be a very big part of our strategy even into next year.

Sure, our point of view remains consistent. We like bolt-on acquisitions. We are good at it and they give us local scale in products. And we don't think of them as fundamentally different from investing organically into our business. On depository acquisition, we find our organic strategies to have compelling strategic financial and execution characteristics. And we are very, very focused on that part of the strategy and have a lot of momentum there.

Thank you, Congen.

Good morning, Mike. So I think AI is one, not the only reason to drive good productivity, but it is an important lever. And has growing momentum and growing use cases for productivity within our world. And we do continue to expect it to be a contributor to productivity. You know, some of the discussions around whether the token costs are overtaking returns is a relevant discussion.

We have invested in developing the capabilities to swap out expensive models for cheaper models. And we have some confidence over time that we'll continue to get positive returns from our AI program on productivity. More broadly though, the place where we are being more measured is on client facing applications, just as you fully understand the concerns around privacy and some of the customer confidence issues around it, these things will get resolved in due course. So we remain quite focused on the AI program and do have confidence around its contribution to our productivity.

So Mike, just first we haven't seen any AI cash sorting third party agents try to interact with the bank. The logistics of doing something like this are very complicated, so we do not expect it to be a near term impact to us. Our customer base is very digitally savvy, the adoption rates are very high, our digital tools allow a fairly high amount of deposit price discovery and the ability to optimize automatically should a depositor choose to do that.

All of these capabilities will strengthen with AI over time, we are not counting on it not to be that. But again, our strategy is not to attract depositors only through deposit price. We have invested a lot in creating meaningful value propositions that help people manage their lives and manage the transactions. And we are quite comfortable with transparency around deposit pricing. So I would say a lot of discussion around that topic, we do not see it yet in day to day life.

Sure. So, you know, on the mix and all this sort of thing, we have continued to and want to improve our asset mix to be more floating rate. That has been an area that what we've talked about here and even put a slide in, to show how much we've moved over the last couple of years. And been methodical about that.

So, you know, so the answer is yes. We think that that the funding and the asset mix and the fixed-assery pricing are enough to offset any competition on the on the beta side. That is our, that is, you know, what we're developing on the balance sheet side of the equation. And that's what gives us confidence, as I mentioned, just in terms of nim path and all that sort of thing. So, you know, obviously we will watch the curve shape and what that looks like and how the positive competition fans out, but that's what our assumptions are at this particular juncture.

Yeah, you know, I'll go back to my comments that, you know, we're looking certainly at the regulation as a component of deciding on buybacks. But it's going to be probably more dependent on RWA demands as well as interest rates, particularly in the short run. We are very much interested in rule changes that we expect to see here in the fourth quarter.

That can shift, you know, what our ultimate RWA and capital demands are or what that looks like. We're also interested, obviously, if there's tailoring and how that gets applied. It's speculation at this point, right? We know just as much as you do and what we see in the press, but we're not planning on it. We're planning on growing our capital base. We're planning on all the things that we talked about in terms of balance sheet stewardship and optimization and all these things that are going to help us on our path.

And Eric, I just want to double-underline that. We are fully ready to transition into CAD to regardless of the timing of the Basse 3N game. We've been preparing for it for a long time. And when John talks about starting our buybacks in the next one or two quarters, we're not counting on any benefit from Basse 3N game. This is just capital accretion we get based on normal course business.

Sure, Ben, I can start on that. I think what you've been seeing on the loan side of the equation, you'll, over the past several quarters, you'll continue to see for the next several quarters in terms of leaning in on card, leaning in on CNI and commercial real estate. Now, there may be some bumps like commercial real estate may not be as robust in the next quarter or two just given the backup and rates, but all in, we're focusing in that way. When we started the year, I believe our mortgage, residential mortgage area of our loans was in the 30% area in terms of loan mix.

We do see that coming down and more because of the growth in the other categories, so we're growing into it. So we anticipate the mortgage area will probably be in the mid 20s at some point over time, but again, it's gonna be because of the growth in the other areas, not because we're diminishing our focus on the residential mortgage book. We continue to think that's a strong business over the fullness of time.

Then our thought process very much is that it's a relationship loaned. So where you get fee revenue, you get deep relationships, you get sticky deposits, that's where we want to extend our balance sheet. And the categories that lend themselves to this are credit cards, it's a big fee-based business. The CNI loans with our corporate payments, our treasury management and our investment services products makes that a very attractive loan.

And then as we build out the capital markets, that becomes a good use of balance sheet as well. So the categories that we would be more measured on would then become auto mortgage and some of these more standalone, which over time, they'll still be very important products for us, but as Sean said, just become more measured.

Sure, so, you know, right now obviously we're around 56, just under that, which we're very proud of in terms of making good progress there. And, you know, it's been obviously the operating leverage has helped with the revenue growth that we've seen. You know, we continue to anticipate strong growth and continuing that operating leverage. And so our desire is to get into, you know, closer to that mid part of the versus the mid to high 50s. That's an area that we're focused on. Obviously the rate environment and the macro will drive things here and there, but that's been our focus in what we've been talking about.

I would say the high end will be if capital markets growth turns out to be very robust and it'll be a good reason to be on a high end. That's a high efficiency ratio business. And the low end will be our AI program. There's a lot to be discovered there. There's a lot of potential there and it's quite, you can see a path where that accelerates and really begins to impact the productivity of the firm.

It's certainly the latter. I very clearly have to say there is not much client demand at all. What there is now is client curiosity, even from two quarters back, we have quite a few clients wanting to experiment with us on what this might do. The launch, as you know, is a pilot. We are the actual launch of the product. We'll take some regulatory approvals here.

We do think that as companies think about combining the benefits of the banking system, which they do really appreciate. With some of the shortcomings, mostly what we've heard is 24-7 real-time availability, especially over the weekends, cross-border. Most central banks don't have that kind of capability. So we are building out the product set and anticipation of being able to do something that creates value to customers. But we would not say that there is very robust demand just yet that has developed. And most of the conversations are around the corporate payment space.

Yeah, thank you to everyone who joined our call this morning. Please contact the investor relations department if you have any follow-up questions. Rob, you may now disconnect.

This concludes today's conference call. You may now disconnect.