John Stern: Hey, John. Thanks. Maybe to answer your second question first, you know, it’s more of a deposit mix and rate paid. It’s not necessarily the loan side. I think actually on the loan side, we see, you know, even though loans are soft at this point, we do see decent momentum on the commercial side. We saw good period-end growth. Their spreads are good. The asset churn is positive all there. I think it’s just, again, it’s not back on the deposit side of things in the mix. And I would say even on the mix, I would say on the commercial side, it’s just a rotational thing. The rates environment really hasn’t changed in the commercial side. On the retail side, sometimes rates go up, sometimes down depending on geography and market and all those sorts of things.
But we’re competitive there and we want to make sure that we’re growing and we have been growing. We’ve been growing consumer deposits as we mentioned. Back on your first question on the deposit surge, you know, it’s probably in the area of $15 billion to $20 billion that we received. We get a lot of inflow at the end of the quarter as people prepare for outflowing payments, end-of-the-month type payments or first of the month as well as fifth of the month. And then sometimes they just hold it all the way through the tax season. That’s exactly what we’ve seen here is that you get this kind of surge up at the end of the quarter. It holds for the duration through tax day, and then it starts to wind down kind of — that’s been very seasonal. It’s just a bigger number than what we have typically seen.
John Pancari: Okay. Thank you. And then separately on the expense efforts that where you’re taking a closer look and you mentioned some of the areas. Are those measures that you’re taking fully reflected in that updated expense outlook of $16.8 billion for the year? Or could your efforts drive a somewhat lower number as you evaluate the opportunity?
Andrew Cecere: So, John, they’re reflected in the efforts. That’s why we brought it down to $200 million. And in the note, you’ll see that’s $16.8 billion at least. So we could pull additional levers as we continue to focus on this, but it is reflected in the guidance.
John Pancari: Okay. Thanks for taking my questions.
Andrew Cecere: Thank you.
Operator: Your next question comes from the line of Vivek Juneja with JPMorgan. Your line is open.
Andrew Cecere: Good morning.
Vivek Juneja: Hi. Thanks. Good morning. Thank you. I just want to probe, Andy, your comment that you expect net interest income to go up in the second half of ’24. Could you talk a little bit about what do you see as the drivers of that?
Andrew Cecere: I’m going to let John start and I’ll add on.
John Stern: Yeah, you know, the drivers really, you know, Vivek, as we talked about the, it’s — it comes down to the deposit side of things, really, first and foremost. And, you know, again, we’re seeing [Technical Difficulty] slow. It’s just, again, it’s just taking some time. So eventually as that goes, that will stabilize. And then you’re going to have the asset, continual asset churn on both loans as well as investment portfolio, things like that. I would also say that, you know, we’ve taken a lot of action to enhance return on equity. We’re looking at capital-efficient ways to grow that. Those underlying themes continue. The union growth opportunities that we see — and loan spreads have been favorable. So those are kind of the reasons that we see a positive nature and bend to the net interest income that Andy talked about.
Andrew Cecere: So as John said, it’s the repricing of loans, the expectation of stabilization of the flow of deposits, and the securities portfolio churn that we talked about.
Vivek Juneja: And the hedge that you did, which you said was an anomaly this quarter. [Technical Difficulty] Was that for — that’s not going to have an ongoing impact? Was that just something that you put on for capital protection or what was it?
John Stern: Sure. Yeah. So it really was more to get our asset sensitivity to be — continue to be neutral. So those are actions that we took kind of as a one-time matter. So it’s in the rate and go forward. That’s why I kind of — I called it as a temporary measure here in this quarter. Going forward, again, as the driver here in investment portfolio is the $3 billion or so that’s rolling off at lower yields and will be replaced at now current higher interest rates.
Vivek Juneja: Got it. Because you had always said you were neutral. So that’s what I was trying to understand what sort of change to make — that you had to do to make it go to neutral.
John Stern: Yeah. Those are part of the actions that we take to get neutral. And those are the things that the team looks at on a frequent basis. We’re actively managing that on a daily basis. We’re looking at markets. We’re taking actions. And this is just the result of that.
Vivek Juneja: Okay. And is that what just received fixed swaps you added or terminated or what did you do?
John Stern: Well, specifically, they were just — they were pay-fixed swaps that we had terminated, they were shorter-dated in nature, but it reduced the yield because the pay-fixed carry was — had been gone. But that just neutralized our interest rate sensitivity.
Vivek Juneja: Thanks.
Operator: Your next question comes from the line of Gerard Cassidy with RBC Capital Markets. Your line is now open.
Gerard Cassidy: Good morning, Andy. Good morning, John.
Andrew Cecere: Good morning.
Gerard Cassidy: John and Andy, can you share with us, obviously, you had a nice move up in your CET1 ratio is now at 10%. And we all know the Basel III endgame is coming. Nobody knows for certain when that final proposal will be in place. But it seems like for the Category II and III banks, that the unrealized securities losses will be carried through regulatory capital, which is not the case today, of course. So with that as a backdrop, can you update us on where you want that CET1 ratio? And historically, you guys have been so good at giving back 75% to 80% of your annual earnings in dividends and buybacks. And when do you think we could possibly get back on that kind of track?
