Please join me in welcoming U.S. Bancorp, financial services company with international operations, and its parent company, U.S. Bank. It's headquartered in Minneapolis and is the fifth largest bank in the United States, with $668 billion of assets at September 30th. Presenting today for U.S. Bancorp is John Stern, Senior Executive Vice President and CFO. John has been with the organization since 2000, and prior to becoming head of finance this year, he held various leadership positions within the company, including president for the Global Corporate Trust and Custody business, as well as corporate treasurer. Joining John today is Gunjan Kedia, vice chair of U.S. Bank Wealth Management and Investment Services, and a member of U.S. Bank's Managing Committee.
She has extensive experience in the financial services industry, including running the investment services businesses in Americas at State Street Financial, as well as leading the global product management function for Bank of New York's global asset servicing business. Please join me in welcoming John and Gunjan.
Thank you. I'll go ahead and grab this. Good morning, everybody. How's everyone doing? I get a little echo here. Hopefully, you can hear me okay. Great to be with you all as we kick off the events of the next couple of days. I'm just going to start us off. As you know, we may make forward-looking statements, and so those statements may contain risk and uncertainty, so just refer you to the statement, of course. So, if you don't know anything about U.S. Bank, I would point you to this page. It's a page that summarizes our where we are located, what businesses we are in, et cetera.
So if I look on the left-hand side of the page, we have a retail network, of course, about 2,300 branches or so, covering everything from the West Coast, Midwest, and some portions of the East as well. Moving over to the center of the page, we have our national products, and in those national, in this national set, we have a number of different products for consumers. We have mortgages, we have credit cards, we have wealth management products. In addition to that, we also have all of our wholesale businesses on a national scale. That would include commercial real estate, corporate banking, things of that nature.
And then finally, on the international side, we operate in North America as well as in Europe on a number of our differentiating business lines. That would include Elavon's merchant acquiring business, as well as Global Fund Services and Global Corporate Trust. So, the last year or so, we've been very focused on Union Bank, and obviously, we've been doing a number of different things over the past year since the legal day one of that. We've been rightsizing and optimizing our balance sheet with a number of transactions, and we've been building capital along the way. And the combination of all those things really, we believe, helped the Federal Reserve make a decision to relieve us of our commitments to go into Category Two.
So recall, the Fed had an option to put us into Category Two sooner than the end of 2024. That has been relieved. That commitment has been relieved. And so now, we are at a place where we have some... It's a, it's a big deal for us in the sense that we have additional time and additional flexibility to meet those new regulatory requirements, should they come about. In addition, you know, it puts us on the same level playing field as all of our other competitors in this, in this space as well. Now, as we think about Union, we, we've integrated the whole bank. This has been very helpful for us in a number of different fronts. It has increased our scale to the tune of about 20%.
It has done things in terms of our, in terms of, the ability to provide, revenue synergies to the company, taking our legacy Union clients and then, and porting them over to the number of our businesses and diversified business lines that we have across the company. In addition to that, we have additional cost synergies that will be realized from this. Of course, we believe we will have, or we will have $900 million of annualized savings, and that we will realize that by the end of 2023. Now, in addition to that, while we have this new entity, we continue to maintain our risk discipline as it relates to credit underwriting. As you know, this is a strength of the company.
This is something where we are through the cycle lender, and it's been a very strong suit for us as we move forward. As we look forward, we look at our growth opportunities. We have a number of different growth opportunities. We'll talk about that a little bit today, and in terms of how we want to build deeper relations with our new Union clients, as well as our legacy U.S. Bank clients as well. We'll do that keeping in mind the emphasis on high growth, high returning businesses. If we think about our differentiated business mix, this slide just shares with you all the different products that we have.
Clearly, we have a number of different traditional bank products that you can see here, but in addition to that, we have a number of different products that are also differentiate us from other banks that others may not have, and Gunjan will talk a little bit about that. In addition to that, I would say that we have on this slide, you can see that we have three business lines. We have historically shown four, but as you know, we've had some executive leadership changes of late. And so we had prior to this, we had corporate commercial banking that was led by Jim Kelligrew, who recently retired, and we are merging that together with our wealth management and investment services unit, and the combination of that, we'll discuss today.
And so with that, I'm going to turn it over to Gunjan Kedia, who is the leader and the vice chair of the Wealth, Corporate, Commercial, and Institutional Banking. So Gunjan?
Thank you. Thank you, John. Good morning. It's really my pleasure to be here, and looking forward to the conversation and certainly your questions at the end of this. So this is our first time telling the story of our combined WCIB franchise. The most challenging part of it was coming up with a name, and we didn't really do that good a job. So if you can say WCIB five times fast, you are, you, you're right there with us. Because it is the first time and we've thought a lot about why we brought these franchises together, I thought I would start my remarks today, with just a brief reflection of the evolution of these set of businesses for U.S. Bank. Many of you have been covering the bank for a long time. You know us very well.
The DNA of the bank is really the regional banking franchise. It grew into its current form through a series of acquisitions in the late 1980s and 1990s, when banks were being rolled up. We had three tributaries that came together. One was from the Portland, Oregon, area, where the name U.S. Bank comes from. One was from the Wisconsin, Minneapolis, where the management team and the current headquarters come from. And then the third was Ohio, Cincinnati area, where our charter comes from. So some of the businesses within WCIB do have history all the way back to our core charter, for example, our commercial bank. But what I want to talk about is how the product set and the corporate and some of the other franchises have built, really turn of the century.
So while the bank is 160 years old now, some of our product sets here are really 20 or 25 years old. And it tells a lot about our growth story because we are almost growing into our client franchise with our product sets. So, we did an acquisition of Piper Jaffray, you'll remember, and it seeded our current day wealth management, brokerage, and asset management practice. We acquired a company called Nova, that is now the current day merchant acquiring Elavon franchise. From the mid-2000s onwards, we must have done about 20+, acquisition that built up our global corporate trust franchise, our investment services franchise, collectively, more than $10 trillion in assets now, like John showed you. Around that time, we also did strategic hires to build out our corporate bank and to build out our capital markets capabilities.
All of these together make up the wealth, corporate, commercial, and institutional banking business. 38% in revenue for the bank, 50%, approximately, of the loans, and 50% of the deposits. We have 11,000 colleagues. We're very proud of them. They're very nationally and internationally situated. This is a slightly unusual way of showing you the revenue. There are about nine businesses that make up the WCIB franchise. We bucketed them into the traditional balance sheet businesses, the loans and deposits. Just to say, it's only 38% of this franchise. We were somewhat surprised at how this number has evolved, because the other two areas, which are faster growth areas, have really sort of become very big parts of this business. In the middle, you see the wealth and capital markets business.
These are our advice-based businesses, 34% of the revenue, which includes our wealth management businesses, our capital markets, and asset management businesses. Our transaction processing business, our investment services business, as well as our corporate global treasury management. The last two, which are more than 60% of the bank, are very fee-intensive businesses. Where we have spread revenue in those businesses, it's driven by deposits, so it's also a very capital-efficient set of businesses. You've heard our management team talk a lot about capital-efficient growth, being very prudent with balance sheet. John talked about how we are being very intentional about the flexibility we have in terms of how we manage our balance sheet. The second two pillars are very important parts of our growth story that are still balance sheet efficient. We have an obsessive focus on market shares.
It's a very simple way of telling ourselves that our story, our products, and our client relationships are robust and happy. Lots of numbers on this. I want to talk about a few that have moved a lot. The number five commercial bank, you would expect, we are the number five consumer bank, so it's very consistent with our traditional franchise. But we do serve 90% of the Fortune 1000 companies, so the corporate bank has become quite meaningful over the last 20 years or so. When we started the investment-grade bond business, that was the first product we started our capital markets with. We were number 11 on the lead tables. That was all the way back to 2007.
You see us at number five, and we just are inching up in a lot of categories. Just a quick note on capital markets, we don't do equities. Our focus is really on the fixed income sides. Our investment-grade bond has then added on derivatives, foreign exchange, commodities, like businesses, and we continue to add those type of capabilities, but it's not sort of the traditional equity trading business. The money market fund, we were number 15 five years back. That may not sound like much, but you have to add, like, $70 billion in assets to your money market fund families to inch up, and we are sort of one notch and nipping at the heels of number 13. We did a very marquee acquisition with PFM.
Very, very high-quality acquisition, just at the right time, that has taken our assets under management to about $448 billion. All of them are liquidity, cash, cash equivalent solutions. We don't do traditional equity or fixed income asset management. And then our marquee business is a global trust business, number one or number two market shares in every segment that we serve. On the custody, about 10 years back, we were not in the top 10. I just recently saw a report put out that just didn't even have us in the top 10. We are at $10.3 trillion in assets. That puts us at a number six custodian. So again, steady growth along all of these nine businesses. So how does it all add up?
We are giving you a five-year view of revenue CAGR, 6.8% for total revenue and about 8.3% for the fee revenue. What we are very proud of is when we come back next year, if we do, you'll see the impact of Union Bank. So in the bar chart to the right, you're seeing the three-quarters number for 2023. Very robust numbers because you're seeing the reflection of Union Bank as well as organic growth. I want to close out who we are before I turn to what our strategies are going forward, which is the description of our product set. I do apologize for creating a category called a generic regional bank peer, which there is no such thing.
We do get that, but it is sort of directionally intended to highlight the bottom six products where we think our product mix is quite differentiated, even with the G-SIBs that we, but certainly from the regional banks. You'll see as I talk about our strategies going forward, we are quite intentional about which client segments we go after, where the mix of product capabilities gives us an edge in our story. So I'll describe some of that. But where do we have an edge? You know, asset management, the liquidity solutions, our logic there was to be there for a treasurer or a CFO in the entirety of how they think about their liquidity. It could be off-balance sheet products, which we have. It could be the deposits, which we have. It could be bond issuances, which we have.
So it's an important part of just completing the story for a CFO or a treasurer of an organization. And very, very nice growth there over time. Our corporate card, a merchant acquiring part of our payments business, is truly very differentiated. Almost every company we touch uses some kind of a corporate card. It's a very easy conversation to have around something beyond banking. And then, of course, our investment services and custody is truly unique, like most regional players are not in that business. So how do these strategies come together? It's a very simple formula. We are deepening our client relationships. Our franchise is quite enviable, and we are broadening our product capabilities to allow us to continue to gain share of wallet for our customers. What is different and new is the expansion to new markets.
We are quite determined to be in the higher growth parts of the country. Traditionally, we have always shown you the branch network as a footprint, but John described that two-thirds of our company is truly national products, and we are nationally servicing our clients. So where we are not, we are creating brand presence, and we are creating customer franchises there. So just think about it as a simple strategy of deepening the existing client base, expanding your client base to higher growth areas and segments, and continuing to expand the product sets to meet their needs. So let me just give you a couple of examples of how it all comes together. Touching on our wealth business, we have... Everybody loves the wealth business, right now.
It's a very, very capital-intensive business- capital-efficient business, deep relationships, annuity revenue, advice-based business. It's consistent with the DNA of a bank. We started on a journey to transform this business in 2018. The first thing we did was bring the banking and the investment products together into structural teams, shared books, shared compensation structures, so that this twin towers of what used to be the investment side and the banking side was truly broken down. It was a hellish transformation, I have to say. It's like Mars and Venus coming together, but we were very successful culturally in bringing these teams together for the benefit of our client. From 2018 to 2020, we spent a lot of effort on the digital products coming together across these two.
So today, if you're on our mobile app, it's an effortless aggregation of our products across banking, credit cards, any kind of wealth service, and that was sort of the work we did. 2021 and 2023 were very good growth years for us, despite the markets being quite choppy for some part of that year. Collectively, we have delivered a double-digit growth in this business. We do realize, though, that the growth has come from expansion of an advisor's productivity because of the digital tools, because of the team structure, and it has come from organic growth and deepening of the client relationship. What's next for us is expansion of the advisor force, expansion of the client base, because the foundations are quite built. We have just started an effort to re-platform our broker-dealer capabilities.
We have outsourced a lot of our subscale in-house clearing functions to a world-class platform with Fidelity. We are growing advisors, and we have industrialized the referral engine from our external partners and, more importantly, our internal partners with the data analytics capabilities. On the left, you'll see our product set is entirely complete on the wealth side. It's kind of this weird-looking atom, but it just goes to show there's a lot that goes into truly providing a wealth offering, and we are very complete there. So that's our wealth story. Here's a middle-market commercial client. We picked a healthcare Software-as-a-Service client to give you an example of how important the combination of our payments, our merchant acquiring, our banking, and wealth management services are for this client. It's an unusual combination.
So they were 15 years back on the Inc. magazine's, like, fastest-growing company. They were kind of small, that's why they were part of our middle-market business. We actually got to know them through one of the proprietors because they were a wealth client of ours when they were setting up the company. As they grew, we started to provide traditional banking service for them, but they were signing up medical practices, healthcare practices. These were small proprietors, and they wanted payment services, merchant services at the point of sale, as well as the ability to do efficient transactions, which is the infrastructure we built with them. They have grown at more than 15%-20% for us from revenue. They have grown faster than them, and the product set that we have brought together is now being scaled.
You'll see some colleagues of ours talk about the small business healthcare strategy, which is sort of a mini version of this, where banking and payments are coming together in a very nice way. We in wealth have also a very clear offering for healthcare practitioners. There's some unique things we do for their needs. We do a lot of mortgages for them. We do a lot of sort of personal loans that help their practices. So this product set, while we built it for this particular client, has taken us to a segment that is one of our fastest-growing segments. So that's sort of one example. Here's a large corporate example. The private capital segment is growing very, very fast. A quick set of soundbites here.
The latest McKinsey report puts it at $12 trillion globally in assets. Very innovative segments, between 20%-25% AUM growth in the last 10 years or so, or even five years. We have found ourselves here because of the investment services capability, the banking capability, and our capital markets capability, in a very unusual spot to service their needs. These are sort of the who's who of this might be Carlyle, Blackstone, KKR, Ares, so that you're seeing this segment. The way this example is, all of those. These relationships often start in multiple ways. It could be that we have a private equity fund that we are administering for them. It could be that we have a small working capital loan for them.
But the way these relationships expand is credit to the top of the house, credit to the fund, and then banking services to the portfolio companies that have a great risk profile because the parent company does some structuring things for us. So these are great credit companies for us. They are very astute about the need for fee revenue coming with balance sheet products, so they give us a lot of administration services that they historically may not have thought for us. Five of them were instrumental in us seeding our Luxembourg product. They had committed to bringing business to us when we launched that product. So these relationships are growing very fast for us. We serve about 150 of these clients today. This client segment is growing about 20%-25% for us.
Again, a very unique mix of product capabilities that enhances the ROE of the segment, makes the story slightly differentiated and unique. This is a product. These are just soundbites for what we are doing on the product. Because we have 55% of the CLO market as part of our corporate trust business, we have the ability to put data and analytics together on that segment. It's a pretty opaque segment, very popular right now. So we launched that product. Actually, John launched that product when he was the president. Very, very attractive to our clients. I talked about the broker-dealer platform. We are completely redoing our custody platform with our partners, Fidelity, a real-time platform. We have really redone the foreign exchange platform.
That's a good opportunity for us, and you'll see some other strategies. You'll see us very consistently, but prudently, not in a big way, but very disciplined expansion of our product capabilities for the institutional and wealth segment. I'll close it out on this last page before we open for questions. This is a plan around a national footprint. I'll talk about California. Very proud of what we have done with Union Bank, but I also want to highlight six other locations that are in our line of sight, especially around our mortgage, our wealth business, and our commercial businesses are coordinating here to enter Arizona, Texas, Florida, Georgia, North Carolina, with Charlotte, we have big in Nashville as well, and then New York.
We'll have others, but these are massive markets, and so we just had to pick some. Nevada is another one we've been in for a long time, but a lot of growth term. How is that playing out? About 20%-30% of our brand-new hiring in our wealth and commercial segment is happening in the states that you see. So it's very lopsided with our current market share, where we have sort of deep presence in our legacy markets. So you'll continue to see us do more and more in that. These are very high-growth markets. You see sort of momentum behind very early advisors, and we are seeing some great success. So Union Bank has taken us from number 10 to number five position, and with that has come an extraordinary amount of brand recognition.
They have a wonderful client franchise, real, real deep client ethic. So lots of opportunities which we are discovering as the conversion is behind us, and some of the cost elements are very, very much, sort of defined and on, on their way. More on this to come, but I thought I'd close it out with two or three sort of early, possible opportunities. Their client is very global in nature, but we were finding that they didn't have as good a payments and foreign exchange capability as we had. So simple example might be a middle-market company wants to send a payment to Japan, and they were sending it in USD, and the receiving bank was getting the foreign exchange fees for it. Now we can do the foreign exchange. We expect the foreign exchange capability to be quite robust.
We've introduced about 3,000 commercial relationships as part of this. They are very under-penetrated. So if you look at our WCIB franchise being two-thirds non-core banking, they would be about 80% core banking. So, you know, we can just take a very defined formula and start to have those conversations with the clients, which we're already starting. There are many other things we are discovering. They're very affluent, they're very high-end, so our Ascent services, which is a family office business, has very unique capabilities to serve the $75 million and plus segment. They did not have that capability. Those have been some very good early wins and early conversations as well. So that's our story. Just leaving you with three messages before we open for questions.
Just an enviable client franchise, that we are growing increasingly in a national way. A very differentiated, fee-intensive set of products that allow us capital-efficient growth, but also unique way of targeting high-growth segments in the industry. And then, of course, our strategy would be to very prudently, organically, in a risk-managed way, continue to expand the franchise, deepen the franchise, expand the product capabilities. Thank you for listening to us, and with that, I'll pass it on to you.
All right. Thank you, Gunjan. That was excellent. Maybe I'll kick us off. One sec, Mike. I'm gonna just kick us off. You know, first, congratulations on receiving the relief from the, you know, the CAT 2 commitments-
Mm-hmm.
Associated with the Union Bank acquisition. Just, you know, maybe address a lingering question among investors: You know, have you made any commitments to the Fed for reducing the balance sheet, you know, in exchange for that relief?
Right. So, you know, from that standpoint, no. The answer is no. We have made all the things that I talked about during the presentation. We did a number of actions focusing on the balance sheet optimization and some of the actions that we took. We sold some non-core assets, we did some risk-weighted asset strategies and things of that variety, and we built our capital. And all those things are things we provided to the Fed. They agreed with what we had done, and they relieved us of those commitments, and there's no additional thing we have to do or side deal or anything like that. It is- We have the ability to grow and move forward.
So how should we think about balance sheet growth going forward?
... So as I just mentioned, we have the ability to grow. We have the ability to grow in the areas that we want to grow in. I think the couple things that I would point out, though, is that this market is pretty soft in terms of loan growth and things of that variety. I think that banks, including ours, are moving up the hurdle in terms of where we need returns. We've talked about deepening relationships and things of that variety. And so that is certainly in play. The other thing that's going on is we see this more and more, is that our clients are looking at interest rates, and it's not perhaps attracting to them at an absolute level.
So I think those are the kind of the combinations of why we are seeing the softening of it. But getting back to it, we do have the ability to grow, and we plan to do so.
Okay, great. Just one more question on that. Just kind of how do you expect your capital position to trend going forward? You know, specifically, what are the puts and takes?
Sure, sure. So, you know, nothing's going to change really for us. We're going to continue to grow and accrete capital. As you know, we've grown our capital about 130 basis points over the last three quarters. And the core of that has really been our earnings generation. We average about 20-25 basis points. Lately, it's been more on the 20 basis point side because of merger-related costs. We're getting through that. That's part of the cycle, and so we will be averaging closer to the 25 basis points per quarter. You know, in terms of transactions, of optimization, and things like that, we may still do that. We have flexibility now with the...
We just talked about the CAT 2 decision and things like that, but we now have the time and flexibility to be prudent about when we want to execute about things of about that nature.
Okay, thank you. Mike, yeah, go ahead. Oh.
My short question is, are you a national bank or a regional bank? Now, I've heard the word national more than ever in one of your presentations.
Yeah.
I guess you're two-thirds national already. You're expanding into six new markets. You're scaling your new business line, WCIB.
Yep.
And so if you are defining yourself as a national bank, how does that manifest itself in your financials, your goals, your targets? What does it mean for the bottom line?
Yeah, I think it's a great question. I think it's all consistent with what we've talked about. We've as I showed on that first page, we highlight our branch network just to show the core where we are, but we are growing on a national scale on a number of different products. And I think that, along with the additional scale we get from Union, which obviously is more West Coast, California based, it allows us, along with, Gunjan highlighted a number of different states and regions and when we're expanding. I think that just provides a scale, more marketability. We have more ability to grow in the different business lines that we have, as Gunjan mentioned, a number of the different businesses and areas that we have that perhaps other regional banks do not.
And I think that definitely absolutely differentiates us and gives us opportunity for synergies as we move forward.
Mike, I would add also, it is an aspiration to be in a select set of faster growth areas, which is not quite the same as national, although it's easier to think about the vast majority of our businesses as truly national. But there's a lot of regulatory definition of regional bank that is very anchored around where you have bank branches, like your CRA commitments, and those are sort of consistent with our bank branches. I don't think we have a plan to open 1,000 more branches in every state, so that's the differentiation. But we wanted to sort of highlight the fact that so many of our products are truly national because that's what they are today, and that's the differentiation here.
Question for John, regarding the hedging program for your AFS portfolio. I've got a series of questions, so I'll ask them one by one.
Sure.
But, the ultimate goal is to better understand how that hedging program affects your NII and then your AOCI and regulatory capital.
Sure.
The first question is about size. You have a $67 billion AFS portfolio, and I think in October, you said about 30% of that is hedged. Is that correct?
Of the fixed portion of that book. So there'll be some portions which you think about CLOs or some CMOs, CLOs, and things of that variety, would be floating rates. So if you carve that out, then the fixed rate portion remaining would be 30% of it is hedged, yes.
Okay. And so how big would that be?
Well, approximately, from a size standpoint, the floating rate aspect is about $10 billion-$12 billion or so, and then the rest of it is more fixed rate in nature, and so the remainder is what we have hedged.
Okay. And then the goal here obviously is to shorten the duration of that portfolio.
Yep.
So if I understand correctly, the underlying Treasury securities are five, six, seven years in duration.
Sure.
But the hedge turns it into a three and a half-year duration. Is that correct?
Yeah. So how I would think about it is, if you have some securities may be, like a Treasury, may have a five-year duration, a mortgage-backed may be six years, and things like that. As we hedge those items, they have become very low duration, you know, sub one year in terms of those securities.
So you're protecting the fair value-
Correct.
but the burn rate is still five-six years.
That's correct, yeah.
Okay.
We can't hedge the cash flow component of it.
Mm-hmm.
The duration is protecting the price value change, given a change in interest rates, not the cash flow component of it.
Then, just so I can understand the relative importance of this program, you have a number of different interest rate hedging programs.
Correct.
Fixed rate debt? ... floating rate, commercial loans, et cetera. Is this the biggest of the hedge, interest rate hedging programs?
We have a number of different programs, as you point out. What that does, we look at it holistically. So we look at it in terms of how it plays into our net interest income, positioning and things of that variety. So we'll have some pay-fixed swaps, and we disclose, you know, how much we have in derivatives that are pay-fixed swaps against the securities book. How much in receive-fixed swaps against the commercial loans that help us in down rate scenarios and things of that variety to get us to more of a neutral base.
This one is a pay fixed receiving floating?
Mm-hmm. Correct.
It was put on in 2022, early 2023, so-
Throughout the course of time.
a very inverted yield curve.
Mm-hmm.
So you have, you know, a positive spread on that. So that has helped your NII? Is that-
At the margin, I would say yeah, because as you point out, the curve has been very inverted, quite inverted for the past couple of years, and we've executed our hedges over the course of time. And so, there will be some positivity to that. And then, on the flip side, you have some receive fixed swaps that have been done over the course of time, and those have largely offset each other, I would say.
So is it too simple to say you've got a $20 or $30 or $40 billion swap portfolio that's earning a positive 50 basis points, 100 basis points? Because that's kind of how the inversion was the past year.
Yeah, I wouldn't get into the numbers so much as to say that, you know, our hedging program allows us to, to manage the different risks that we're looking for, and then do it in a holistic fashion. So if I think about, you know, the, the pay fixed swaps, that's hedging the fair value of the, the securities book, which is what we, we're trying to accomplish there. We have receive fixed swaps that are helping us in a down rate protection scenario. Collectively, that, along with other hedging programs, allow us to get into the net interest income positioning that we want to be in, for us, whether or not rates are going up and going down, and that is all embedded when we provide guidance from a net interest income standpoint.
And then finally, on the reference rate on the floating received part, is it SOFR? Is it a two-year? What's the-
The market has largely moved from LIBOR to SOFR.
SOFR. So if SOFR comes down, then the contribution to NII will change, and then the value of those swaps will also change?
Well, of course. So, you know, as all the swaps are fair valued off the SOFR curve, those will go up and go down with interest rates. But I, again, I go back to how we look at it holistically. So, you know, we're, we're putting on, on, on swaps and hedges and things of that variety to get us into the appropriate, risk program that we want to be at from an interest rate risk standpoint. So if rates go up and go down, we understand what NII implications there will be.
Okay, and last question, I promise. These are fair value as opposed to cash flow hedges, right? For the AFS portfolio.
On the investment portfolio, fair value hedges.
And so does that affect regulatory capital if it changes?
Neither, neither.
Neither.
No swaps will affect the fair... to the extent that the fair, the swap will offset the, the value of the, of the, of the security.
But in isolation, it, you know-
Right.
It does affect regulatory capital if it changes in value?
For those fair values against those securities, yes. But on the receive fixed swaps, no.
Okay. All right, thank you.
You're welcome.
Good morning, Chris Kotowski from Oppenheimer. So I'm trying to understand what happened to you and the industry in the spring. And so here's the timeline I have in mind. Okay, your fourth quarter earnings call was January 25th. You gave guidance on net interest income that you could drill down very granularly for the full year and the first quarter. The first quarter, you were right on track. 44 days after you gave that guidance, you know, Silicon Valley blows up, and within six weeks after that, you and everybody else is cutting guidance for the full year and the forward outlook for net interest income. So, you know, by the time you got to the end of April, you were looking at a completely different picture.
Was it, one, either customer behavior changed, or two, competitor behavior changed, or, three, the models from January 25th weren't quite right? What, what happened there?
Well, excuse me. Thanks, Chris. You know what? I think there's a combination... It's probably a combination of all those things. I would say, the speed in which the Federal Reserve moved up interest rates brought attention to deposit rates, and I think that changed behavior faster than what, perhaps, models would have indicated in the previous time, as you would have said. I think, I think the deposit component. I think what we've seen since then is just, you know, things of that nature have stabilized, and which is why we, we feel that, we are, you know, bottoming out here in the fourth quarter, which is kind of the guidance that we provided, during the last call.
Okay. Thank you, John. Thank you, Gunjan. Please join me in thanking U.S. Bank.