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Sounds good.
I'm delighted to have with us this morning, Andy Cecere, Chairman, President, and CEO of U.S. Bancorp.
Morning.
Thank you so much for joining us.
Pleasure.
Terry Dolan, Vice Chair and CFO.
Morning, Betsy.
Appreciate your time this morning.
Yeah, thank you.
I think let's just kick off with a little bit of an overview question. How are you seeing, feeling about the macro environment? Maybe, give us a sense as to where things are trending this quarter?
Sure, Betsy. Good morning. Good morning, everyone. Let me start giving the big picture, and then Terry might update on our outlook. First of all, you know, we have a big card issuing and a big card acquiring business, and I will tell you from a spend standpoint, people are still spending on travel and entertainment. That is up in a significant way year-over-year. There's a bit of a slowdown in retail and discretionary items, sort of what we've seen in the last few quarters. That continues to slow a bit. That parallels what we're seeing with deposit balances at the individual level. You know, for a number of quarters, almost two years, Betsy, that was increasing.
Again, per customer, it's starting to go back to pre-COVID levels, probably be there in the third quarter. The spend parallels the deposit balances, which is generally saying slowdown. From a loan standpoint, loan demand is down versus where it was a year ago for sure. Utilization rates are relatively flat, you know, a number of banks are being very prudent about capital allocation, that is creating sort of a flattish loan activity. Deposits, and Terry will talk about that, are relatively stable. We're going to sort of parallel the H.8 data, which is down a little bit because of the quantitative tightening. Big picture, stepping back, what we're seeing is a bit of a slowdown. We project one more rate increase in the summer and then sort of flat rates.
We have a very soft, moderate recession, slow, very short in terms of duration and not very deep in terms of severity. That's what our projections are. We're preparing for a number of environments, but that's sort of our base case.
Okay.
From what that translates to in terms of outlook, I'll ask Terry to update.
Let me give a little bit of update with respect to our guidance. When we think about our forecast for the second quarter as well as for the full year, it is still very consistent with the guidance that we gave in April, no significant change with respect to that. Maybe just a couple of insights. You know, in the second quarter, one of the things that we were doing was building cash balances a little bit more than what we had expected, cash levels are a little elevated. We did that because of the uncertainty related to the debt ceiling.
As a result of that, our NIM for the quarter is going to be a little bit lower than what we had projected or guided, but the net interest income associated with the elevated cash balances, fundamentally, net interest income is going to be fairly neutral relative to that guide. More importantly, you know, it's temporary. We're starting to bring those cash balances down now that the debt ceiling issue has been resolved, at least for some period of time. So when we're thinking about the guidance of NIM for the full year, we still believe that 3%-3.05% is a reasonable guide.
A couple of other things I would just say is, you know, one of the things we talked about is that net charge-offs were, you know, going to continue to increase over time. You know, our expectation is that net charge-offs increase to about 50 basis points, which is pre-COVID guidance, but, you know, that will occur over a period of time. We won't get back to that 50 basis point level probably until sometime mid-2024. The one change that I do have with respect to the guidance is related to the tax rate. Our TEB tax rate is in the second quarter as well as full year, is expected to be about 24%, and that's up just a little bit.
Primarily is related to our capital optimization activities that were going on. I know that we'll talk a little bit about that later. That's really the only change to guidance that I have.
Okay, great. Well, thanks for the color. Let's dig in a little bit on the strategy side. Andy, you've done quite a bit over the past few years with the Union Bank acquisition. You've also had the State Farm partnership that you've been executing on. I did just want to dig in a little bit and ask, as you think going forward, top three strategic priorities from here?
Let me start with Union Bank, because that is at the top of the list. We completed successfully our integration Memorial Day weekend. That was our major integration with most of the systems. We have our credit card conversion here at the end of June, but that went very well. We already have almost 400,000 customers digitally enabled, which is a big deal for us and a higher level of focus. We're consistent with our expectation of our cost takeouts, which is a $900 million full rate into 2024, about $300 million this year. Full run rate by the end of the year and into 2024 will be at $900 million. That's positive.
While we didn't project and model any revenue enhancements, Betsy, I think there are a significant amount. You know, first of all, the digital enablement is much more significant for us, and our capabilities are greater than what Union Bank had. Second, our penetration, for example, a card penetration is half what U.S. Bank is at Union Bank, so we have a lot of opportunity of payments. The payments on this, on the corporate commercial side is one third the penetration, what it is at U.S. Bank. I think we have a lot of opportunity, and that's going to be our focus, is really taking that customer base, 1.2 million customers, and really fulfilling the full capabilities that U.S. Bank has in terms of products and capabilities and digital enablement.
I think there's a great opportunity there, the team did a great job on the integration, that's number one. Number two is, the digital component has continued to be a focus for us. You know, we've invested quite a bit in that. Our app, our capabilities, our co-browsing capabilities, and this concept of, you know, having great digital capabilities combined with great human capabilities and being able to use the branch as a place for consultation and advice and direction while having digital capabilities for opening accounts and transactions is what we're focused on. I think we've done a nice job with that. The third component is our payments ecosystem. We've talked a lot about the fact about 29% of our revenue streams comes from payments, that's card issuing, corporate payments, and merchant acquiring.
I think we have this great opportunity to weave together our payments capabilities with our banking capabilities, particularly for mid and small-sized businesses, and helping them not just do banking, but run their business, manage payables and receivables and cash flow activities. Some of the acquisitions we've made with Talech and Bento and TravelBank really manages both sides of the balance sheet for that company and helps them through their banking and payments components. That ecosystem is a huge focus, and that also will apply to Union Bank, which we increase our small business customer base by about 20% with that acquisition.
Okay.
Those three things, Union Bank, digital capabilities, and payments ecosystem.
Have you ever sized what that opportunity set could be?
For Union Bank.
Yeah, for Union Bank.
Well, for Union Bank, we didn't model it, but we're actually working on a number of activities to increase that penetration. Again, the card on the other side. I think the payments ecosystem. We have a great opportunity. Less than half of payments customers are banking, less than half of banking are payments. This opportunity to sort of weave together both sides and have a more robust product set increases revenue, but importantly, also increases the opportunity to gather new customers over time. We think we can gather new customers in that 20% range and new revenue in 25%-30% range.
One question we do get from investors is: Is there any investment you need to do to get to these revenue opportunities that you're seeing?
Well, a lot of the investment that we needed to do, we've done. In the last four or five years, we've spent a fair bit of investment dollars in terms of our digital capabilities, our payments ecosystem, tech-led acquiring capabilities. We also went from about 40-60 offense to 60-40 offense in terms of the investment dollars that we spend. We spend about two and a half billion dollars a year. The capabilities we have are far, are really very solid right now, and we're seeing that when we compare and contrast against some of what Union Bank had in terms of capabilities. We'll continue to invest in those capabilities going forward, but we're sort of at a level run rate in terms of the spend on a go-forward basis.
Beth, Betsy, one of the things that I would add was specifically related to Union Bank, and that's one of the benefits of scale. In this particular transaction, it's really a lift and shift. We're really fundamentally taking that $1.2 million customers and putting it onto our platform and being able to utilize all the technology investment that we've already made. You know that we don't really see an additional need with respect to that. Any investment that we need to make with respect to the business opportunity has already been incorporated into the $900 million of the cost and integration.
Right. Again, scale in this environment is critically important. If you think about it simply, Union Bank allowed us to increase our scale 15%-20% with a very efficient platform that we've already invested in. The value of scale is evident in this transaction.
We should see the cost curve start to bend again.
Yes.
Yep.
That's where the $900 million dollars-
Right.
is going to be, you know, quite impactful. If you think about $900 million against our expense base, it's about 3%.
While we're on the topic of expenses, maybe we could just dig in a little bit on the tech side of the in- expense spend. You mentioned back in January that you're past the heavy spend part of tech. I guess what I'm wondering is, does that mean that you are anticipating just stable from here or that you should actually start to see a decline in tech spend?
I think we're going to continue stable from a tech spend standpoint, but the opportunity, I think, is leveraging that tech spend into operational efficiency. One example is we're migrating to the cloud and our ability to achieve cost savings because of that. Another is investments in operational activity, which allows us to have more effective back room operations. The spend will stay the same, but the value of the spend, I think, comes through in terms of efficiencies and also additional revenue.
I have to lean in and ask the question about AI.
Yeah.
I'm sure it's something that you've discussed at the management level.
We have.
Maybe even at the board level. Give us a sense as to what you're thinking about this.
There are a number of use cases that we're working on in terms of customer service, customer interaction, next best action, a lot of things like that. I would say it's an active process across many different areas of the bank, and it impacts actually every single business line in one way, shape, or form, in addition to the operations and back room.
The question we get from investors, even as recently as last week, I was on a long call, debating and discussing, is this going to be something that impacts our outlook for efficiency ratios in the next one or two years, or is this more science fiction and out three, four, five?
I'm not sure it's science fiction, but I think it is probably a little bit more towards that 2-3 years as opposed to the next year.
You have been delivering some nice positive operating leverage here, 200 basis points.
Yep.
I believe, last year.
230. Yep.
230.
230.
Yep. Okay. You know, the other question I get is, wow, how could you do even more than that? That seems pretty robust. Maybe we could lean in a little bit on the $900 million and the timing for all that.
Well, again, the $900 million will be full run rate into 2024, about $300 million this year, mostly in the second half. Conversion was Memorial Day weekend. That's the big picture. Again, that $900 million will drive us to positive operating leverage because it represents about 3% of our expense base.
Okay. Pulling back up to the opportunities, first one on Union Bank and the revenue synergies there. I hear you on the opportunity set that, you know, the Union Bank customers don't have products with you. They might have products with other people, right?
Mm-hmm.
How do you go about trying to move them over in a way that's efficient, you know, from a price perspective?
Yeah. I think part of it is back to that digital enrollment and enablement. We have a terrific app and terrific online capabilities, and the ability to offer products and services that perhaps Union Bank didn't have exactly the same or the same robust set of products, I think offers us a tremendous opportunity. We also have a tremendous payments capability that they can utilize in an efficient fashion, and to the extent they're linking it with the bank account, I think that creates convenience and opportunity. It's digital, it's linking, and it's convenience.
The small business opportunity there.
Mm-hmm
very compelling.
More small businesses than any state in the country. Increases our base by about 20%, and it is far less penetrated than our current base.
Okay, great. I want to turn to capital.
Sure.
As I'm sure you know, that's a topic that, you get a lot of questions on. You're focused on the capital accretion to drive the CET1, right, from the current level to, what, 10.5%? Is that right, by year-end 2024?
Yeah, we're very comfortable we're going to get to 9% by the end of this year under Cat III rules, and 10.5 under Cat III rules by the end of next year, getting us to about 9% on a normal basis. Maybe I'll ask Terry to walk through the components.
Great.
Yeah. There are really 3 kind of components to us, in terms of adopting the Cat II . To kind of give you some perspective, we've been working on this for well over 18 months already. As soon as we signed the deal with respect to Union Bank, you know, we expected that we would start to come close to that threshold. This is something that we have been working on for a while. The first component will really be around the earnings accretion and capital accretion that comes along with it. We guided the fact that, you know, over the next 7 quarters, on average, we're going to see somewhere between 20-25 basis points of accretion.
It probably will be, you know, to kind of maybe gauge that first quarter, we had about 20 basis points of accretion. There was a CECL adjustment that brought that down by 10. You know, on a core basis, it was already about 20 basis points. If you think about, you know, once we get past the system conversion, so second quarter may be a little bit lower than that, but once we get beyond that, we start to see the benefit of the integration in the rearview mirror. We start to see the cost synergies kicking in, and then merger-related charges will be about $1 billion this year and really insignificant next year. There's multiple reasons why we feel very comfortable with the accretion.
Second component at a very high level is just risk-weighted asset optimization. Those, you know, we already have identified roughly 50 basis points of things that I would call low impact actions or activities that we can take that will help us accrete about 50 basis points of capital and not have that big of an impact with respect to our operations, et cetera. Then as we get into 2024, you know, standing up things like securitization structures, flow agreements, things like that help us manage risk-weighted asset levels, risk transfer sort of vehicles, those sorts of things, which we've already done, and we would just continue to do more of it. That allows us to expand beyond that 50 basis points.
When you take accretion, the risk-weighted asset optimization, that gets us to the 10.5, where we need to be by the end of 2024 on a CET1 level. Maybe to kind of also give some insight, you know, 2024 or fourth quarter of 2024 is the earliest that we have to adopt Category II. The Fed kind of has the option, depending upon where our asset levels are at that particular point in time. We'll know more about that in the at the beginning of 2024, but we are on a trajectory or plan to be able to get there.
Right. The Fed supposedly is going to inform you on January 1st. Is that right?
Yeah, the beginning of the year of 2024.
Okay. One question that we get a lot is the RWA optimization strategy and how should we think about that impact on revenues?
Yeah. That's why I say, you know, the first 50 basis points of risk-weighted asset optimization is very low impact. These are things that we can put into place, as an example, you know, one credit transfer sort of structure, we call it an automobile loan repack. Once you go through that, you know, you get to recharacterize the assets from loans to securities. You get the risk-weighted asset benefit associated with that reclassification. You still have margin on securities that's at a higher level, and you have the servicing fee associated with it. Those are all things that can have relatively limited impact with respect to your revenue stream and really add to the overall capital accretion.
And that-
That's just one example.
That 50 bps is something you're anticipating generating this year?
Absolutely.
Right.
Yeah.
That's already in your rev guide?
Correct. Yep, that's correct.
Okay.
Absolutely.
Okay. I guess the other question that people have on the CET1 is the AOCI and the impact there.
Mm-hmm.
You know, it would be easier to forecast if it was, rates never moved.
Mm-hmm.
How, you know, should we think about how you're set up for that impact if rates do back up?
Yeah. Where the AOCI is in terms of the impact is about 200 basis points today, and that's assuming a rate environment that Andy talked about, where rates are maybe up 1 more time and then relatively stable through the rest of this year, maybe coming down, you know, 1 or 2 cuts sometime in 2024. It's a pretty neutral rate environment that we are assuming. Under that, you know, we expect that 200 basis points of AOCI impact to drop to about 150 basis points. you know, that's why, you know, our target of 10.50, once we once we have to adopt Category II, you know, we're at a healthy 9% capital ratio.
One of the things that we are also doing is, you know, putting into place hedging strategies, so pay-fixed sort of swap structures that minimize the upside risk associated with the long end of the curve moving up. We may give up a little bit in terms of, you know, if there's some downside opportunity, but we're okay with that, because capital is our primary focus.
Got it. All right. Andy, back to you. With that all as a backdrop, how do you think about when the time is right to restart buyback?
Our priority is, first of all, from a capital deployment standpoint, investment in the company. Number two is dividend, and number three is buyback. Everything that Terry talked about is consistent with how we're managing capital. In addition to all that, as you know, the likelihood of capital for the industry going up, particularly for assets above $100 billion, is out there. Until we get more clarity on that from Basel III Endgame to the final categorization rules, I think we're going to be very prudent about capital management.
Okay. Those proposals, when do you think those come on the-
I would guess they're going to come, Basel III Endgame could come as soon as the next few weeks, and then some of the rest of them later this year into early next year. I would expect that they'll come and impact all banks of a certain size. Secondly, I would expect there'll be some sort of transition period, so we'll be able to get there, like all banks will, over a period of time.
Right. Okay. The other question that we get is on TLAC, right?
Mm-hmm.
Total loss- absorbing capital.
Yep. Yep.
I think you've mentioned recently that you thought you might need to issue $10 billion-$20 billion. Is that right? Mid-20s of debt to deliver on new TLAC rules. Do I have that right?
That's about right.
Yeah.
We just issued $3.5 billion last week. Maybe, Terry, you can talk a little bit more about that.
Yeah. Again, those are rules that are still kind of in the making. You know, one of the things we have to do is actually see, you know, what comes of it. I know that again, as Andy said, everybody that's in the regional bank structure above $100 billion is probably going to be subject to some level of it. The real question is the calibration, you know, with respect to how much TLAC and what the form of it is. Is it principally debt? Does it include capital plus debt? You know, those sorts of things. Our expectation, you know, kind of based upon how they have calibrated for the FBOs, is kind of in that $10 billion-$15 billion sort of range.
You know, at that particular level, both from an issuance point of view, it's something that's very manageable for us, given kind of our size and depth in the debt markets, you know, so being able to do that, is very manageable. The impact from a P&L standpoint is also something that we think is very manageable.
The time frame for getting there, you think that's a multi-year process?
Yeah, and it's hard to know. You know, the regulators haven't been specific on it, but, you know, precedent would suggest that, you know, there's going to be a transition period, you know, and people are guessing at maybe 3 years or 3-5 years or whatever, but we'll have to just wait and see.
Okay.
You know, Betsy, I think one of the interesting points about this is, regarding capital and AOCI filters and TLAC. These are things, we've been contemplating for the last almost 2 years as part of our planning strategy. As we think about Union Bank, we knew we'd get to Category II at some point. You fast forward now, that what was going to impact U.S. Bank is now going to impact the industry in a more structured way across banks smaller than ourselves as well. I feel fortunate that we were planning for it in advance and really got ahead of the curve.
Okay, great. On to a little bit more detail on deposits and loans.
Sure.
Mm-hmm.
Just so we can dig in a little bit there on the core business. As I'm thinking about deposits, you know, you indicated pretty much similar to H8 so far this quarter.
Yeah.
You know, sorry. The follow-up question there is: how are you thinking about mix shift of deposits? Maybe give us a sense of rate-seeking behavior, ameliorated yet or not. Give us a sense as to where you think the non-interest-bearing deposit skew is likely to migrate to.
Yeah. As Andy said, you know, our expectation in terms of deposit flows in the second quarter and going forward is it's going to be very consistent with what the industry is experiencing. You know, the overall mix, just kind of in terms of rate-seeking customers, there's still some migration that's taking place. You know, we would have expected that. You know, our expectation is, for example, non-interest bearing, which is roughly about 25%, migrates down to kind of the low 20%s. That's where it was pre-pandemic. You know, just in terms of the mix of our business, that makes sense. To kind of give you some perspective, just, maybe as a reminder, about 50% of our overall deposits are consumer related type of deposits.
Low cost, very stable type of deposits. The other 50%, roughly, are either our corporate commercial customer base, which is, you know, very deep relationships there, or as a part of our corporate trust business or our fund services business, where you have a lot of structural sort of cash flow requirements within those bonds. Again, tends to be very stable sort of deposits for us. It's that, it's that other 50% where we're going to see, you know, the impact from it in terms of betas, but it'll be just consistent with what we've seen in the past.
You know, we've talked a lot about our business mix before. It is great because it offers this great mix and diversification of fee businesses combined with balance sheet-driven businesses. They also act differently in different cycles. I just want to highlight what Terry talked about with corporate trust and fund services. Those are two businesses that offer not just fees, but a tremendous level of deposit activity that's really related to the operational flows of those businesses that we have relationships with. They're very stable in nature. They're very closely aligned to the activity of the business and, you know, thinking about the value deposits in this environment, it's great to have those businesses in our mix.
Yeah. The other thing I would add to that, tied to those businesses is our money market funds. You know, we have billions of dollars of assets under management there. The benefit of that is that when you have these relationships with your customers and they're seeking yield, we have the opportunity, whether it's on balance sheet or off balance sheet, to be able to provide that. You're retaining that relationship, you're retaining the balances within your kind of four walls. It's just what is the form, that gives us a lot of opportunity with respect to deposit flows that others don't have.
While we're on the subject of payments, maybe we can just dig in a little bit to the fee lines there and what you are thinking about in terms of opportunities between, say, the credit card, debit card line, the merchant processing, corporate payments. Is there any SKU that you're expecting is going to be doing better or worse?
Let me give you the big picture, and Terry will give you the details. On the card issuing side, two great opportunities. Number one is we are one of the key providers of card issuing capabilities to other banks, and it's a function of our system and our platform that allows that to be a very user-friendly component for other banks. They have the issuing to their customers, but it's our balance sheet, our fee structure, and a revenue sharing component. We're the biggest issuer to other banks in the country, and that continues to be an opportunity. In addition, I talked about the opportunity to further penetrate the Union Bank customer base, which is about half as penetrated as ours. Those would be our two focus areas on card.
On merchant acquiring, the opportunity is twofold. Number one is tech lead. It used to be, Betsy, that you'd sell merchant processing sort of door to door. Now you sell it via the software that runs the company. Integrating into that software is we've made a lot of investments and where we have opportunity to further penetrate that customer base. That coupled with that business banking initiative that I talked about, which is mixing payments together with banking, I think is our greatest opportunity. CPS, you know, we have a great capability on CPS in terms of providing payments to large corporate and commercial clients as well as government agencies. That business has been growing very rapidly. We also have a big freight business that is part of that. Again, the penetration opportunity on the Union Bank client base is tremendous.
Yeah, when we end up thinking about those businesses in terms of growth rates, we made a lot of investment in our payment space over the last five years. It's part of the investment that Andy talked about, and being very tech-led. When we think about, for example, merchant or the CPS business, we see those as on a longer term basis, high single digits sort of revenue generators for us from a fee standpoint. The card is probably middle single digit, as sort of growth rates is kind of what we expect with respect to fees in the payment space.
Just to come back to you being a provider of credit card capabilities for other banks, just for folks who might not be as familiar, we're talking not just a few banks, but we're talking.
13, 1,500.
13.
Right.
13. It depends on, it's between 13 and 1,500. It's a big number.
Right. Okay.
Yeah.
Just wanted to get that out there.
It's all banks. Yeah.
Just wanted to get that out there.
Yeah.
It's a lot of banks.
Yeah.
which obviously, them relying on you for their backbone in this important product set
Right. Yeah.
is a high bar for you to-
It is. We have, you know, we provide the balance sheet structure, the fee structure, the collections activity, the call service center, capability. It's a full set of services for someone who is not big enough or doesn't have the platform to issue on their own.
Our platform allows us to be able to tailor that experience for their customer base, depend upon how they want us to interact with those customers. That's a very unique sort of business for us.
On the corporate payments, where you're talking about integrating the software capabilities in with the cash management and payment tools, do you see you're creating even more into the software element here?
Yeah, I think that's true both on the merchant processing side and the acquiring side, as well as the corporate payment side. It has become the vehicle to which you get integrated into their business process.
Mm-hmm.
Having that tech layer capability and the integrated software is really key to that success.
I feel a multiple list coming.
Yeah, absolutely. No, one of the things that oftentimes when people come in, whether it's investors or they're talking customers who come in, they're always surprised with respect to the fintech elements that exist within our business. Andy talked about the investment we made in Bento, in Talech, in TravelBank, et cetera. You know, those are all incubators of capabilities within that particular space. You know, we see that as opportunity.
Now a little bit more, back to the core, but well, I shouldn't call it core, payments is core. A little bit more on balance sheet related topics. You've got a fee category, commercial product revenue.
Mm-hmm.
which had very strong growth recently. Maybe you could unpack that a bit.
Yeah, that has been a real success story. That was built from basically nothing 10 years ago to what is over a billion-dollar business right now. The ability to offer debt underwriting, FX components, other commercial product revenue-related processes that is really linked to the lending activity and the relationship we have, has been tremendous. We have a great set of relationships, a great set of products, and good technology to allow us to do that.
Okay.
Yeah. Because it's, as Andy says, because it's focused on, you know, the capital markets that is linked to our commercial and corporate banking, you know, when we see softness on the loan side and strength in the capital markets, we're able to capture the fee revenue from that particular point of view. When we see the opposite in terms of balance sheet growth, oftentimes the capital markets is a little bit lower. It's a nice, a nice way of diversifying our revenue stream as well.
A natural extension of the credit relationship.
Yep.
Okay. Lastly, on fees, mortgage banking revenues. Now, you have been leaning in over the past many years and taking share there. How should we think about that line item?
Mortgage is a key product for the consumer and will continue to be for our set of products that we offer, will continue to be. It's another area where we've made a lot of digital investments, and the ability to originate a mortgage and go through the paperwork in a digital fashion without paper has been a real area of focus for us. Mortgage business has slowed down, as you know.
Right.
Refinancing are almost grounded to a halt. We'll continue to be a, player in the mortgage business, but, you know, the size of it is likely to be a little different than it was the last few years, given those high refinancing activities.
Right.
I think to the extent that you see expansion of mortgage banking revenue, it'll be because gain on sale margins are now what I would say, stabilized and starting to expand a bit as capacity has come out of the system.
The California, you know, increased focus with Union Bank, I would think would give you a little more.
It was. That was an area that they actually had a strong capability on as well. You know, linking those together will be consistent with what they've already had a focus on.
Okay. In our last few minutes here, I did want to touch on loans and credit. You know, the basic question here is: How should we be thinking about your loan growth over the next several quarters and maybe, you know, into the next year? We're hearing a bit of demand softening, but then also, you know, lending standard tightening. Where do you stand on that with your clients?
Demand is down. I talked about that before. Utilization is relatively flat, still well below pre-COVID levels or what it was in a normal environment. That's number one. That slowdown is really a reflection of businesses, you know, just being careful given the uncertainty of the environment. That's number one. Number two is a lot of banks, including ourselves, are very prudent around capital allocation and capital utilization, so making sure that we're getting the right returns for the businesses. I wouldn't call it credit standard tightening. We never loosened, we didn't tighten. We're very consistent through the cycles, but we're being very prudent about that.
All that adds up to relatively modest loan growth, is how I would think about it over the next few quarters, at least as far as I can see. You know, within that, there'll be some mixed differences. We might have higher credit card growth as that spend activity continues and the payment rates start to come down, and a little bit more moderate, certainly not a lot of growth at all in commercial real estate.
Okay. Then on the credit side, can you give us a sense as to what you're seeing there in the various asset classes?
Sure. Maybe just as a reminder, from a consumer perspective, if you think about that as a kind of a broad class, we are a prime, super prime sort of lender. You know, we always are underwriting through the cycle, and so, you know, our performance is pretty consistent, depending upon where, and regardless of where you're at in the cycle. I think that that's an important starting point. The other thing is, from a corporate and commercial side of the equation, we tend to focus on investment grade type of customers, and so our credit quality, our credit performance, is, you know, tends to be, pretty strong, in that particular space as well. You know, the one area that's getting a lot of attention, we're certainly focused on is commercial real estate.
It represents about 14% of our overall portfolio. You know, and most of the asset classes within commercial real estate are performing, you know, quite well, whether it's multifamily or industrial or whatever might be the case. The one area that we are focused on is this commercial real estate office space, because of the pandemic, the impacts that has had on, you know, office space. You know, just to kind of put some context around, because we think it's very manageable, it represents about 2% of loans. It represents about 1% of our overall commitments. It's, it's a relatively small within our overall portfolio. You know, to kind of, it's also important to kind of peel that back.
About 10% of it is what I would call specialty office space, medical buildings and things like that are going to perform very well. You know, about a little under 50% of it is what I would call central business districts. The rest of it is suburban. The, where the area of focus is really around that central business district. You know, if you peel that back even more, it's important to understand, do you have Class A or Class B or Class C type of, you know, what is the quality of the building that you're in? Within the central business district, about 80% of our of our commercial office space is Class A office space.
Again, when you think about who we've invested with, the developer, strong sponsors, those sorts of things, again, we think it's very manageable, but it is one of the things that we're going to have to kind of work through.
Okay, great. Well, thank you very much for your time this morning.
Thank you, Betsy.
Appreciate it.