Good morning, ladies and gentlemen, and welcome to the Mechanics Bancorp First Quarter 2026 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would like now to turn the call over to Nathan Duda, Chief Financial Officer of Mechanics. Please go
ahead. Thank you, operator, and good morning, everyone. We appreciate you joining our earnings conference call. With me here today are C.J. Johnson, our president and CEO, and Carl Webb, our executive chair. The related earnings press release and earnings presentation are available on the news and events section of our investor relations website. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to those risks uncertainties and other factors that could cause actual results to differ materially from those anticipated future results please see our safe harbor statements in our earnings press release and in our earnings present or implied made during today's call are subject to those safe harbor statements any forward looking statements made during this call are made only as of today's date and we do not undertake any duty to update such forward-looking statements except as required by law additionally during today's call we may discuss certain non-GAAP financial measures which we believe are useful in evaluating our performance a reconciliation of these non-GAAP financial measures to and in the earnings let me hand it over to you thank you Nathan and good morning we
appreciate everyone joining us in Mechanics Bancorp. I'll kick things off today and we'll summarize before handing things off to Nathan to review our financials in more detail. Carl, Nathan and I will then open with that let's turn to slide four. We had a productive first quarter reporting forty four point one million in net income. On a fully diluted basis our earnings per share was 19 cents and our tangible book value per share ended the quarter at seven dollars and 53 cents with 40 cents per share of dividends paid to investors in Q1. As anticipated, this was another noisy quarter, so I'll walk you through some of the major items. Political uncertainty stemming from the Iran war. Importantly, this was not driven by any specific metrics remain strong, and I'm pleased to report that we have zero basis points of net charge-offs. The portfolio, by the way, is also... This provision was a conservative response to the heightened global risk of the Iran war and its potential impact on the U.S. economy particularly given higher second we incurred just under five million and we continue to work through the final phases of our home street integration these costs were in line with our expectations and are nearing completion the third non-core item was a 1.7 million tax provision related to the re-measurement of our anticipated effectively twenty six point five percent in twenty twenty six but this could still move around a bit. When you adjust to the non-core items, it adds up to $53.8 million of core net income for the quarter, a of 1%. The first quarter is all, it primarily stems from our $860 million of food and that, who see large inflows in December. $137 million of our non-core was from these customers' activities. Importantly, we did see a $640 million reduction in CD balances during the quarter. We continued to hold the line on CD pricing and let hotter money from legacy Home Street customers leave the bank. When we modeled the merger over a year ago, we expected $1 billion in CD runoff by the end of the second quarter of 2026. However, runoff has been greater than anticipated, and we now expect $1.4 billion cumulative reduction in CDs, with overall mechanic CD balances expected to stabilize at a $2.0 billion run rate. This implies additional reduction in CDs of just under $150 million in Q2. The vast majority of CDs leaving the bank were from single-account households, and our core deposit retention through the merger has been varied. Nearly all of our CDs have repriced once at our lower rates and have maturities of seven months or less. While this elevated time deposit runoff has a negative impact on earnings, it's higher risk, low ROE, non-core money that's better to not have in our bank. Getting a bit smaller also generates, which provides strategic flexibility. Staying on the topic of risk reduction, legacy home street construction loans also decreased nearly $100 million during the quarter as we made the strategic that we felt wasn't priced appropriately relative to the credit exposure we were taking as a bank. In general, competition for loans and deposits. We are okay getting a bit smaller in the near term to minimize risk to the company and position ourselves for long term. secured out 21.4 billion with total gross loans of 13.9 billion, total deposits of 18.2 billion, and tangible shareholders equity of 1.7 billion. We remain 100% core funded with no broker deposits or FHLB borrowings at 331, and I'm pleased that we paid off 65 million of high-cost senior debt in March that was acquired from Legacy Home Street. Because of the Iran war provision, Our ACL grew five basis points this quarter to 1.13% of loans and now totals 157, 2.95. With NPAs generally flat, 13.9% CET1 ratio and an 8.7% tier 1 loan in the first quarter. Down 15 BIFs was 1.21%. 1% for the quarter, up 11 BIFs sequentially, and our CRV concentration ratio was 348%. I'm very happy to report that we successfully converted all legacy Home Street customers onto our core banking platform the final week of March. This major milestone was achieved thanks to a tremendous amount of planning and hard work from all our employees. We will substantially complete our merger integration during the second quarter and expect to realize significant additional expense synergies moving forward. As we will not be paying two core providers, other redundant contracts will be terminated synergies from the merger. and reiterate our prior guidance of achieving an annual run rate non-interest expense, excluding CDI, of approximately $430 million by the fourth quarter. The $130 million sale of our dust business line to fifth third has taken a bit longer than expected, but we have a high degree of confidence in the pending dust sale, our first quarter earnings, and our modestly smaller balance sheet. We will have significant excess capital, and we expect to pay approximately $0.70 per share in dividends in Q2. The merger integration is almost, and the build-outs of our wealth are substantially complete. Integration work, growing each of our core business lines, is increasingly focused on leveraging AI tools. We expect a relatively flat NIM for the next two to three quarters, declining, given we no longer expect any Fed rate pricing modem. Our NIM should begin expanding again in early 2027 as the impact of auto phase, driven by Legacy Mechanics Bank earning asset repricing which will continue to occur over the next five years and will provide a tailwind to earnings growth. We now expect to deliver a 17 to 18 percent ROTC and a 1.3 to 1.4 percent ROAA in 2027 and beyond with a projected gap debt income range of 275 to 300 million for 2027. Our earnings guidance has been reduced primarily due to removing two Fed rate cuts from our projections as well as from a modestly smaller balance sheet due to the lower CD balances. We also expect outstanding construction loans to decline to roughly $300 billion over the rest of the year versus $500 billion previously. Let's look to slide 6, which shows an overview of Mechanics Bank work today. Again, we have $21.4 billion in assets with 166 branches and very competitive. Fourth largest community bank in both California and on the west coast. That's nearly impossible. We expect mechanics to be a high-performing bank. Inside the page, we compare mechanics to all publicly traded banks, $10 to $100 billion in assets, which, including us, now has 77 banks versus the median, the 77 banks of 1.76%, giving us a rank of number 10 before flattening the risk. Next, our non-interest-bearing deposit mixes and the greatest store of value for our car. Our CET1 ratio of 13.9% ranks 19th, and our risk-weighted assets to total assets is just 59%, Despite this low risk profile, our expected 2027 ROTC of 17% ranks 8th out of the 77 banks. 2027 efficiency ratio is now projected to be approximately 50% of 77 despite our operating in higher cost markets and with the majority of our deposits. Investment thesis and another way of visualizing some of the efficiency with which will allow us to post very strong returns. These charts provide a great visual, in my opinion, especially the risk-weighted assets to totalize. In fact, we expect our risk-weighted assets as a percentage of total assets to continue to come down over time. Distantial dividends, the first, we expect moving forward that our dividend payout ratio will be closer to 80% of net income as you retain some capital's optionality. Let's turn to slide eight. For most, we have very strong market share across the West Coast with a branch footprint that's nearly impossible to replicate. The possibility due to our top-notch deposits and efficient business model, despite taking very little credit risk, with no wholesale borrowings or brokerage, very liquid balance sheet with 70% loan-to-deposit ratio. We are efficient with our capital and plan to pay off substantial dividends, which would imply a very attractive yield at the day. There's also firm alignment between our public and private investors, as Ford Financial Fund owns 74% of the company, an experienced management team with a strong offering in M&A travel. Overall, the future prospects and mechanics are quite bright, and I'm looking forward to finishing the job with the Homestreet integration and moving on to the next chapter of growth for our call over to Nathan to dig into more detail on our first quarter results. Nathan?
Net interest income declined $3.9 million compared to $183 million in the fourth quarter of 2025. Our net interest margin expanded 11 basis points to 3.61% of the Homestreet CDs. The income included $12.7 million of discount transaction, and we have approximately $150 million of remaining discount on those loans as of March 31, 2026. Lastly, the earning asset mix shifted modestly during the quarter, reflecting lower cash balances as CDs continue to roll off. Turning to slide 11, non-interest income declined $57.5 million or 73% to $21 million compared to $78.5 million in the linked quarter. The fourth quarter included a $55.1 million bargain purchase gain related to the write-up of the dust intangible asset acquired in the Holmstreet merger. On the slide 12, non-interest expense increased $0.9 million or 0.7% to $130.4 million compared to $129.5 million in the fourth quarter. Merger-related expenses totaled $4.8 million, up modestly from $3.5 million last quarter, and were primarily comprised of professional services and severance costs. under expenses, non-interest expense declined $0.4 million versus the linked quarter. The efficiency ratio increased to 61.6% compared to 46.7% in Q4, reflecting the absence of the prior quarter bargain purchase gain rather than any deterioration in underlying... On the slide 13, loan interest income declined $12.9 million, or 6.7% to $181.2 million, and loan yields declined nine basis points to 5.25%, driven by slightly lower contractual yield and reduced discount accretion. Multifamily and single-family residential yields declined modestly by six and three basis points, respectively. The CRE concentration ratio increased to $348,546 million of loan commitments, predominantly in SFR and and sold 54 million of loans primarily does multifamily and residential real estate turning the slide 14 our remains well diversified and continues to reflect our long-standing focus on lower risk multifamily lending multifamily represents approximately 70% of the total CRE portfolio 3.8 million an average LTV of 56% and an average debt coverage ratio of 1.55 times the remainder of the CRE portfolio is broadly distributed across retail office industrial hotel and mixed-use categories each with modest exposure and conservative credit characteristics at the end of the first quarter our CRE concentration was three which would be what we also continue to manage down the higher risk segments of the legacy home street portfolio during the last six months we made progress reducing our home street syndicated loan exposure with balances declining from approximately 142 million at september 30th 2025 to about 68 million at march 31st 2026. 9 million of unpaid principal balance or 18 million of commitments of legacy home street c and i syndications at par and we ended the quarter you can see both legacy mechanics asset quality trends and the impact of the home street and a very low level of non-performing assets as shown on the slide the majority of our historic specific reserves off with slightly lower performing assets represented 0.25 modestly higher from 0.23 in the fourth quarter the increase reflects the impact of lower loan balances in total and a slight increase in the non-auto non-performing assets of two million dollars loan total for investment or 1.13 compared to 1.08 percent the increase in the allowance reflects the incorporation of qualitative factor adjustments including a six point three five million pre-tax provision driven by the heightened economic uncertainty to slide 16 securities interest income increased three point five million or seven percent to fifty three point one million from forty nine point five million in the fourth quarter the increase was driven by higher yields on the portfolio which increased by eleven basis points to three point nine seven percent and the increase in the portfolio's yield was due to the full quarter impact of the $650 million of securities purchased in the fourth quarter of 2025 at a creative yield to the portfolio. The overall securities portfolio decreased by $83 million in the first quarter of 2017, total reduction in a $232 million reduction in non-interest-bearing demand and $137 million in seasonal non-materialized by money market growth. This mixed shift and balanced reduction contributed to a 10.7 million or 15% decline in the deposit interest expense compared to the prior. Down 15, primarily by the continued runoff of the higher cost legacy home street time deposit 0.21% pricing benefits. Non-interest bearing deposits represented 36% of total deposits continuing to support our low cost funding profile. Capital and liquidity on slide 19, a 13.9% CET1 ratio and an 8.7% tier 1 leverage ratio at March 31st, approximately $16.3 billion. $12.61 and tangible book value per share was $7.50. In the first quarter, we paid a 40 set per share dividend. As CJ discussed earlier, we expect the $130 million sale of our Fannie Mae delegated underwriting and servicing, or dust, has been closed shortly. $165 million of excess capital, which we intend to return to shareholders through a special dividend of approximately $0.70 per share in the second quarter.
We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. And it's star one on your telephone keypad to ask a question. Your first question comes from Woody Lay with KBW. Please go ahead.
Hey, thanks for taking my questions. Wanted to start on the net interest margin. And just based off the spot rate of deposits you gave, I'm a little surprised the margin would be flat. or relatively flat next quarter. Could you kind of just walk through the puts and takes to the flat margin over the next couple quarters and kind of the glide path we need to see in order to hit the $275 million to $300 million net income in 2027?
Sure. Good morning, Woody. I'll take that. I'll start with it and maybe let Nathan comment as well. I think, yes, the spot cost of deposits is down, and that will provide a bit of a tailwind, but I think we expect our deposit costs to be kind of not quite at 1-2-1, probably a little higher than that for the quarter overall, as we really are through most of our CD repricing. We also have kind of a bit of a day count issue with the first quarter in February and how we do some of our yields at the 3.61, especially in February, which is a short month, is a bit elevated. So that gets some of it. I do think we now, again, we're very liability sensitive. We're going to add a bit more disclosure around that in our next investor deck in the second quarter. But we do have, of our $18 billion of deposits, $10 billion is at basically one basis point, non-interest-bearing or very low cost. But we do have $7 billion that's at 2.85% today. And so it's a bit of a bifurcated deposit base. And so not getting the rate cuts, having a flat forward curve is a bit of a negative for us, clearly. and we do have about 3 billion, basically just about 4 billion of floating rate assets. So there's a 3 billion gap between our rate sensitive liabilities and our floating rate assets. And we've been working to narrow that gap. It has come down. It will continue to come down, but that's putting some of the pressure on the margin during the year, especially as we We still have $600 million or so of auto loans at a 6.5% yield. Those are running off to zero. That's putting pressure on the margin. The offset is we've outsourced the expense for that, and as those loans run off, our NIE continues to proportionally run off with that as well. We have $12 million right now that we're paying, And so as those balances run down, the $12 million also comes down. So the offset to the margin impact is going to show up in non-interest expense. Nathan, do you want to add anything to that?
Yeah, I think you covered most of it. A couple other items I would add is you gave updated guidance on the construction land balances, which is one of our highest yielding assets. So there's an impact there. in addition, we have seen interest-bearing transaction costs pick up. Part of that is some of the CD runoff from Home Street. Strategically, we've been pushing some of that into interest-bearing transaction. And so we expect that to pick up during the second quarter,
along with everything else that you discussed already.
Got it. And then maybe just, you know, with some of the moving pieces, is there kind of a margin range you expect in 2027 in order to achieve the NII run rate you expect?
Yeah, I'd say three, you know, probably 3.7, 3.8 in 27 would be my estimate. Obviously, that's still a ways down the road and things can change. So I hesitate to give too much there. But what I do know is we're 100% core funded and our deposit costs should be pretty stable, especially if we can grow core deposits, which we think we can do. I think our deposit costs should remain pretty stable once we get through the second quarter. And we have, you know, I'd say at least $5 billion of low-yielding legacy mechanics assets that are a hangover from the, you know, COVID era that will continue to, you know, amortize, prepay, cash flow, reprice. We're going to add some disclosure around that as well in the second quarter. But that's going to be a tailwind. And that's going to come. That's happening. And so that will push our margin higher every year for the next five years. And so this run rate, this would eventually be a bank that's north of a 4% NIM. And there's levers we can pull to accelerate that. We are going to be continuing to generate excess capital as we're a little smaller. And we've got low-yielding loans, low-yielding securities. We may consider a restructure. On some of that, it would be small. The other thing we're going to do eventually, Woody, is we're eventually going to sell these auto loans. And so that'll be – I don't know when that'll be, but it's going to be back half of this year, early next year. We're still going to try to determine the ideal timing of it, and that will be – we may take a modest loss when that occurs, but it will be a pickup to earnings for sure.
So because that's still a that's that's losing us money at the moment as we continue our runoff.
So there's a lot of levers we can pull. And, you know, the the underlying earnings power of this bank is is very strong, thanks to our rate deposits. And, you know, we haven't embedded any of that kind of stuff in our guidance.
yeah no that's that's really helpful maybe just shifting everything balance sheet real quick um as you noted the some of the deposit runoff is something a little bit more than expected and i think you said there's a another 150 million of planned cds um from home street that's coming off next quarter what once we kind of get through that tranche how are you thinking about the size at the balance sheet, should it remain pretty stable off those levels or just given the sale of the auto, potential sale of the auto portfolio, could we see some additional shrinkage in the back half of the year?
No, I think once we get through any remaining CD reductions in the second quarter, and again, the first quarter is also the seasonal low for deposits with us. Every quarter that's the case. every first quarter, that's the case. So we expect core deposit growth. You know, not, you know, we've always, we think we should grow two, three, 4% a year in line with our economies. And we've got a ton of focus, you know, at the bank on growing core deposits. And so the non-core stuff is basically all out. If we sell auto loans, we'll get the proceeds and reinvest somewhere else. So the assets won't, that won't change the size of the balance sheet. So I view this as very close to the low and we should be growing uh we're budgeting to grow we think you know we we've got momentum there on uh deposit pipelines and stuff like that so i i would not expect much if any more you know balance sheet shrinkage maybe a bit in the second quarter but that should
be the nadir got it and then maybe just last for me um you'll know that in your opening remark You know, 80% payout ratio in 27 that provides some capital to be strategic with. And as you noted, you know, you could look at restructures. But I was also just interested in your thoughts on additional M&A from here, especially once we get past the official core conversion.
Carl, you want to take that one? Good morning, Woody. I think that you have to look at our past to somewhat predict our future. We've always been extremely acquisitive. We're always looking at situational opportunities. Obviously, the opportunities have to be within our footprint. We're not looking to really expand our West Coast footprint.
And we don't want to do a M&A transaction simply to get bigger.
It has to make us better. And I think the overlay to that is making us better with an M&A transaction gets harder and harder and harder. You heard the 128 deposit cost for the quarter and the 121 spot rate. We protect these deposits judiciously. And I'm not talking about our time deposits and, you know, the story there is we've run those down intentionally, but it really gets harder and harder to move the needle. And I'm not saying that, you know, we have to buy another bank or acquire another opportunity that has a like deposit cost. But we think the value of a bank, the franchise value of a bank is demonstrated predominantly by its liability structure and its deposit cost. And so we have to take that into consideration. And, you know, frankly, there just aren't a lot of banks out there. We're always looking. There are a scant few opportunities that we constantly monitor. And I think something in our favor is, you know, we're trading at a pretty good multiple. So all I can say is, is we're keen to the opportunity set. We're always looking. I would say, just being extremely transparent, there is nothing right now on the front burner. And that's simply because there is nothing more important for our bandwidth today than getting this integration right. We've only acquired Home Street, which significantly increased our size and our footprint, what is it, eight months ago. And we're now in the midst of getting our cost out, and CJ spoke to the conversion. Those are the very important things that we've got to get done and get right first, and we're getting in the later innings of doing that. And then we'll certainly see what's out there.
Awesome. Well, I appreciate you all taking my questions and all the color you provided. Of course, thanks for the questions, Woody.
A reminder, if you would like to ask a question, please press star 1 on your keypad. Your next question is from Dave Rochester with Cantor. Please go ahead.
Hey, good morning, guys. Good morning, Dave. Hey, back on your comments on growth and core deposits, it sounds like you feel pretty good about doing that through the end of this year. was curious, just given the headwinds in auto and construction, if you think you could still grow the loan book this year. And I'm just trying to triangulate into an NII trend with a stable NIM. It kind of sounds like you're still expecting NII to grow through the end of this year as well with whether it's loan growth or securities growth through the end of the year, just given that you're growing core deposits. Just wanted to get your thoughts on that. Yeah, I think from a
loan growth standpoint, we expect to grow our consumer loans. We had modest growth in single family. We expect that to pick up throughout the year. And, you know, mortgages, HELOCs, we've seen good demand and growth. And those verticals also are lending against the cash surrender value of whole life policies through our partner, Incline. That's growing pretty rapidly. We're now at, I think, plus $670 million of drawn balances. We expect that over the course of the year to get to a billion dollars drawn and really like that business from a risk-adjusted return standpoint, especially given its short duration and a good counter to that gap I talked to earlier of our floating rate-sensitive deposits versus our floating rate assets uh so the consumer should grow um we've we've talked before about our you know construction you know that that we expect those balances to go to decrease around 300 million um you know a lot of what you know we've the home builder team that came over from home she does a great job they really are a strong team uh but but but that business is it was thinly priced in some areas and and we we're getting it deliberately a little bit smaller um so that'll be a bit of a a headwind and that, you know, through the year. Um, but it will, it will, you know, we're de-risking and not doing construction lending, which can be obviously goes great for a while and then it can go the other way very quickly. So I think that's prudent. Uh, and on commercial real estate, um, you know, I think we're, we're originating loans, but the plan is still to get that below 300%. And so I'd kind of model us over the next couple of years, getting below 300%. There'll be a modest decrease in outstanding multifamily CRE. CNI should be, we deliberately sold some of the syndicated loans that Home Street had. That's part of the balance reduction there. That should be close to a nadir and should be starting to grow again. So, I don't know. Nathan, Carl, anything else you want to add to that? I would add just one other comment, CJ, and that is the market.
It is extremely, and I know everyone says the same thing, and we've been monitoring earning releases and some have had long growth, modest long growth. But I'd say the competitive landscape on both term and pricing is as thin and as tight as I've ever seen it. And we're, you know, we are, I'd just say we're tough on credit. And I think that would be an opinion shared by probably a lot of our lenders that are out in the market today. uh it is uh it's it's it's you're seeing some things out there that i think um may trend to this thing just getting really really competitive to the extent that it's probably not all that healthy particularly as it relates to term which i equate to earn underwriting uh and then credit The spreads are extremely tight, and so my way of thinking is not the time to necessarily be pressing the accelerator too hard for long growth and the overlay of our CRE concentration. We have to be very mindful of that.
Okay. Appreciate that. Are you, at this point, still expecting NII growth from the first quarter through the end of the year? or is it more stable along with the margin?
It should be pretty stable, I would say, for a couple quarters and start to pick up. The balance sheet, again, is going to be getting a little bit smaller in the second quarter and then should start to grow, but the growth will be modest. I'd kind of guide the stable NII and then picking up, I think, pretty materially in 27.
And you mentioned the upside in the margin as you get into the early part of 27. Where are you seeing that roll-on, roll-off differential in the earning asset buckets you have at this point?
Yeah, I mean, we have, I think, a lot of lower-yielding mortgages. I think our legacy mechanics, single family, is probably a low fours coupon. A fair amount of that is starting to prepay, amortize, coming back on the books at, call it, 6%. Multifamily, we've got $2.4 billion, north of $2 billion of multifamily loans that yield low fours. In aggregate, that business today is closer also to 5.75% to 6%. That entire book will reprice or it's all adjustable, 5, 7, 10. It was mostly originated in 21 and 22. By 32, it will all have reset to market rates closer to 6. And so there's a lot of tailwinds there. We also have an HTM portfolio that's a drag. It's $1.3 billion today, yielding 1.61%, and $100 million of that amortizes a year, so slower, longer duration, but over time will continue to be a tailwind. So I think there's a lot of upside to the bank over time. As time passes, we'll have a natural tailwind just from that occurring. um and uh you know this year will be a bit more flat though just given given the total you know flat you know no fed cuts and and the the final drag of auto and we'll make up for some of that in our you know pretty substantial expense reductions that are coming here in the second
quarter and third quarter yeah i mean it looks like um between now and the fourth quarter you're looking at at least a 10 million dollar reduction on a quarterly run rate basis on expenses right
how much of that are you expecting to get in 2Q? Yeah, we're at 474, you know, XCDI annualized in the first quarter. We expect to get to 430. By the fourth quarter, that's 44 million. So yes, annual, you know, over 10 million quarterly. In the second quarter, we should see, I don't know, maybe a lot. I don't know the exact number, but it's going to be a significant amount of cost reductions coming off. And that will persist into the third quarter. By the fourth,
we'll be there. Great. Good. That'll be good. Maybe just switching to the fee side for a minute on the trust business. You guys were opening an office in Delaware. Sorry if I missed your mentioning it. I think it was this quarter. I was just wondering if that were up and running. If you could just remind us what that does for you guys and what other expansion you're planning
in that business going forward. That'd be great. Yeah, we got a little bit delayed. It's now expected to open in May. So we're almost there on the Delaware trust business. We have some demand waiting for us to open that. That's a major step for our wealth group. So that's exciting, but it but it has been delayed a quarter um and yeah i think overall we've our build out of the team is is complete you know we've we've got a great team uh really almost everyone came over from at least a number of folks came over from first republic uh after that oh failed right in our backyard and so um it's uh we've been laying the groundwork we've been very busy you know with the integration with the merger and and uh we picked up uh some private bankers and new clients from home street on the deposit side uh through it um and i think there's opportunity on the trust and wealth side to continue to grow um so i'm i'm very much optimistic that that business will continue to grow and be a you know very creative uh business line for us but it has been a the trust business did take longer than we thought but it's we're on we're on the we're on the finish
line. Okay, great. Maybe just one last one on capital. You mentioned the big payout, obviously, next quarter. I think it was $165 million of excess that you're looking at. Does that get you down to your target, $825 tier one leverage, or do you keep a little bit of extra there for what you said in terms of flexibility going forward? How are you thinking about that?
yeah i think the way we've been uh managing capital is eight and a quarter but one quarter in arrears and so it's more effectively like eight and a half to 8.6 leverage this quarter we're at 8.7 um two-year comment we actually are going to have excess i think my rough math is maybe 35 billion this quarter that we're not paying out in dividends i mean our dividend is going to be close to $160, $162 million this quarter, but there's still some that we're holding back, and we'll think about how best to use that. And that will persist as we go into the third quarter. It's kind of a lag on leverage assets as the bank gets a bit smaller. Leverage assets kind of take a quarter to catch up fully, and so we'll have some excess capital. And the bank, you know, the thing I'll point out is, you know, there's a lot of CDI amortization that doesn't show up in GAAP earnings, but it does compound in capital generation for the bank. So that's another source of kind of excess capital that we create above and beyond the actual GAAP net income. So something else to think about.
All right. Great. Thanks, guys. Appreciate it.
Thanks, Dave.
There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.