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Now coming up here as earnings from the big banks start to wrap up, we are getting results in from the regional banks. Up first this morning, we had PNC and Charles Schwab. PNC beating on net interest income and revenue, but seeing deposits declining. You're seeing PNC shares moving to the upside. Now up just about 3.8%. Meantime, Charles Schwab reporting declines in new brokerage accounts. That put a lot of pressure on shares. We're seeing them down over 6 and a half percent right now. So what does this signal about broader pressures in the sector? Joining us to discuss, we've got Christopher Marinac, Janney Montgomery Scott, director of research. We also have Brandon Hawkin, UBS US Brokers and Asset Managers analyst. Guys, thank you both so much for joining us here. Uh Chris, I want to start with you on the broader regional banking space. Just taking a step back here. Now we have the KRE regional banking ETF up heading into today, for example. Do you think there is a signal under the hood of strength in the regional banking sector or is it just ignorance of any kind of challenges that might still be lurking within the regional banks?

I think it's definitely strength. I think that there is a belief that credit quality is not as bad as feared. I think that deposits have been stable in the industry. Deposit costs seem to be slowing down their ascent. I think we're at a point where deposit costs are going to peak and and back off ever so slightly the next few quarters. You know, depending whatever the Fed decides to do. I think overall the banks are making money and with the capital retention has been very strong so far. You've seen tangible book grow over 2% at many of these large banks, which I think is very healthy.

Brandon, let's talk about the reaction that we're seeing play out in Charles Schwab because that's the top trending ticker here in Yahoo Finance today. We're looking at a pretty significant move here to the downside. And the company really vowing to shrink itself here over time. I'm curious what you make of this of this report, the plans going forward and ultimately ultimately whether or not the 7% move to the downside, if that's justified.

Yeah, I would say that they they reported earnings this morning, right? Uh they hosted the earnings call. Uh in the earnings call, uh and from the report, we learned that wholesale funding, which they had been reducing, uh this is high cost funding that they're using to replace the sweep deposits that are yield seeking into money funds. Um what we what we saw was after two quarters of progress, uh we saw that reverse. And so I think what we're seeing here today is some disappointment around the balance sheet trends. Uh they also flagged on their earnings call that they would be shifting the strategy around the balance sheet that they would be managing the bank subsidiary to become smaller and use third-party banks as a place in which to place uh deposits going forward. This would be a not revolutionary change, but an evolutionary one that will take several years. So, to me, the reaction is much more about the balance sheet trends that we saw in the second quarter, confidence in the ability for them to continue to make progress and paying down that expensive wholesale funding going into the end of the year and much through much of 2025, which is currently the base on assumption. Um rather than the shrinking of the bank and making that a lot smaller.

And Christopher, going back to you here, I I do want to focus on how some potential policies coming from potential White House attendees come November could be impacting this sector. Uh taking a look at KRE, as I mentioned earlier, it's up a whopping 13% over the past 5 days and certainly up on the moving to the upside this morning here. Uh JD Vance, obviously speaking with and working with Elizabeth Warren in the past, she even saying that he was great to work with when it came to regulation around some of the big banks. And he said that community lenders should be operating under different regulation than some of the big banks. Is that something that investors who do see a Trump White House come November should already start to position around any potential relief to the regionals?

Oh, absolutely. I mean, I think the angst on regulatory uh changes to the negative has peaked. I think from here, it's going to reverse. And whether it fully reverses with the White House, we don't know yet. But certainly, I think the attitude is that the small and mid-sized banks should have a different playing field. They really should not have the same crammed down that the largest banks are feeling, whether it's on capital, liquidity or or any other type of of individual policies. I think the reversal of the angst is really what's happening. The marketplace is recognizing that the banks were people were too negative. Now they can reverse that. The banks are still profitable. Credit is very much contained in terms of the risks, and the companies continue to move forward. We're not seeing a lot of growth in loans this quarter, but we are seeing companies being productive with what they have in the income statement, managing through both credit and spread. And we think both can get better the second half of the year.

Brandon, what do you think? Do you agree?

I mean, I don't cover regional banks, so I really don't have a view on regional banks. Um but what I would say is that when we think about potential changes around the Trump trade, uh uh which is I think probably the centerpiece of the question, uh capital markets were already in the beginning of recovery. Uh and when we began to see the increased likelihood that the um administration would go that way, um last time, uh the that administration was far more conducive to capital markets activity recovering. And so really that narrative only strengthened.

All right, we're going to have to leave it there. Thank you both so much for joining us this morning. We had Christopher Marinac, Janney Montgomery Scott, Director of Research, and of course, Brandon Hawkin, UBS US Brokers and Asset Managers analyst.