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Citizens Financial Group Inc (CFG) Q2 2019 Earnings Call Transcript

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Citizens Financial Group Inc (NYSE: CFG)
Q2 2019 Earnings Call
Jul 19, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Citizens Financial Group Second Quarter 2019 Earnings Conference Call. My name is John, and I'll be your operator today. [Operator Instructions] Following the presentation, we will conduct a brief question-and-answer session. As a reminder, this event is being recorded.

Now, I'll turn the call over to Ellen Taylor, Head of Investor Relations. Ellen, you may begin.

Ellen Taylor -- Head, Investor Relations

Thank you so much, John. Good morning to all. We're really pleased to have you join us. We got a lot of great material to cover in our presentation, which you can find at investor.citizensbank.com. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, John Woods, will walk through our results and our outlook, and then we'll be happy to take questions. Brad Conner, Head of Consumer Banking; and Don McCree, Head of Commercial Banking, are here also to help us with that effort.

I need to remind you that our comments today will include forward-looking statements, which are subject to risks and uncertainties and you should review the factors that may cause our results to differ materially from expectations on Page 2 of the presentation in our 2018 Form 10-K. We also utilize non-GAAP financial measures and provide information and a reconciliation of those measures to GAAP in our earnings materials.

And with that, Bruce, you got the floor.

Bruce Van Saun -- Chairman and Chief Executive Officer

Okay. Thanks, Ellen. Good morning, everyone, and thanks for joining our call. We're pleased to announce another strong quarter today. We navigated reasonably well through a dramatic change in the rate environment. Our fee businesses have really come on strong as we've integrated well our recent acquisitions, and we're able to do more for our customers. And our expense discipline continues to be excellent. We continue to find efficiencies that lead to simpler processes and better customer experiences while also creating the wherewithal for funding new growth initiatives.

We are also very focused on being good stewards of our shareholder capital both in terms of loan growth and capital returns to shareholders. Our year-over-year loan growth was 4% with a lot going on inside that number. We are allocating capital to growth portfolios that offer good risk-adjusted returns and attractive cross-sell, while extracting capital through loan sales and run off as part of balance sheet optimization.

We are passing on commercial deals in the market where we don't like the risk, the terms of the pricing. Our deposit growth has been faster than loan growth at 7%, which has the benefit of bringing our loan to deposit ratio down to 94%. Citizens Access has been key to this as they reached $5.4 billion in deposits by quarter end. This lower LDR gives us increased flexibility on funding strategies, which will be highly beneficial in the current uncertain rate environment. We recently announced a 20% increase in our buyback capacity to $1.275 billion, and today we announced a $0.04 dividend increase to $0.36 per share with dividend now up 30% from the year ago quarter. I'm excited by the work we've done in developing a significant TOP 6 Program and also some of the strategy work around investment opportunities to drive medium term revenue growth.

I'll let John take you through the details on our slides, but to me, these programs are well designed and should deliver real benefits if executed well. We want to be innovative, nimble and flexible in how we operate. We want to up our game even further and how we deliver for customers, and we want to break through on some new revenue course, all very exciting and differentiating versus peers.

Our strong first half performance with EPS up 14% reflects our disciplined operating mindset and capability as we've had to grind out results in a tougher environment than expected coming into the year, particularly around the extreme movement in rates. I think we're well positioned for the second half with strong fees and expense discipline poised to offset rate pressure in NII and credits still in very good shape. We will continue to focus on disciplined execution, you can count on that.

Let me stop there, and I'll turn it over to our CFO, John Woods.

John Woods -- Vice Chairman and Chief Financial Officer

Thanks, Bruce, and good morning, everyone. We are pleased to report another solid quarter with good fee income growth, strong expense discipline and consistent execution against our strategic initiatives. Let me kick off by covering important highlights of our underlying results.

On Page 4, we delivered EPS growth of 9% year-on-year with PPNR up 7%. Despite a challenging rate backdrop, we delivered net interest income growth of 4% year-on-year. Loan growth was 4% and net interest margin was stable at around 3.21%. We also continue to drive momentum in fee income with 19% growth year-on-year, 6% ex-acquisitions, highlighted by record results in Mortgage, Wealth and Capital Markets and card fees.

Our disciplined focus on growing the top line and controlling expenses drove positive operating leverage of around 1% before the impact of our recent acquisition. Commercial Banking loan growth of 7% and Consumer Banking loan growth was 3% as we continue to find attractive areas to deploying our capital and grow our customer base. Strong deposit growth was paced by continued momentum in Citizens Access. Our spot LDR improved to 94.2%, providing us with funding flexibility as we head into the back half of the year. Overall, credit quality remains excellent with a stable non-performing loans ratio of 66 basis points and an allowance to loans ratio of 1.05%. We delivered underlying ROTCE of 12.9% and tangible book value per share was up 12% year-on-year and up 44% linked quarter to $30.88. We finished the quarter with a strong 10.5% CET1 ratio.

On Page 6, net interest income was up 1% linked quarter as asset growth and the benefit of day count were partially offset by a 4 basis point decrease in NIM, given rate impact. Importantly, we have taken significant steps to reposition the balance sheet profile in a lower rate environment. During the quarter, we opportunistically used hedges to reduce our asset sensitivity from 4.2% to 2.9%. We shifted the vast majority of our sensitivity from the short end to the long end of the curve with 75% of the types of rates longer than six months and about 25% coming from the short end of the curve. This action was the most recent step in a program that began in the third quarter of 2018 and moderate our asset sensitivity overall. This was driven in part by increasing our net receive-fixed swap position over 50% and around $9 billion in the third quarter 2018 to $14 billion in the second quarter of 2019.

Moving to fees on Slide 7. As I mentioned, we delivered strong execution in our fee-based businesses highlighted by record results in Mortgage, Wealth and Capital Markets as we continue to build out our capabilities and deepen client relationships. Non-interest income was up 8% on a linked quarter basis and up 19% year-over-year.

Before the impact of acquisitions, non-interest income was up 3% linked quarter and up 6% year-over-year. In Commercial, capital markets fees were up 19% year-over-year and up 6% linked quarter. In spite of slower market conditions, our business has continued to perform extremely well paced by a record number of deals and loan syndications, which were up 73% linked quarter. FX and interest rate product revenues were relatively stable with record first quarter levels despite the backdrop of uncertainty that caused many clients to delay hedging.

On the consumer side of the house, wealth fees were up 13% linked quarter, driven by higher sales volumes and an increase in managed money balances. Card fees were also a record for the quarter up 8% sequentially driven by higher purchase volumes, including seasonal benefit. In mortgage banking, we saw a nice move down in the quarter, up $19 million or 44% linked quarter, driven by an $18 million increase in production revenue, reflecting seasonally higher originations and a pickup in refi activity. Servicing revenue was broadly stable, given the benefit of hedges. In addition, we continue to grow the servicing portfolio, which is now over $90 billion.

Turning to Page 8, underlying non-interest expense is up 1% linked quarter, reflecting strong cost discipline and the benefit of our TOP Program initiative. Salaries and employee benefits were relatively stable with seasonal reductions in payroll taxes and 401(k) matching costs were largely offset by higher revenue-based incentives, consistent with the strong fee revenue trends in the quarter. There was also a $3 million severance charge. Outside services increased 7% linked quarter on an underlying basis, reflecting our continued investment in technology as well as costs related to higher consumer loan and deposit origination volumes.

Let's move on to Page 9 and discuss the balance sheet. You can see, we continue to grow in commercial with a focus in our geographic and industry verticals expansion strategy. In commercial real estate, we are selectively seeing attractive risk-adjusted return opportunities with growth tied to high-quality projects, largely in office and multi-family.

On the retail side, we also continue to drive growth in attractive risk adjusted return categories like education refinance and unsecured, including our merchant partnerships. Overall, loans are relatively stable in the quarter and up 5% year-over-year. These results reflect the planned runoff in auto, non-core and leasing as well as some modest headwinds, some greater than expected asset dispositions tied to for our balance sheet optimization initiatives. Loan growth was 0.4% adjusted for the impact of 1Q '19 and 2Q '19 loan sale with Commercial up 0.8% and Consumer up 0.3%. Going forward, we will continue to elevate loan sale as part of our balance sheet -- evaluate loan sales as part of our balance sheet optimization initiatives.

Moving to Page 10, we're doing a nice job of growing deposits, which we're up 2% linked quarter and 7% year-over-year with stable results in DDA. We continue to benefit from our Citizens Access digital platform, which has contributed nicely to our funding diversification and the optimization of our deposit levels and costs. At the end of the quarter, we reached $5.4 billion in Citizens Access deposits. Our total deposit costs were well controlled despite strong growth of 3 basis points linked quarter, a significant improvement from the 16 basis point increase last quarter. This reflects a proactive approach to deposit pricing as we have been aggressively managing our deposit costs. We've reduced CD rates and money market rates in our branch footprint as we as taken down the savings and CD rates in our digital bank. Year-over-year, our loan yields expanded 37 basis points, reflecting the benefit of higher rate and the impact of our BSL initiative. Our total cost of funds was up 33 basis points, reflecting a shift toward a more balanced mix of long-term and short-term funding and higher interest rate.

Next, let's move to Page 11 and cover credit, which continues to look quite good, reflecting growth and high quality retail loans and an improved risk profile in our commercial portfolio. The net charge-off rate of 36 basis points was up modestly linked quarter from relatively low level and included a $9 million increase in commercial charge-offs. This was largely driven by a couple of idiosyncratic losses as the broader portfolio looks very good with continued improvement in risk ratings and a continued lower trend in criticized and classified loans, which were down 4% linked quarter and 19% year-over-year. Provision for credit losses of $97 million was up from prior quarter and prior level, reflecting the higher charge-off. Our allowance to loans coverage ratio remained relatively stable ending the quarter at 1.05%. The NPR coverage ratio was relatively stable at 159% as we saw improvement in NPLs and run-off in the non-core portfolio.

On Page 12, we've maintained our strong capital and liquidity positions ending the quarter with a CET1 ratio of 10.5%, which compares well with peers and gives us excellent financial flexibility. As you know, we recently announced a new share repurchase authorization under our 2019 capital plan of up to $1.275 billion. And this represents a 25% increase over last year's authorization. We also increased our quarterly dividend by 13% to $0.36 a share, which reflects a 33% increase from a year ago and we continue to target a dividend payout ratio of 35% to 40%. Our planned glide path to reduce our CET1 ratio remains on track.

On Page 13, I want to highlight a few exciting things that are happening across our bank. First, we are extremely proud to have been ranked number three of the top 40 banks in the country for our reputation among consumers in the 2019 American Banker/Reputation Institute Survey. Note that we moved up 12 positions, the largest move of any bank, which is a real testament to what our colleagues do every day to help our customers reach their potential.

Next, we've launched a suite of digital tools at transforming end-to-end mortgage customer experience and help us operate more efficiently. In Commercial, we are pleased to introduce accessOPTIMA, a best-in-class cash management platform that is now available to new clients. We are migrating current clients to the platform over Q2 to Q4.

Let's move on to Page 14. The Tapping Our Potential, or TOP Programs, have been instrumental in driving efficiencies that allow us to self-fund investments and continue to deliver future growth. We have executed very well in the top five initiatives, which are expected to deliver $95 million to $105 million pre-tax by the end of 2019. We are now pleased to share some of the early details of our TOP 6 Program which will consist of two parts. The first being the transformational program, which is designed to transform how we operate and deliver for customers and colleagues. We aim to deliver a more customer-centric, efficient and agile environment by modernizing our cross organizational operating model and IT practices by accelerating migration to the cloud, by more ambitiously utilizing data and artificial intelligence, and by digitizing end-to-end processes.

The second part will consist of a more traditional TOP improvement program, similar to those that we have successfully executed over the last five years. Importantly, the benefits of the program will have to mitigate the headwind from interest rate, maintain our commitments to delivering operating leverage and improving our efficiency and ROTCE. We also expect to utilize some savings to fund a net P&L investment of up to $50 million over 2020 and 2021 for potential strategic revenue opportunities such as significantly expanding digital strategies across the company to reach more customers, reinventing the payment experience at point of sale and launching new commercial customer digital offering. We are developing detailed plans for each, and we'll keep you posted as we make progress. These investments should really benefit our medium-term revenue growth over 2022 to 2025 if executed well.

On Page 15, we provide additional details around the focus of the TOP Program, including early days financial targets. We are targeting run rate savings from the transformational program of $100 million to $125 million by year-end 2020 and savings of $200 million to $225 million by year-end 2021. The traditional program is expected to deliver $75 million to $100 million by year-end 2020 and over $100 million by the end of 2021. The combined total is $300 million to $325 million in run rate benefits by the end of 2021.

Note at the bottom of the page, the TOP 6 is expected to create the capacity to absorb some of the start-up costs of our strategic revenue initiative. We have some really bold ideas. So we'll have to sync to the level of investing with the near-term external environment. We also point out that there will be one-time costs associated with TOP Program, so the payback ratio is highly favorable. Note also that we do not expect to announce the TOP 7 next July. We currently will leave TOP 6 and add to it as we go over the next two years.

Our outlook for the third quarter is on Page 15 and it reflects continued good positions for both our top and bottom line results. We expect net interest income to be broadly stable in Q3 as modest loan growth should offset the NIM contraction due to rates. We are expecting non-interest income to be up modestly similar to the trend we saw in the third quarter last year. Given our continued focus on expenses, we expect non-interest expense to be probably stable. Additionally, we expect provision expense to be in the range of $100 million to $105 million. And finally, we expect our CET1 ratio to be broadly stable.

Regarding our full year outlook, notwithstanding the meaningful change in yield curve environment, which now factors in a rate cut in July and September, we expect our full year performance will track broadly in line with our January full year guidance, but there will be puts and takes. There's lower net interest income offset by better fee income and expense performance with provision at the low end of the guidance range.

To some up, on Page 17, our results this quarter demonstrate our continuing strong performance as we execute against our strategic initiatives, grow customers and revenues, carefully manage our expense base, deploy new technologies, and improve how we run the bank.

And now, let me turn it back to Bruce.

Bruce Van Saun -- Chairman and Chief Executive Officer

Okay. Thank you, John. Operator, why don't we open up for some Q&A?

Questions and Answers:

Operator

Thank you, Mr. Van Saun. And ladies and gentlemen, we're ready for the Q&A portion. [Operator Instructions] And first from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Matthew O'Connor -- Deutsche Bank -- Analyst

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hi.

Matthew O'Connor -- Deutsche Bank -- Analyst

So, the latest top iteration, I think it's a lot bigger than most of expected and obviously it covers a couple of years or a little bit of a longer period, but it's still much bigger, I think, than what it's been in the past and maybe what was expected. Can you help frame how much of it actually falls to the bottom line as opposed to, like, offset say core expense growth or inflation rate growth, right. I guess the question is, we see these numbers, we can make the adjustments on the one-time investments, the one-time costs. How much of that actually boosts the pre-tax earnings versus helps offset some of the other dynamics such as rates as you mentioned and the core expense growth?

Bruce Van Saun -- Chairman and Chief Executive Officer

Well, I think, Matt, what you've seen historically from us is a commitment to driving positive operating leverage. And so, the TOP programs do a number of things for us. They give us that differential because they're oriented both toward finding efficiencies and helping expense line, but also finding additional revenue sources and helping the top line. So, we would expect that's the principal commitment we have here, we keep running the bank better, we keep serving customers better, and we have a commitment to continue to drive operating leverage, which will improve ROTCE and efficiency ratio going forward. It's a little hard. We're not giving next year guidance on this call. We don't give guidance until January, so until we see how the trajectory moves between now and the end of the year, I think it's a little premature to make a call on that.

Matthew O'Connor -- Deutsche Bank -- Analyst

So will it be your hope that even in a kind of tougher prolonged rate environment that the TOP initiatives are meaningful enough to get you that positive operating leverage even with the rate headwinds as we think out medium term?

John Woods -- Vice Chairman and Chief Financial Officer

That would be the goal for sure, yeah.

Matthew O'Connor -- Deutsche Bank -- Analyst

Okay, thank you.

John Woods -- Vice Chairman and Chief Financial Officer

Yeah.

Operator

Our next question is from Marty Mosby with Vining Sparks. Please go ahead.

Marty Mosby -- Vining Sparks -- Analyst

Good morning. Thanks. I was going to ask you, with the acceleration of the share repurchase, last year you front-loaded a lot of your share repurchase activities. Are you thinking how is the timing of this year's plan, is it going to be even or a little bit more in 2019?

Bruce Van Saun -- Chairman and Chief Executive Officer

Well, I'll start, John, and you can help find that. Last year, we did front-load a bit, we want to -- still have firepower in every quarter, but certainly we think that the stock is at suppressed valuations. So it's a good time to buy some more stock. So, you'll see us buying stock in Q3 and Q4 at amounts that will be more than you'll see in Q1 and Q2 of next year.

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, I think that covers it.

Bruce Van Saun -- Chairman and Chief Executive Officer

Okay.

Marty Mosby -- Vining Sparks -- Analyst

And then, you've done a great job of getting these fee businesses kind of built out. How do you see -- what has been the reasons for your success when others have had a hard time being able to do this? And then, how do you see that kind of going forward? What are still areas do you still think that you're going to be able to reap some of the benefits of what you've been investing in?

Bruce Van Saun -- Chairman and Chief Executive Officer

Sure. Well, it take a village [Phonetic] to answer this one, so I'll go around the table, but let me start. I'd say, on the commercial side, what we focused on is broadening our capabilities and then also expanding our coverage for us and then working as a team to bring thoughtful solutions and value added to clients. And so that's really gained a lot of traction. You can see it across the board. We have more products to offer to customers, more services to offer, and I think we're doing a great job across the board in whether it's the capital markets, whether it's M&A, whether it's FX and interest rate hedging, we're hitting record levels of fees every quarter. We're winning jump-offs against some mega banks. We have some really great capabilities, and I'll let Don add to that.

On the Consumer side, it's been a long effort to try to get our mortgage business and our wealth business in particular positioned for growth. I think we're seeing that now. We had certainly Franklin had a great quarter and our underlying retail loan business had a great quarter. So I think Mortgage now is better positioned than certainly it has been, there's still work to do in that business, but we feel good about the outlook. And then, also on the Wealth business, we've scaled it up. We're penetrating our customer relations with, I think, a very good segment strategy and matching our product and offerings to the needs of the different segments that we're serving. We did do the acquisition of Clarfeld to attack the very high end ultra high net worth client that is being integrated very effectively. We had a lot of flow going in there.

So, I think, across the board, we feel good about the fee outlook. We think it's sustainable and we're passing the baton, if you will, in a period where there will be some pressure on NII given rates. Then I think we can pick up the slack both with stronger fee performance and continued good discipline on expense, and then I think credits are really in good shape as well. So why don't we go around the table quickly, John, anything to add?

John Woods -- Vice Chairman and Chief Financial Officer

No, I think that covers it. I mean there's a real emphasis around the organic investments, coupled with the bolt-ons that we've done in Wealth and Mortgage have been quite powerful. And all the organic investments that have been made in the commercial side are starting to pay off. What I'd also add is that not only do we have a diversifying effect across the fee businesses within in Commercial and Consumer, but even within Commercial in the cap markets business, the things that we've done there to diversify across M&A advisory and loan syndication, where this quarter loan syndications were strong, last quarter M&A advisory in bonds were strong. So, you can see that even just within lines of business as well as across lines of business. So it's really pleasing to see that.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. Don, you want to go next for Commercial?

Donald McCree -- Vice Chairman and Head, Commercial Banking

Yeah, sure. I think it's been said -- I think, the thing that I would emphasize, as we've been on this past four years, we hired a lot of very talented people, we've added two M&A acquisitions. And the way we're integrating the TOP clients problem is really unique. And I've been in this business a very long time and I've never seen a team working together. So, you couple the capabilities with very long relationships that we've had, and we've got very high win rates. And you see that if you look at our league table results, you see us rising in virtually every league table into very, very strong position. So, I'll pick up on what John said. The thing that I like the most is the diversification because if one market is a little bit weak, we can sort of find it in another market and continue the momentum on the fees. So, we feel good about where we are.

John Woods -- Vice Chairman and Chief Financial Officer

Great. Ad Brad, lastly but not least.

Brad Conner -- Vice Chairman, Consumer Banking

I mean, I think it's similar to Don, in some ways, we've been building this capability for years now and I'm talking about. And then, when I look at the wealth and certainly in the Clarfeld acquisition, we have this new capability but we've been building out our value proposition for -- we've talked a long time about we're heavily weighted on the course within our customer base. And we build that value proposition. We've been using data and analytics to do much more personalized and targeted offers. I think that's paid a dividend.

And then, on the Mortgage side, clearly Franklin American gives us new capabilities, but we've also been building digital capabilities. And I think we're getting to the point where our digital capabilities are right there with some of the best-in-class in the industry. Franklin American gave us much better diversification of our origination channels. So I think just a lot of -- building the right pieces over time have gotten us to a good place.

Marty Mosby -- Vining Sparks -- Analyst

Okay, thank you.

Bruce Van Saun -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Erika Najarian with Bank of America Merrill Lynch. Please go ahead.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Hi, good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hi.

John Woods -- Vice Chairman and Chief Financial Officer

Hi.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Could I just ask and help with get some clarification with how we should think about net interest margin behavior under the scenario of July and September rate cut? And also, if we could get a little bit of color on how you're thinking about deposit strategy in terms of pricing as we faced potential easing environment?

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. Let me just start quick, John, and then -- so, Erika, I think we feel quite good about how we were kind of anticipating what was happening in the market. We geared up with our TOP Program to start looking at expenses, but then also we got right on the deposit pricing and we're very proactive in cutting deposit prices and optimizing across our different channels in the quarter. So, I think, of all the folks who've reported, all the banks reported up and now I think we have the lowest increase in interest rate deposit cost of 3 basis points of anyone who has reported. So that feels quite good. I think, the 4 basis point contraction in NIM was also shows up very well versus peers, and I think it's really reflective of the emphasis we had on the deposit side.

I think, going forward, we'll -- our guidance contemplates that there'll be two cuts, and so we will have to move through getting through this NIM contraction period, which will probably see some more of that in Q3. But then, I think we'll start to stable and level out after that. John, you want to offer some more color?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, I think that's right. I mean, stabilization as you get toward the end of the year. I think the dynamic that we're seeing is a couple of holes. I mean, you have to deal with -- when we started on this whole tightening cycle and you saw deposit betas start out low and beginning to build over time, the in-period beta is getting the highest as you got into the end of last year. I think that it's our view that you'll see a similar profile in reverse where as you see the rate cuts come through, the benefit will start off a bit low as the deposit lag dissipates over time. And then, you'll see the deposit betas grow and sync and grow over time, if in fact the easing cycle extends beyond just in insurance coverage too.

So that's an important issue. You also talked about pricing outside of just how your models work, how do you get ahead of pricing. I think that we've got ahead of some things throughout the last several months, late first quarter into second quarter. In footprint, we were relatively early in sort of revising our promotional rates and revising our direct mail campaigns. And then, you see even more -- visibly you see in Citizens Access platform, where late first quarter early second, we came in pulled back on marketing and reduced our CD yields earlier in the quarter, and then we do savings here in early July.

So ,I think all those actions have started in late 1Q and into 2Q, sort of showed up in what we heard from Bruce in terms of interest bearing deposit costs being up only 3 basis points. I think, more broadly, maybe just to even take a further step back and think about what's going on within overall outside of deposits, we also, as you heard in my remarks, embarked upon a program in the third quarter of 2018 to significantly increase our net receive-fixed swap position. We increased that by over 50% from around $9 billion to around $14 billion on a net basis. Just dollar-cost averaging over time, and then we added to that position every quarter in the last three quarters and that plus some other actions we took to shift out, our exposure to asset sensitivity to the long end of the curve, so that now when the Fed does cut on the short end, we're actually more exposed to the long end of the curve than we are at the short end of the curve for the first time in many, many years, which we think is a smart way to position as we head into these next two cuts.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And a follow-up to that is, there is a thesis that for banks that have accelerated their deposit cost on the way up like Citizens. There is a thesis that the net interest margin, under the scenario of the forward curve, which includes three or four rate cuts between now and the end of 2020 that the net interest margin could bottom in this year and potentially stabilize, if not increase, on a quarterly basis in 2020 as deposit cost through pricing becomes more robust. And I'm wondering is that too optimistic of a thought process for 2020 just based on the mechanics that you have walked us through or is that possible for Citizens?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah. I mean, I think as you heard earlier, we're going to hold off on 2020 guidance here. I mean, I think that as you stay within 2019, you heard earlier from Bruce, which is right, that as you get into the end of the year, there are some stabilization that we expect to see in NIM. As that deposit lag from the last hike in December dissipate and as the pricing lag really burns off, you'll see that dynamic happen. And therefore, we do expect deposit beta.

The deposit beta for the second cut to be higher than the first, meaningfully higher, and we'll see how that all plays out and what the rate environment looks like and health. We have to also build in what competition for deposits are and how we're growing the balance sheet . All those dynamics play into the overall NIM outlook. And as you heard from us earlier, we're looking to keep NII broadly stable into the third quarter as we're playing off loan growth against our net interest margin profile. So I think that's how...

Bruce Van Saun -- Chairman and Chief Executive Officer

I guess, Erika, to your point I'd just add that while that might create some relative performance benefits, we're still asset sensitive. So, I think we're better off as we just see a couple of trucks here and then the Fed kind of creates the stimulus to keep the expansion going and then they stop, that would be, I think, a preferable scenario from our standpoint.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Our next question is from Peter Winter with Wedbush Securities. Please go ahead.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Good morning.

Peter Winter -- Wedbush Securities -- Analyst

You guys mentioned the outlook for the third quarter, modest loan growth in the third quarter. I'm just wondering, can you talk about the loan pipelines and overall customer sentiment right now?

John Woods -- Vice Chairman and Chief Financial Officer

And I would just start off and I think others will jump in. I mean, I think, our pipelines are quite good. When you look at where you see them in July, I basically call them strong and building. And I'd say that even when you look out into the third quarter on the Commercial side, I think we see nice growth. And again, our expansion geographies and in our industry verticals. On the Consumer side of things, we like the profile of education refi, mortgage and unsecured. You have to keep in mind we do still have an auto run-off and there is the industry dynamic of home equity run-off that you've got to keep in mind. So that's maybe more flattish. But Commercial looks good, it's particularly on a spot basis as you get into the third quarter.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. I guess, I would add to that. I think we're still confident in our outlook that we'll hit the loan guidance for the year. I think, in the second quarter and third quarter, we'll focus really on managing through the transition in rates and getting deposit cost right and getting NIM right. So we stepped up our BSO actions and we're doing a bit more trimming of loan portfolios during this quarter, we sold about $500 million of mortgages and on the last day of the first quarter, we sold about $200 million of corporate loans. So those are going to affect our averages kind of in the middle part of the year. But as John said, we see the pipeline strong, and so I think we'll see a pickup particularly later in Q4 that will leave us well positioned to hit the loan growth targets we set out for the year.

Peter Winter -- Wedbush Securities -- Analyst

Okay. And then, just within loans, can I ask about other retail? I've noticed that the growth rate has slowed and loan yields have come down quite a bit.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. I mean, I think there is a mix shift in that -- there is a few components of that. Within other retail, you've got a variety of things going on. You've got the card business in there. And that card business is tied to three-month LIBOR and, three-month LIBORs come down. There's also some other things, but in the unsecured space, that would affect that. And in our merchant financing partnerships, that would have an impact on that. So, yeah, I mean I think it's more mix than anything else. And I wouldn't say that that's really...

John Woods -- Vice Chairman and Chief Financial Officer

The structure of how some of those partnerships work can be different based on the sharing arrangements we have with the sponsor. So that can also cause different optics. But there is no real pressures there, there is no -- real maybe there's a little phasing of risk appetite, but nothing that dramatic.

Peter Winter -- Wedbush Securities -- Analyst

Okay, thanks very much.

Bruce Van Saun -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question is from Kenneth Usdin with Jefferies. Please go ahead.

Kenneth Michael Usdin -- Jefferies -- Analyst

Thanks. Good morning, guys. Hey, just talking about how the letter math came through in terms of your capital return ask and then to your point about where the shares have been, can you talk to us about any changes in your view about that CET1 expected reduction in the pace of which and might you think differently in the future about this balancing RWA growth versus getting back more to shareholders via the buyback?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah. I'll go ahead and start off, this is John. I mean, I think the pace of our glide path is still intact. I mean, we do have -- we're on track and have an expectation of getting to our 10.2% number at this point. And so, that's back to rather reaffirm our expectations for the year that we talked about earlier. And I do think that -- so not a lot changed on that front. I mean, we still find good value in terms of the buyback. As you heard from Bruce earlier, just in terms of how that works, and that gives us significant financial flexibility to support the investments we want to make in RWA growth as well as from time to time, you've seen us do some bolt-on acquisitions. And so that allows us to keep all of that -- that flexibility is nice to have as we head into 2020. And we've also seen us be able to increase our return in the form of dividends as we're getting that up into the 35% to 40% arena. Eventually, as we get near a target use,that will moderate, and I'll get back into dividend return and supporting RWA with a declining buyback eventually as you get closer to your targets. But for this year, our trends are intact.

Bruce Van Saun -- Chairman and Chief Executive Officer

And I would just reiterate, Ken. As I've said in the past that our risk profile certainly at the median or better in terms of more conservative in my view. So there is no reason longer term that we need to have a capital position that's above the median in the peer group. Obviously we'll take those decisions as we go in due course, but just worth pointing that out once again. So I think we have flexibility to keep moving lower. I think it's been, as John said, really great to have a little bit of cushion there that we can kind of have our cake and eat it too. We can have good loan growth, we can do these bolt-on deals, we can give very nice payback to shareholders and capital returns. And so, we still have a bit of room to run on that.

Kenneth Michael Usdin -- Jefferies -- Analyst

Got it. And a follow-up, how are you thinking about continuing to remix in terms of the preferred stock, which you've been doing over the last year, still have some more room to go. With rates where they are, we think that it's pretty advantageous to get more of that done. But just your thoughts on that would be great. Thanks.

John Woods -- Vice Chairman and Chief Financial Officer

Yeah. I mean, I think that we're below peers in terms of that bucket -- the 81 bucket, as you know. And we've been -- we've been filling that up a bit over time. I mean, you could see something like that in the future. It's something we clearly take a look at. And I think it served us well to do it overtime. I mean, if we would have filled the entire bucket six months ago, we would -- we might have gotten all of that off at a level that we'd not be quite as favorable something we might do over in the near future. So, yeah, I mean, you may see something like that in the future. But we keep an eye on that and look at that, similar to our CET1 overall and look at that as a glide path over time.

And there can -- the calibers is on where -- what's our return on equity and then what's the cost of the preferred stock. And so, there are opportunities now to get that arbitrage now that we've got the ROE higher. We couldn't do it early days and during the turnaround phase. But now, we have the capacity to do that and substitute preferred stock for further buybacks. So, certainly something that's on the radar that we need to look at.

Kenneth Michael Usdin -- Jefferies -- Analyst

Okay. Got it. Thanks guys.

Operator

And the next question is from John Pancari with Evercore ISI. Please go ahead.

John Pancari -- Evercore ISI. -- Analyst

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Good morning.

John Pancari -- Evercore ISI. -- Analyst

On the -- I just wanted to get a little bit more clarity on the net interest income guidance or you reaffirmed your full-year guidance. So, if you're now looking for two cuts -- two Fed cuts by the end of the year. But you're reaffirming your 5% to 6.5% guidance and you look for stable quarter NII, does that imply that you could be at the low end of that 5% to 6.5% full year '19 NII guide?

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. John, I think you might have misheard what we said. So let me just clarify. So we broadly reaffirm the full-year guidance overall. So, we feel that the guidance we gave back in January in terms of where net income and EPS would be, we still feel confident that we'll bit that, which is good. And then we said that the kind of, there will be puts and takes to deliver that. And so, when we go through the major income statement categories, we'll be a bit to the left side of goalpost, but still positive on net interest income. We would be to the right side the goldpost and outperforming on fees. We'd be to the left side of the goalpost on expenses and outperforming on expenses, and we'd be near the bottom of the goalpost on credit. So, everything lines up very well. And the good news is that we found offsets through the unanticipated impacts from rate on NIM. So we called out that our loan volumes will likely be where they thought they'd be. The one kind of missing link in the equation is that NIM is going to be lower than our going-in assumption when we started the year, but we'll make up for that in other words.

John Pancari -- Evercore ISI. -- Analyst

Got it. All right. That's helpful, Bruce. And then, separately on the efficiency outlook, I know you had previously indicated a medium-term efficiency target of about 54%. How are you feeling about that now, given the backdrop? Thanks.

Bruce Van Saun -- Chairman and Chief Executive Officer

I still think we're going to get there. So, one of the advantages of this TOP 6 Program, it's going to continue to help drive the efficiency ratio improvement that we need to get our returns up without a tailwind from rates or even just stable rates as we actually move to a declining in rates. It might take a little longer to get there, but we're still committed to hitting those targets.

John Pancari -- Evercore ISI. -- Analyst

All right, thank you.

Bruce Van Saun -- Chairman and Chief Executive Officer

Okay.

Operator

Our next question is from Gerard Cassidy with RBC. Please go ahead.

Gerard Cassidy -- RBC -- Analyst

Thank you. Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hi.

John Woods -- Vice Chairman and Chief Financial Officer

Hi.

Gerard Cassidy -- RBC -- Analyst

John, you mentioned that you have less exposure now from the repositioning of the balance sheet to the short end of the curve, and there is more asset sensitivity tied to the longer end of the curve. Can you share with us, if the long end of the curve goes up to 2.75% by the spring of next year or at the end of this year, what kind of benefit would you see from that? And vice versa, when they cut rates, if the whole shift in the yield curve comes down, what would that do to your outlook?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah. So, I'll just maybe take it at the overall level and you can break it down short and long. I mean, overall, in the instance of, call it, a 25 basis point across the curve decline shift down -- parallel shift down, you would see something in the neighborhood modeled, call it, $60-ish million impact on a full-year. Quarterly that's about $15 million, these are all modeled outcomes and you'd have to -- a lot of outside of model things that would have an impact on that. But that's about what you would see is about $15 million a quarter, which is in the neighborhood of 4 basis point. But that said, we almost never see those yields -- those parallel yields, it shifts down.

If the shift down is on the short end, we have a much lower exposure, which is what we're expecting, right. We're expecting short end cuts so that one or two this year, I mean, we've modeled too. But in that case, within that any given quarter, it's now just a couple of single-digit millions of net interest income exposure, which is what the impact of shifting exposure that the curve is really done. So now, around 25% of that $15 million is sensitized to the short end of the curve falling. So -- and it's not exactly symmetrical, but directionally symmetrical on the up. We're not aiming to expect it anytime soon, but that's how it works.

Gerard Cassidy -- RBC -- Analyst

And just to confirm, when you're saying that 25 basis point paralle shift and I agree with you, we really don't see that. When you mentioned $15 million a quarter, that's down, correct?

John Woods -- Vice Chairman and Chief Financial Officer

That's down, yeah.

Gerard Cassidy -- RBC -- Analyst

Yeah, OK. Okay.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. And I think that -- and as a result, I mean, really what we've positioned ourselves to do here is that in a yield curve sheet that give more upward sloping, that's where we positioned ourselves to benefit more today than we would have, call it, a year ago. A year ago, all of our benefit, which really thought most of our benefit was focused on rates rising on the short end, about 70% or 75% of our sensitivity on the up was tied to the Fed raising rates. And so, as we mentioned earlier, in the third quarter of last year, we started to bring the overall level down. And in the early part of this year, we shifted all of the -- most of the sensitivity out to the long end, so that because of that, just kind of positioning for the end of the rising cycle and frankly feeling like over time, call it, over the next year or so or even into two years, we would expect the yield curve to steepen, and we think that's an appropriate way to position the balance sheet today versus where we were a year ago.

And just -- Gerard, just wanted to make sure you heard that, it's not $15 million in the quarter, the next move down, because of this positioning with the hedges, it was $4 million...

Gerard Cassidy -- RBC -- Analyst

Correct.

Bruce Van Saun -- Chairman and Chief Executive Officer

...rather than $15 million. So, if we've got out ahead of it and we've -- I think got some insurance for the moves down.

John Woods -- Vice Chairman and Chief Financial Officer

Exactly, and that's fallen by a third. A year ago, that we have been, call it $12 million on a one move down and now it's $4 million. So we've cut by a third our exposure to the Fed lowering rates. This has turned out to be a good way to sail in the second half of 2019.

Gerard Cassidy -- RBC -- Analyst

Very helpful. And maybe Don can answer this one. You guys touched on the new cash management, treasury management products from the Commercial side. I think you called that accessOPTIMA. Can you share with us new gravitating existing customers into that product? Can you share with us how challenging is it for you to get a new customer into this type of product treasury management when they're already with the bank and have all their lines tied to that existing bank? So when you win a new customer, is it easy or is it difficult to get them in on the treasury management side?

Donald McCree -- Vice Chairman and Head, Commercial Banking

It's difficult, but it will get easier. So the more sophisticated the customer, the tougher is the transition of big cash management portfolio. But as we're expanding our middle market and doing more smaller-sized deals that generally comes with the banking relationship. So if we're adding a new client, it's a good chance that we're going to get the cash along with that. The tough thing has been our portal, which was called accessMONEY Manager was very substandard, so we didn't have a credible market offering, which with accessOPTIMA it were as good as anybody else. And the early feedback from clients that were migrating, we've migrated about 1,200 already, it's very strong in the platform.

It's a platform which has got an underlying technology from a company called bottom line on it. So we will upgrade the platform constantly as they upgrade their technology, so we'll stay in sync with the rest of the industry. So it works on a number of different levels. And one of the things that shouldn't be lost on people is the core cash business is just part of the cash management offering. So if you look at our card business, which has been sailing over the last few years, it's growing at 20%, 25% a year. So, your question, that's an easier sale because for a lot of companies, they don't have a card program already. So it's not a technology transfer, it's an additional newer way to integrate the payables businesses, and we've been doing quite well on that side, and that's been driving our kind of 2% to 3% growth in the overall cash management business. So, we think that increases and we think offen that helps, but it is difficult to transition a big cash management client.

Gerard Cassidy -- RBC -- Analyst

Got it. And the 1,200 customers that you've already migrated, what percentage of that of your commercial book is that about?

Donald McCree -- Vice Chairman and Head, Commercial Banking

That includes Business Banking, so it's probably about 15% of the overall client base.

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, we're going to do four ways between now and Thanksgiving, because everybody has the new platform, that's the plan.

Donald McCree -- Vice Chairman and Head, Commercial Banking

That's the test and learn as we translate. So we'll fix little bugs as we go along. So it has been very little so far, but we certainly don't want to do a massive migration and have something that comes out of the woodwork. So this has been very well tested, we've been piloting it actually for six months already with some core clients in our advisory board. So we're very confident in the quality we offer.

Gerard Cassidy -- RBC -- Analyst

Very good [Phonetic]. Thank you.

Operator

Our next question is from Ken Zerbe with Morgan Stanley. Please go ahead.

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

Hey, good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hi.

John Woods -- Vice Chairman and Chief Financial Officer

Hi.

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

With the transformational parts of the TOP program, how is what you guys are doing with new cloud, AI digital, different from what you've already been doing on the tech side previously and also different from what other banks are also doing on the tech front?

Bruce Van Saun -- Chairman and Chief Executive Officer

Well, I think there is -- there's really two elements to kind of the cash ecosystem in TOP 6. One is really around infrastructure and having the kind of depth back office infrastructure migrate to something that's cloud-based. We've had some progress on that to-date, but we're really going to accelerate that over the next couple of years.

The second big element is how we design and develop applications. And that's really migrating to an agile approach with a bunch of teams that work across the business to add functions and technology to get to market faster with more nimble and flexible approach. We probably have 50 cards as they are referred to in the trade up in our agile environment today. We are going to quadruple that over the next couple of years. So it's quite a significant change in terms of how we support and roll out new technologies.

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

Okay, helpful. And then, in terms of the balance sheet optimization program, at this point, I know it's been going up for several years now. Wiven where we are on the rate cycle, is the balance sheet optimization still having a meaningful or even a noticable impact on remixing into higher yielding assets or, at this point, is it more just a factor of your existing loan portfolio and the outlook for rates?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, it's still -- It's John, it's still a pretty -- a very big part of what we're doing here. And there is a lot of room left to run in that program. Whether you look at the asset side of the balance sheet or deposits, we are not where we would expect to be in the next couple of years. We have a target balance sheet expectation where the balance sheet optimization will continue to contribute over the medium term. You'll see on the asset side of things across asset classes, we're still repositioning auto as an example and asset finance. Within asset classes, we continue to rotate and recycle capital and get better and better at where we allocate that scarce resource of liquidity and capital. So there's a lot just to go down on the asset side.

On the deposit side of things, there is also a lot of exciting things happening there. When you look at DDA as a percentage of total deposits, we're still below peers, and I think that that percentage doesn't fully reflect all the organic investments that have been getting made in Brad and Don's areas that have started to show up actually. When you look at the last year, I think we've outperformed DDA across the Board in terms of percentage growth. And so, there is a lot more left to go there that we think is a big part of what we're doing as well as diversifying, call it, in the commercial space in terms of our deposit sources. So that program is alive and well, lots left to go. And in the current quarter when you look at it quarter-over-quarter or year-over-year, there is a positive contribution from BSL that's allowing us to -- that's a tailwind that is one of the things that we count on to help us in our NIM performance as we sell under the headwinds of the rate environment.

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

Is it possible to quantify some of the impact, I mean, if you just assume a static balance sheet, but then you apply some of the remix of where you are versus where you want to be, like can you quantify the impact?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, there are. I think, quarter-over-quarter, our estimates are -- when you are kind of in the mid single digits, a positive benefit in the second quarter of '19 compared to the second quarter of '18, it's best to look at it year-over-year. So there's a fair bit of volatility quarter-to-quarter, and that's right in line with what we try to do for any given year. it's right around that, call it, 4, 5 basis points, and we did get that. And that really was part of the story, it's not the entire story, that's part of the story. When you look at our NIM performance this quarter being down 4 basis points compared with peers, I mean, we've got to give some of the credit to our BSL programs which are -- which we spend a similar amount of timeline compared with TOP. I mean, we do that on a very disciplined basis month to month working with our entire businesses, and it's continuing to pay dividends.

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

All right, thank you.

Operator

And next we'll to to Saul Martinez with UBS. Please go ahead.

Saul Martinez -- UBS -- Analyst

Hey. Good morning guys. A couple of questions on my end. First on -- I just want to make sure I understand the NII guide for 3Q, because you highlighted, I mean, the $20 million -- $15 million a quarter on a 25 basis point cut with only 25% being at the short end. So it's $4 million, and so assuming a July cut, you're only getting two months of that. So the impact seemingly of July cut is pretty negligible on NII. If that's the case, why are we assuming NII is stable and not growing? Is it the long end of the curve on average is going to be lower? It just -- it seems like this rate cuts really not going to impact 3Q. I would think you would actually see NII growth if that were the case.

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, there is a couple of things that are going on. You've got certainly the impact of of LIBOR is built into all of this, but you've got an expectation of LIBOR being down around 25 basis points or so. But I mean, you've got these models results, just two things to keep in mind. I mean -- and you've got the deposit lag that continues to have an impact. And as I mentioned earlier, the first cut that occurs in our easing cycle will have a lower deposit beta. Then let's say the next cut, and the numbers I was quoting to you earlier, our averages over a year. So in the first quarter of any kind of any reversal of direction on rates, you will have a lower benefit on deposit betas coming down.

Then you will have eventually after the full effects of that cut burn in future quarters. So that's really -- the main issue is really how that deposit lag flows in. I'd say that you also have to keep in mind our front book back book, which has been a tailwind for us and remains a tailwind. But the magnitude and the strength of that tailwind has come down a fair bit based upon where long rates are. And so, when you look at long rates being down 25, 30 basis points in the quarter and continuing the full impact of that has to be offset as well. So, I think, three quarter could be seen as may be a transitional quarter as we get through what's going on with that first cut, which immediately impacts us on the asset side. There's a 100% beta on all our floating assets that happens right out of the gate. But the deposit beta -- deposit betas are less than that and deposit lag in front book, back book and all of that tends to restabilize itself as you get into the fourth quarter.

Saul Martinez -- UBS -- Analyst

That's helpful. And on that latter point on the asset beta, how do we -- obviously you've you've increased your fixed rate receive positions over the last year. And you've got balance sheet optimization. How do we think about loan yield betas, commercial loan yield betas, retail loan yield betas with a 25 basis point cut, because even this quarter I think you actually seen a basis point of yield expansion on commercial even with LIBOR coming in. How much of that actually goes through given all the mixing, the hedging? How much of that actually goes -- will go through into your loan yield?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah, maybe just top of the house, it'd be good to talk about the fact that we are generally 50:50 in the loan portfolio. After you consider swaps were generally 50% floating, 50% fixed, and that was true in the first quarter. But after continuing our program of adding receive-fixed swaps, we're a little lower on that front. So you could basically say that our loan portfolio was down from 50% floating post-swap to 40% to 45% or so post-swap. So therefore our back to the point that we're indicating, our overall asset sensitivity is falling in part due to the fact that our loan betas will likely be a little lower at the margin due to the hedging that we've done and also due to the, even more importantly, all the hedging impacts by shifting all of it out the curve.

So, we've been positioning, and all of that will flow through in loans and deposits. We've been positioning for exactly this kind of environment where the long end up is a more likely expectation of the tailwind that over time -- over the next several years, then counting on the short end to be up meaningfully. And I think we're really pleased with how we position that. So that -- hopefully that helps.

Saul Martinez -- UBS -- Analyst

Yeah, I'm sorry, just -- you said 45% loan or interest earning asset is floating?

John Woods -- Vice Chairman and Chief Financial Officer

45% of the entire loan portfolio can be said as floating post the impact of swaps.

Saul Martinez -- UBS -- Analyst

Got it. Okay, that's helpful. Thank you.

John Woods -- Vice Chairman and Chief Financial Officer

Versus 50% last quarter, and it was a little higher the quarter before, because we've been adding...

Bruce Van Saun -- Chairman and Chief Executive Officer

That's been a year ago.

John Woods -- Vice Chairman and Chief Financial Officer

...because we've been adding receive-fixed swaps over the last three quarters.

Saul Martinez -- UBS -- Analyst

Yeah. All right. No, that's clear. Thank you.

John Woods -- Vice Chairman and Chief Financial Officer

All right.

Operator

Our next question is from Lana Chan with BMO Capital Markets. Please go ahead.

Lana Chan -- BMO Capital Markets -- Analyst

Hi. Good morning. Just want to follow up on that last point on the swaps. Could you give us any details around the $14 billion of swaps, the terms, the rates, and if any of them are forward starting?

John Woods -- Vice Chairman and Chief Financial Officer

Yeah. None of them are forward starting. I mean, the rate, the terms are -- basically our receipt-fixed swap position on a gross basis is around $20 billion. The reason I kept saying that is because that's offset by about $5 billion or $6 billion of pay fixed swaps that we executed that are important to know that's how we shifted our sensitivity out of the curve as we executed pay fixed swaps at around 170 or so at a five-year mark, which basically indicated that our sensitivity is now out the curve. The growth of $20 billion on receives are basically in the neighborhood of two years of remaining maturity, and that's basically protecting against a potential using cycle over the next, call it, two years, which is where the received-fixed swaps protect. And then, releasing that sensitivity as you get out farther over the medium term where we think that more than likely that that will cover any easing cycle that might flow through.

Lana Chan -- BMO Capital Markets -- Analyst

Okay. I'm sorry, the average received rate is what on those swaps?

John Woods -- Vice Chairman and Chief Financial Officer

It's probably closer to 2%. It's in the like kind of 1.85% to 2% range, and we see the dollar-cost averaging in over the last three quarters, so rounding that average.

Lana Chan -- BMO Capital Markets -- Analyst

Okay. Thanks, John.

Bruce Van Saun -- Chairman and Chief Executive Officer

Great.

Operator

And with no further...

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah, all the questions.

Operator

Yeah. I'll turn it over to you, Mr. Van Suan, for closing remarks.

Bruce Van Saun -- Chairman and Chief Executive Officer

Okay. Well, thanks again everyone for dialing in today. We appreciate your interest and your support. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Ellen Taylor -- Head, Investor Relations

Bruce Van Saun -- Chairman and Chief Executive Officer

John Woods -- Vice Chairman and Chief Financial Officer

Donald McCree -- Vice Chairman and Head, Commercial Banking

Brad Conner -- Vice Chairman, Consumer Banking

Matthew O'Connor -- Deutsche Bank -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Kenneth Michael Usdin -- Jefferies -- Analyst

John Pancari -- Evercore ISI. -- Analyst

Gerard Cassidy -- RBC -- Analyst

Kenneth Allen Zerbe -- Morgan Stanley -- Analyst

Saul Martinez -- UBS -- Analyst

Lana Chan -- BMO Capital Markets -- Analyst

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