Regions Financial Corporation

Q4 2021 Earnings Conference Call


spk_0: the morning and welcome to regions financial corporations quarterly earnings call my name is natalia and i will be your operator for today's call i would like to remind everyone that all participants own lines have been placed on listen only at the end of the call it will be a question and answer session if you wish to ask a question please class star one on your telephone a keypad and now turn to call over to dana know when to begin
spk_1: thank you in italia welcomes the reasons fourth quarter twenty twenty one or is john david will put our our commentary were order quarter these documents which includes are forward looking statements disclaimer as installations are available in the industrial relations section that our website these disclosures have a presentation materials on had since you and only else on the color was drawn into more one we appreciate junior called day
spk_2: we played without food or four years old which a degree despite challenging and operating farm earlier this morning post for your own two point four billion dollars and record pre tax free provisions on a two point seven days old
spk_1: despite continued economic uncertainty we remain focused on what we can control and are explaining off we grew consumer a chance for three percent and small does that count
spk_2: notably on twenty twenty one net retail account
spk_1: to see the previous three years combined represents an annual growth rate is three times higher than prepared and levels we increase new corporate banking group one production approximately thirty percent and generated record capital markets were iran has risk management framework we delivered or lowest able to charge all for it
spk_2: since two thousand six
spk_3: once into town rooms
spk_2: and associates to support to teach growth we continue to grow and horsepower revenue rock dinner by small chapel partners include sidebars we successfully executed i love or transition broke to church was ready to move to all charge reference
spk_1: we can the books are making bank usual
spk_2: to investments in target marches technologies digital capabilities
spk_1: we surpassed or two year twelve million dollar to that the to dance programs and initiatives to promote racial equity in economics department for communities tower
spk_2: before closing were extremely proud of our achievements and twenty twenty one but not of these would have been possible without the hard work dedication of are nearly twenty thousand astonished
spk_1: the past year old unique challenges we conceded transition to our new obama personal and professional level despite contain uncertainty are searched searches remain steadfast they contain ring their best work everyday provided dancing class customer service successfully exits
spk_2: using our strategic plans and maintaining strong response prices on which contribute to our success twenty twenty two and beyond will continue to focus on growing our business or making investments his areas that allows to make baggage easier for customers i'll walk continued providers was with to they need to be successful who make incremental adjustments to our business armenian your strengths investing in areas where we believe which consists of we went over time
spk_1: as an hour earlier this week the tea party and twenty twenty two the additional comprehensive changes to our in sf and over our policies which are details in the appendix of our presentation
spk_2: these changes represent a natural extension of our commitment to making back easier for customers and compliment the enhanced alerts
spk_1: more post process as well as our bank on certified checking project we launched flight last year
spk_2: support and know it's it's a financial impact of these enhancements have been fully incorporated in our total revenue expectations for twenty twenty two again we're pleased with our results and have great moments weekend and twenty twenty two now they will provide used to like allies for course john let's start with the balance sheet
spk_1: using the impact of acquired long from and of a transaction adjusted average and in england grew six and seven percent respectively during the quarter although business loans continue to be impacted by excess liquidity pipelines have surpassed pre pandemic levels and encouragingly we experienced the two hundred and forty
spk_2: basis for increase in line utilization rates during fourth quarter and addition for that should remain strong with line of credit commitments increase in four point seven billion dollars year over year
spk_1: consumer loans reflected the addition of three billion dollars for fired interbank ones as well as another strong for a mortgage production accompanied by modest growth and credit card checking for the expect full year two thousand twenty two reporters average loan balances to grow for formed five percent of
spk_3: there to two thousand twenty one
spk_4: sturgeon deposits
spk_2: although the place deposit growth slowed balances concedes increases quarter to do record levels
spk_4: the increase includes impact theater bank deposits wired during the fourth quarter
spk_1: as well as continued roads into account and account balances were continuing to analyze our deposit days and pandemic related deposit influence characteristics in order to predict future japan
spk_3: based on this analysis
spk_2: really believe approximately thirty five percent or twelve to fourteen billion dollars of deposit increases can be used to support long term as a group sort of the rate cycle
spk_1: additional forces of the deposit increases could persist on the balance sheet are likely to be more rate sensitive especially later in the said cycle while we expect the portion answers as to be rate sensitive you will recall that the granger of nature and generally rates insensitive sensitive of our a world of holidays represent significant upside for us when right dupe against greece
spk_4: the ship to net interest income and margin that interest film and great six percent versus the prior quarter driven primarily from our interbank acquisition
spk_1: both ppp and tom can organic balance sheet growth that interests and come from ppp was increased eight million dollars from the prior quarter but will be less of a contributor going for approximately eighty nine percent of estimated ppp fees have been recognized tasha average twenty six billion dollars during the corner the when combined with tpp reduced fourth quarters reported margins by fifty one basis points are just margin was three point three four percent modestly tire versus the third quarter excluding the impact of a large third quarter loans interest recovery core net interest income was mostly stable as lung rose offset impacts from the low interest rate marvin
spk_2: similar to reporters that interest in film was reduced by lower reinvestment yields of six straight loans and securities
spk_1: these impacts are expected to be more neutral deposits and going forward the hedging program contributed many please senate interest income in the fourth quarter secure value created from are hedging program is approximately one point five billion dollars roughly ninety percent of that amount has either been recognized or is locked in the future earnings
spk_4: from hedge terminations
spk_3: excluding ppp that interest income is expected to grow modestly in the first quarter by strong fourth quarter ending one growth as well as teach lung roads and the first quarter partially offset by the go
spk_1: regions they are seated position to benefits meaningfully from higher interest rates over the first hundred basis points of rain tightening each twenty five basis points increase and the federal funds rate is projected to add between sixty and eighty million dollars over a thought well
spk_4: a month period
spk_1: this includes recent hedging changes that supported by a large proportion a stable deposit funding and a significant amount of burning assets held in cash when compared to the industry importantly we to shorten the maturity profile of our hedges and the fourth quarter edging changes to date support increasing net interest income exposure to rising rates position as well for higher rates and two thousand and twenty two and beyond in summary and interest income is poised for growth than two thousand twenty two for balance sheet growth of our yield curve is expanding economy
spk_4: let's take a look at the revenue and expense suggested not interested in film decrease five percent from the far corner primarily due to elevated other non interest in town in the third quarter of the did not repeat and the fourth quarter
spk_1: the road and the integration of small cap on partners and clear side advisors who drive growth in calcutta market revenue in two thousand twenty two going for we expect out of marcus to generate quarterly revenue of ninety two hundred and ten billion dollars exposing the impact of cpj and dds
spk_2: mortgaging to remain relatively stable during the quarter to while we don't anticipate replicating this year's performance in two thousand twenty two mortgage is expected to remain a key contributor to see revenue particularly as purchase market in our footprint remains very strong
spk_1: wealth management income increased five percent driven by stronger sales and market value in thanks and is expected to grow incrementally
spk_5: two thousand and twenty two
spk_1: seasonality drove an increase in service charges compared to the for our porter looking ahead as announced yesterday we are making changes to our nsf and overdraft practices which along with previously implemented changes will further reduce these these and as as an overdraft fees make up approximately sixty percent of our service charge line item
spk_2: these changes will be implemented throughout two thousand and twenty two a once fully role they all together with our previous changes implemented last year we expect the annual impact result and twenty to thirty percent lower service charge revenues vs two thousand and nineteen
spk_1: thanks to our expectations around the implementation timeline we estimate the the seventy million dollars will be reflected in two thousand and twenty two results and as up and overdraft revenue has declined substantially over the last decade and once fully implemented we expect the angel contribution from these these will be approximately fifty percent lower than two thousand and eleven levels since two thousand and eleven and ourselves and overdraft revenue has decreased approximately one hundred and seventy five million dollars and devon interchange legislation reduce carbon agencies another one hundred and eighty million dollars we have successfully off of these declines to expand into stand or spicy based services and as a result total man interest income increased approximately four hundred million dollars over the same time period
spk_2: the ongoing investment and capabilities and services
spk_1: we will continue to grow and diversify revenue to overcome impact of these new policy changes
spk_3: we expect two thousand and twenty two adjusted total revenue to the up three and a half to four and a half percent compared to the prior year driven primarily by growth the net interest in film
spk_2: this growth includes impact of lower ppp related revenue and they anticipated impact of nsf an overdraft changes
spk_1: let's move on the not interests expense adjusted not interested expenses and priest five percent in the quarter salaries and benefits increased four percent are merely do the higher and senate compensation base salaries also increase as we had approximately six hundred and sixty new associates primarily as a result of acquisitions that close this quarter the increased headcount also reflects keep hours to support strategic initiatives within other revenue producing businesses we have experienced some inflationary pressures already can expect certain of those to persist in two thousand twenty two
spk_3: if you exclude verbal based an incentive compensation associated with better than expected to see income and credit performance as well as expenses related to our fourth quarter acquisitions are two thousand and twenty one adjusted for expenses remained relatively stable compared to the prior year we will contains a princely managed expenses
spk_1: while investing in technology products and people to grow our business as a result or porch and space will grow we expect two thousand and twenty two adjusted non interests expenses to be up three to four percent compared to two thousand and twenty more importantly this includes the full year impacts of recent acquisitions as well as anticipated inflationary impacts
spk_2: despite these impacts we remain committed to generating positive adjusted offering leverage and two thousand and twenty two
spk_1: overall credit performance remain strong and realize that charge offs increase six basis points from the third quarter record low to twenty basis points driven in part by the addition of interbank and the fourth quarter for your net charge off totaled twenty four basis points the lowest level on record
spk_3: and two thousand and six
spk_1: nonperforming loans conceived to improve during the quarter and are now below pretty pandemic levels at just fifty one basis points of total lungs
spk_2: carlyle for credit losses remained relatively stable at one point seven nine percent of total arms while the allowance as a percentage of nonperforming loans and priest sixty six percentage points to three hundred and forty nine percent
spk_3: we expect credit losses to slowly began to normalize in the back half of two thousand and twenty two and currently expect for your that charge off to be in the twenty five to thirty five bases point range
spk_1: with respect to capital are common equity tier one ratio decreased approximately one hundred and thirty basis points to an estimated nine point five percent score during the fourth quarter we closed on three acquisitions which combines absorbed approximately one point three billion dollars of capital additionally we repurchase three hundred million dollars of back during the quarter we expect to maintain our common equity tier one ratio dear the midpoint of our nine point two five to nine point seven five percent operating range wrapping up on the next slide or two thousand twenty two expectations with we've already addressed in closing the momentum we experienced in the fourth quarter positions as well for growth in two thousand and twenty two as economic recovery conventions pretax precision and can remain strong expenses are well controlled credit risk is relatively benign capital and liquidity your solid we're optimistic about the pace of the economic recovery in our markets
spk_0: without having to take your questions thank you for is now open for questions if you have a question please press to start he followed by the number one on your telephone a key pad it's at any point your question is answered you may remove yourself from the cube are pressing the pound key we were pulsar just a moment to compound the two and a roster your first question is on the line of erica and ariana with the bs
spk_6: so just going to actually did
spk_7: as to ask this question but
spk_8: i got some investors
spk_9: performance
spk_10: obviously your
spk_11: is quite as is that it's
spk_8: from you announce or rather close and the fourth quarter surprise david i'm wondering if you could share with us or disease
spk_12: that period you expect for
spk_13: on tangible value
spk_4: we'll we'll we'll look at several factors
spk_2: not just and we'll both i will look at diversification of revenue we look at return on investment because when you terms of this is buying your stock back which also as a reduction a book value so you're trying to look at the trade off between how you but you can't hold a work of frankly i can't even remember what see
spk_14: with a back was
spk_4: what if we were looking at a bank acquisition that's a little different were
spk_2: the we would expect the payback period three years or less but in this case for look at that diversification
spk_15: being able to rome
spk_4: the and return on that investment is higher than the return of we would have had if we were bar shares back
spk_0: your next question on the line of that granted with morgan stanley
spk_16: one morning
spk_17: on couple questions first on c announcement that you made yesterday on the changes to see overdraft insistence on sees any size did for twenty twenty two could you give us a sense to you know if that were to go in full year full on what's that love with would it is obviously we think and said twenty three it's understand how how you're thinking about an annualized impact would be looking why doesn't the gardens we provide betsy as if you go back to two thousand and nineteen take some servers george revenue
spk_2: in fact is going to be somewhere between twenty and thirty percent of total service charge revenue based on two thousand and nineteen revenue was all the changes are are implemented san angeles as and that includes all the things we already have done to so it's a killer of number
spk_4: touch go back to that he can to calculate from and round numbers will be half or run of have half of may be slightly more than that done and twenty twenty two
spk_14: and so did
spk_4: double app for close proximity of what them the tone with thing and when you see the service charges from twain nineteen you're talking about
spk_17: the service charges from twain and seen in your income statement not what shows up as
spk_18: regulatory like overdraft that's correct violence as current
spk_19: as as and do we think about it that way back as a means ultimately
spk_2: all these fees are associated with the consumer business
spk_19: and as we think about how we overcome
spk_2: that was revenue it is true growth and consumer checking accounts additional activity avatars uses debit card fees other things that come with that and as david pointed out earlier if you go back to two thousand ten eleven timeframe income for we've been able to significantly grow nine revenue while overcoming the loss of revenue associate regulation and other changes we expect the same will be true as we look forward
spk_20: relative to the chains were made here
spk_4: and as he did them el diablo if you go into our public filings and are selfless two thousand and nineteen or service charge them with seven hundred twenty nine million
spk_21: top that number
spk_17: right right or carriages can confirm that are a great thanks
spk_22: and then follow question here just on
spk_17: how you're thinking about sabo acquisition and how that's going to feed into not only can say when i heard you talk about it's in the capital markets revenue line but maybe help us understand is a rebalancing impact here and and and the expectation that you have
spk_23: to grow this isn't from where it is today
spk_2: so i would say the balance sheet impact we might as well have an opportunity to develop relationships that might lead to are providing credit the customers and door opening deposit relationships we expect that to be true for sure the primary benefit we drive from spouses the capabilities we have prone placement capabilities them that we have we end up with a think we're one of four five bags and the country that will have a complete array of real stayed home in a place for products with the danny license freddy's licenses for large and small dollar cmbs capabilities we weekend vague are real estate customers' needs across the spectrum and does we transition from the great recession to today we built i think a really solid real estate business real estate permanent place but revenue in twenty twenty one will it's zaid sixty million dollars that's from zero in two thousand and fourteen effectively so we've been building that business around regional and national real estate developers really strong balance sheets good liquidity and access to capital the portfolios performed very very well and we think this gives us an hour opportunity to extend those relationships and gravitational profitability
spk_17: since i'm pretty recently some significant uptick in that samantha product for race
spk_2: yes and and again i think he just wanted the multifamily market it's awfully good and other developers who likes to tobias hall of build and hold one access to both the same products and
spk_20: freddy products from tom tom and santa
spk_2: yeah found that be a great source of revenue and a wonderful way to to build stronger deeper relationships with that customer second
spk_0: since their next question is on the line of john ten cari with evercore i as i
spk_2: more john
spk_24: morning
spk_25: on the longest flaws
spk_26: this is what we're only four or five percent
spk_27: smart your maybe
spk_2: i'm back inside
spk_4: and so good that a problem with growth you expect for commercial see or read and consumer now that couple of years since john david so far saying we have to overcome it depends on if you're looking at all the average which is where the four to five percent first thing you have to do is overcome ppp average which is about two point seven billion dollars
spk_14: but that models that if you look at areas where we can grow clearly we're gonna get benefits of interbank having a whole year of interbank along with it's gross if we expect and so that's a big driver of are averaging our mortgage ought to have a up and may not have as much production as we have and twenty one for twenty two but we still believe we're grow the balance sheet quite nicely to their weeks back credit card to continue to grow and in on commercial than
spk_4: after you consider overcoming the ppp run off on average two point seven we think weeks to grow that on top of this do as we look at the industries that we will actually strong as twenty one and the commercial space financial services healthcare transportation or asset based lending i'm home builder and and to a lesser degree technology those are areas if we did see growth and quite nice growth and expect to continue to twenty twenty two
spk_28: it's been geographically diverse as well
spk_25: powerful men suffer
spk_2: on awful and others as person
spk_29: these are the guys and service and for about sixty days so it's are supporting leverage
spk_24: this process about how
spk_3: this is is said hikes navy
spk_25: who's been less than expected is as the basis for something that would still attainable be so of letters
spk_4: it's a good to the basically generate at the spice and he moved by the says
spk_21: well it certainly makes it harder but as we've always said it our our goal is generate buzz off ring leverage over time and get off our revenue growth in there that we we double down on expense management and
spk_4: as she didn't get there this year norton anybody else it up where of but
spk_14: we believe there's some sort a result path to that and do that while we gave you the guy is that shows
spk_4: that roughly sixty basis points or more and else
spk_14: we we have things we can do during the year that can help us get there but the right
spk_30: not coming in at the place we think ours menacing will put pressure on that calculation but we wouldn't give up on system
spk_0: or if things go
spk_31: your next question is on the line as bill car catty with wolf research they do good morning to following up on the ads
spk_32: the commentary around of the puzzle operate leverage i was hoping you could frame
spk_20: a little bit more the how much variability there is around that three to four percent increase that the you have a your outlook for expenses as as goes rate hikes begin to flow through the forward curve reflects for hikes next year but some are expecting more than that
spk_32: feel so how does the number of hikes i guess to accept that that we get more your it's it's once the expense line doesn't eat out there is to says visitors that three or four outlook cold and on top of that it would be greatest the are you
spk_4: if you could also discuss your confidence level of been able to control the expense pay such that continues to ditch still achieve that possible operating liberty than that are different of witches areas oh yes lot of sales and loomis a fuckin of self yeah so on a expense side and three to four percent still a large portion of that substantial portion of that related to the accusations that we had we closed on three deals in the fourth quarter one of rise at the end of the year to have a four year run right on all those coming through and as the big
spk_2: a single driver of the three to four percent the go back and look at our compound annual growth rate on expense management's with actually done a pretty good job of controlling our expenses and we don't do that just one area but it's hours and benefits and
spk_33: firms your fixtures and equipment occupancy and vendor spend all those things we're all over and john has a sour continuous improvement program still going where we're looking to improve process as each and every day leveraging technology to help us control our expense load
spk_4: so
spk_14: i think of you know in terms of the revenue side
spk_2: we have for baked into our guide it's we just gave you for twenty five basis points
spk_14: of moos each quarter so on average you get to during the year
spk_4: and you know it depends on joe the where we get twenty five will be more than that will be more than four or less and for a minute after
spk_34: told you that you know and are guidance that each twenty five basis points to succeed eighty million dollars for so you can with remodeling thought of
spk_21: have work with that
spk_4: back to the says
spk_14: the question earlier thing from job korean terms of operating leveraged we we we are committed to generate common father opera alleged over time
spk_35: and
spk_0: you know when when things get more challenging move will do with dan to manage expenses so
spk_36: oliver the death
spk_37: your next lesson from the line as even him gunilla with a bank of america more email morning i guess one the so of question no fall off on the overdraft it's been a big old hang on the store and get your guidance and own day in fact this year the did it but just offers don't say exists the industry seems to be moving away from your
spk_14: give a sense of like the use case of wise says a subset of old fees
spk_4: needs to exist and why you feel case was competitive the and from a legacy standpoint but that component of fees will be dependable well so as we put in our guidance yesterday we're eliminating in it's of these altogether we still have overdraft fees for a service that were providing which is liquidity darkest for base and they appreciate the ability to be able to have that like the time and need and there's a cost to that and now we've done some things we've given alert weeks are posting order our to give short field small our lungs were not give your paychecks up to two days available
spk_37: and some cases and so we're we're doing a lot of things to make it easier for customers bank with us and understand where they stand at any point time but if they need that liquids the we want to be there with limited are we will be limiting our overdraft no more than three per day too so which is in one strong as in the industry so
spk_4: we're doing a lot of things we'd say that's a value play for our customers they want that building for that short term liquidity and cause we charge for notice and i guess this is separate question at all known blows on apologies it's a mistake but ah talk to us about the inner bank acquisition what that means for growth phase needs some of the unknown footprint i think half of in their bank is outside of the for regions footprint on he was a perspective and doesn't have the opportunity that you have dad was in terms of the what and or bank does to this and how to scheme that up yeah so you know we we acquired about three billion dollar for the lungs right at the end of the and at the beginning of the fourth quarter we'll get all that and are averaging numbers which is where four five percent roses for next year their production had been about one percent and industry
spk_38: which was it about a billion seven in terms of production and that's what they were doing and and we think we have the ability to take that and ramp it up over time
spk_0: i have nice growth there are we're excited about interbank and excited about fact that are geographic expansion of that is outside of our core footprint it brings us the ability to have more customers throughout the country
spk_39: to draw the banking services with as well including small business contractors that all for products to consumers so it is a big portion of our growth expectations and we can be more excited about adding interbank in the and the people that work there are two reasons family
spk_2: sort of your next requests
spk_4: your next question is on the line of ten used in with jeffries or into hate the morning guys and another just follow up on the says that david can help us understand of the three to four percent growth what part of that is just organic growth or what part is actually up coming from the acquisitions getting into the run rates and then you know path
spk_14: what are you doing in terms of like offsets in terms of you know continuous improvement type of of efficiencies ten and some as mentioned earlier the
spk_4: oh well my majority of our growth is right related to the acquisitions that we have our we've been able and will continue to control our for expenses
spk_2: by managing the things i thought that amazing
spk_4: sours benefits and tell
spk_14: our square footage whether be branch or office square footage
spk_4: jill when you manager your head count you manage the number computers yet have it's vendors and it's are perturb and group really ensuring that from a demand management standpoint that people that are asking for vendors and third party services really nato member we have to have i'm making true that way just a about price with of for the services or we're getting that ongoing that part of our continuous improvement program
spk_14: and you couple that with
spk_39: leveraging technology and taking out process processes that we have a we're we're not finished their health we have to create opportunities to reinvest embedded in the three to four percent are the investments are remaking and people and our certain markets that we have that we see opportunities for growth there we invest in technology people and and services to help us they are so all that and dead in the numbers that were given do that
spk_4: to the chase of the three four percent of the vast majority that is related to the acquisitions we announce on your understanding of apologists i i miss that comment earlier on gonna fall of separate ways david then on the farm just on that sort of your you're terminated a little bit more this quarter to one understand like what percentage of that for
spk_40: is now kind of locked out for me either
spk_4: is your step eve terminated or you understand the via the the maturity schedule and and we see from your get your your that our our and i slide what that expected trajectory like so i think there's much she's the can you let us know if there's anything different in terms of your you have your viewing for for you're going forward thank you so we continue to resist he sea in the foreign fans going in the market with regards to rate so we took some of ours protection off unwind the summer so we have a little bit more asset sensitivity that comes in and in the second half of the year but we have to continue to monitor that because it's important it's it's important for us to make sure that we have the proper sensitivity when we expect race to go with do and hour just timing you know of months ago radio or rate increase or two hours a day it's for this morning there people talking about maybe a wall and be a couple so mean there's a this is very volatile and we're trying to do best we can anticipate
spk_14: the weather's right moves are going and
spk_4: we we we've locked in a good portion of our for your value if you will have our
spk_39: of our heads portfolio were over half so i think that
spk_4: or good say we can terminate some of those
spk_14: quickly if we want to put more sensitivity and
spk_4: but right now is a pretty good spots
spk_2: and the gavin upper bounds of the sensitivity and how much you've let it float us and sex sexual censorship
spk_4: either what we really want to do is we're not trying to top take our margin and and i were were trying to do is have a suitable predictable income statements what we do one great get double where there's risk of going to jail we do have risked parameters in terms of how much risk we can have on it i would have hundred basis points move but for us is really trying to
spk_21: it's anticipate where the market's going to move so we take full advantage
spk_14: there but we don't want we don't want to have an unusual pick up in any given period whether be a quarter or year that's not repeatable that that's not helpful to us or our shareholders overtime so we're we're trying to get back we had given your a range of getting up to our margins in the three seventy range with the know
spk_41: normal interest rates barmouth we're probably don't be in a higher three thirties on a core basis
spk_0: this quarter coming up to have a little bit a growth there but it's just of making incremental moves
spk_42: on the portfolio
spk_43: as we say that for a pharmacy
spk_2: thanks to getting
spk_42: your next question is on the line of gerard cassidy with rbc
spk_44: morning gender or race
spk_45: david and
spk_4: elaborate further on slide a were you give us the interferes exposure in you talk about your deposit pages particularly in the first one hundred basis points that clean twenty five percent are due to the of fired videos on your third deposits can you tell us about how large other the search deposit on the best intentioned you give us some color on how you define surge deposits
spk_21: yet so
spk_4: october also serves deposits just magically about thirty nine billion dollars a and so would you think of other search deposits in terms of data reaction there's really two things that are happening with was they surged pauses
spk_14: of deserves deposits about sixty five percent of those we think would have a
spk_4: actually a lower beta their i'm sorry a higher vader that's twenty five billion dollars we would but that data at seventy five percent sorry
spk_42: i would think it's gonna be pretty hot free reactive if you look at other thirty five percent we say based on the nature of those accounts of those deposits went into that that day there's gonna be similar to our legacy to pay the woods which is ten percent
spk_2: xin if you take the restaurant or legacy deposits we put a ten percent data on that as well
spk_4: and if you go back and look at the last hundred basis points rate increase we had last cycle that's the beta was so that the math that we've really got into
spk_2: in our guidance and were judged it's and davis on the surge deposit and the exit not operating deposits from new corporate customers are those consumers that makes his money left over from the stimulus
spk_42: he a big a big portion of those surged pauses or corporate deposits that came in and up because it's the best place like a put their money and that while we believe is that sixty five percent
spk_2: of those deposits and call it twenty five billion dollars at sixty five percent of the thirty nine
spk_46: can be very reactive because their corporate customers that are likely to footman of with those to work at a more meaningful place and we don't need to pay up for that so we expect those to probably
spk_3: either move out or to tend to be more expensive
spk_2: very good in that is a follow up on the highlighted your niche charger for issue with the he says it's the was the seen him about his teeth in groups who pointed to the charges initially probably sitting around the low levels you saw in the fourth quarter gradually in the second half have year started to head towards the be normalization is that a son just because the rates so low that them
spk_4: it's hard to be seen as for is it's
spk_14: formulaic or some and reading that you have done said says enough remove of
spk_4: or will be such as the yard the judge years later it's year excluding of course the acquisition that may influence the reporting numbers assad and and arise changes and serve it's a reality that ozzy consumers and businesses will propped up by stimulus consumers in particular that stimulus is running out this quarter terms of the child's health care tax credit
spk_14: we've been unusually low has it has has the
spk_4: the industry so i think that our expectation is we would start to normalize because
spk_14: the run off at the stimulus which stars manifesting itself in the second half of the year
spk_2: that being said we still they charge also be rather low lower than history
spk_30: twenty five to thirty five basis points for twenty two
spk_0: we have five at the economy continues to perform and and consumers do well and manage money well maybe maybe or charge also the lower end of that right
spk_47: so
spk_48: have a bit of it is is trying to anticipate
spk_49: when normal quote normalization will occur
spk_4: very good thank you for the color
spk_2: your next question from the line of matt o'connor with lieutenant
spk_4: morning america morning of my feel a bit too early
spk_14: i care about their flights are given a great expectations of increase robots sweaters out for factoring into how you're on your writings of obviously i was rates go up to three percent or even more
spk_4: put pressure on borrowers
spk_14: well as a man one saying so we're talking about four twenty five basis points move to get off of virtually zero
spk_4: if you think of a consumer law the consumer portfolios or fixed rate for folio so they all end up how and much of an interest rate shock and for movies
spk_2: on the on the corporate banking side
spk_48: again for moves on them we've been monitoring our customers we know which where they stand lot of them hedge we would expect as rate starting them start to move we actually put on our customers would put on more hedge
spk_2: protection if you will so we again we don't see a lot of payment shocks their i think is the risk his friend now stimulus and and also is there something unique and a given business or industry that could drive losses higher vs raids
spk_20: this point but xenon our oil thing i'd say is normal course of business and i went on writing credit were always dressing or interest rate sensitivity and among other things that might occur so that would not change common practice
spk_2: our guys and then the separately and apologies of agnes set of have a market and strong all year and and is that increase solve puzzles one race for our twenty two we received from your peers have really strong cat markets in for year and i think part of my to see a vector as a because taxes as if you did it earlier is at all of one of the transcript i think it's a good question just look at the baltimore capital markets revenue stream and across both job raising and is viruses advisory services so whether true state farm replacement emanates
spk_0: once indications or of fixed income for his actions
spk_50: we're generating a relatively
spk_4: similar amounts revenue across those platforms are got good diversity now we've added their side advisors and we that is a ball capital and so
spk_50: considers the contribution that those acquisitions will make in concert with the businesses that or products capabilities and we've developed and we think the run rate of nine hundred and ten for corps appropriate okay
spk_51: your next class me from the line of season counting with piper sandler
spk_2: morning
spk_4: jack in the morning thanks of us are just one clarifying question first i wanted to make sure david from your earlier commentary that the loan growth the forty five percent does include the run off of t v p or is it accepts ftp impact know is includes that says that was was important points that it has include overcoming that and have for to have a me four to five percent growth on the average did you see for the year since and are supplements
spk_2: that's why i thought i heard thank you that's great and then maybe the one other question i had his can you talk a little bit about the handoff kind of from the hedging income to that the greater rate since tv that obviously now you're you're pulled forward a bit a new yes
spk_14: detail their own flight twenties but i'm just kind of wonder if you can walk through that or is there the possibility of a quarter to quarter basis we could see some decline is that you know hundred forty million dollar on right kind of hold down and that's the impact a higher rates polls a backup
spk_2: well mean it
spk_4: you could always have a little timing issue from a quarter quarter to quarter but
spk_50: you know we've gotta know the number of things going on that charging seen in particular
spk_4: or or grows alone rose and our interbank transaction that we had a good portion of our our it's portfolio is locked in and we're adding the sensitivity of this question earlier when we had a little bit a sensitivity the help us and the second half of the year
spk_14: the key thing on the early moves to his that we're we're we're still very assets as the because our deposit base and so when you start seeing the first couple of moves feel that betas is pretty close to zero
spk_4: so you know i think that late in the dark but it might not be perfect but you look at them make an investment in as over a period of time we gotta with they were well positioned to grow as economy continues to grow with at higher rates and ask where readers religious times
spk_14: because our deposit days
spk_4: that local were low cost core deposit base of hours
spk_52: it is that a differentiator forces as you haven't seen that we haven't been able to extract the value out of it because we been such a low rate promise but now we're starting to see that opportunity if in fact we get the rate increases the of that the for tab they didn't
spk_0: okay that's that's very helpful in just one other point on that charges the impact of organic growth obviously is increasing in each subsequent year and twenty three and twenty fourth is that to convey that you think organic growth can be even better from alone growth perspective were just that it will be more meaningful given it will be at higher rates
spk_53: well it's a little bit about that think we can see absolute balance rose
spk_32: yeah we've acquired do portfolios and as i mentioned said just one example is interbank in we're we we're three billion that production their historically had been about a billion seven when in a lot of states and we have
spk_4: distribution is far better in our banks and with they would have had
spk_14: and they were regulated energy company right so we have the ability to to take that to new levels and so that's just one example that's why we can to make investments because with the opportunities to take a portfolio and be able to push through our networks that all people are we at work and forth between the growth the
spk_4: you're also get by the right environment so that baked into that forty six percent compound annual growth rate as well perfect that's that's encouraging for the your next question from the line of christopher spar with wells fargo
spk_14: morning good morning
spk_2: so my question is about twenty twenty three expenses as last month he said two point five percent was kind of the core run rate for at least the about with wage increases is that kind of a good starting point to think about expenses for next year
spk_54: actually occurs we've we've had
spk_4: we've we've seen some inflation
spk_14: this year that numbers can be a little bit higher as we think about marriage increases
spk_32: amos when need make to retain certain and folks in particular the glitter in the technology size of the house
spk_20: recruiting those those type thing so that to an ass little bit higher than that now that is baked into the guidance of we gave him and so
spk_4: gets by my as we have experienced inflation and we expect that to persist to twenty twenty two
spk_32: no middle question was around twenty twenty three of hard correct
spk_4: that's correct and and that inflation that that france in that such as can be in the run rate for twenty two and then you're going to continue now will you be able to refer back to mares increases that are more consistent twenty three
spk_55: like we had the pass and i think that's that's that's accurate
spk_4: yeah i guess i'm kind of scares the difference between the are related
spk_5: cost that you're seeing this year versus of what is plenty more a runaway inflation or for which pressure well them the main thing is of the three to four percent were going to experience
spk_4: no of the vast majority that is related to the accusations that we as okay and then it went quick follow us these so last month he said i think two percent was a good starting point to put money to work and given kind of got high level of dry powder even with the that that serves deposits us is that is still your thought process or think it's can be a higher level unallocated with a ten years already
spk_56: oh no we still think so we think the shorthand this week we told you that would probably have for short term rate increases going in this year but we still think that tenure gonna hangs out and approaches to percent by the end of the year so that move as much with
spk_14: do think there's opportunities as a lot of volatility their of we see the ability of foot of billion two or more to work
spk_0: and the securities books
spk_57: they were convicted on that
spk_58: be happy to week we have more cash
spk_59: it or cash than most everybody
spk_21: because we just have been reluctant to want to take that the ration risk don't think we're a properly compensated for that being said things can change and if we see closer to that two percent on the
spk_58: that may
spk_2: persuade us to put a little bit more to work that were remember getting paid for all increase on the short run short rape for the money at the said that we're getting paid a little bit more there
spk_4: you
spk_58: your next question is on the line at the their kids in asia with jp morgan
spk_60: more knew that david
spk_4: hi john absence a clarification on couple of the last two questions so he said his tenure gets closer to two percent he met with some to what said you have anything factored into your and i gotta score
spk_21: reinvest in the some of that liquid liquidity are not that we did not
spk_2: that would be on top of what we're doing
spk_4: and then on the on the expense question that as a fast so are you assuming the incentive pumping three said you had and twenty one is that says stays at that level in yet twenty two guidance
spk_2: no it's not forecasts is a stay at that level
spk_20: that was okay in from the instead of count was of a thing across industry with don't forecasts it would remain at that level system
spk_58: and that's partly because you're assuming some of those revenues will not continue like mortgage and capital markets well now we wait for richard your in our revenue growth but that's all baked into the budget and so you don't just don't get compensated
spk_61: have you at that
spk_2: level over far as you did your budget you gotta have much better years that which is with we and most of those three players did this year but to reset your expectations
spk_62: you back down more just start all over again
spk_2: and so many said aren't worth the are increasing targets so that lab
spk_63: the impact of reducing and centers
spk_19: right side of has made sense and last one for both of your loan growth in that you've talked about have a strong pipelines
spk_64: which implies that you expecting longer to remain good are you seeing that
spk_0: how are you seeing january has continued to be a strong because we have as he saw a big of six up later and fourth quarter as i can doing in these list
spk_65: couple of weeks
spk_66: python still are still good customers are optimistic
spk_67: they are i think hopeful that will see trends continue their prepared to make investments
spk_33: investments are still constrain in some measure by some uncertainty and bad shortage of labor lot of cases but we do have been there are large offers who are actually looking at investments and want to ban balance sheets investment businesses and of the same is true of consumers who are
spk_2: a spinning and so we do expect to contain to see on growth thank you your final question is on the line of jennifer denbigh with truest securities more genesis
spk_68: the morning
spk_0: his sauce about your instance now in in more than bank acquisitions and where it's it's it's a case where were you into slices means long distances calls
spk_2: romney divorce cases
spk_63: so
spk_2: where we do continue to have an interest in nonbank acquisitions weird like to continue to add some of the consumer lending capabilities the we'd have acquired of those opportunities arise invest in capital markets
spk_0: that's the thing that got a nice return on those investments and been able to leverage those new capabilities to expand relationships for incident and opportunities within wealth management

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