Synovus Financial Corp.

Q4 2021 Earnings Conference Call

1/20/2022

spk_0: the morning and welcome to the sono this fourth quarter twenty twenty one earnings call or participants will be in listen only mode should you need assistance please signal conference basis by pressing the starkey followed by zero after today's presentation there will be an opportunity to ask questions says he question you may press story than one when you're touchstone phone to withdraw your question please press star and to please note this event is being recorded oh announcer in the call over to carl evans head of investor relations please go ahead
spk_1: thank you and good morning during today's call we were reference the flies and press release that are available within the investor relations section of our website so notice that com kevin blair president and chief executive officer will begin the call he will be followed by jamie gregory chief financial officer and we will be able to answer your questions at the end of the call our comments include forward looking statements he statements are subject to risks and uncertainties an actual results could bury materials we must these factors that might cause results to differ materially in a press release and nine area fcc files which are available on our website we do not assume any obligation to update any forward looking statements without do information early developments or otherwise except as may be required by law during the call we were reference non gap financial measures related to the company's performance you may see the reconciliation of these measures in the appendix to our presentation and now kevin blair will provide an overview of the for
spk_2: thank you go and good morning everyone thank you for joining our fourth quarter earnings call i want to take a moment to officially recognized cow evans and his new role as investor relations and market intelligence senior director cows expanded role in our company became official shortly after last quarter's call when kevin brown who led i or for the past two years shifted to our corporate treasury team kevin has done a great job and are facing with our analysts and investors community but his latest move will help with his development and career aspirations cow has hit the ground running and brings a lot to the table given his credit and market intelligence background the transition is going well and i know you'll enjoy working with and getting to know cow now let's shift into the overview of twenty twenty one with a fourth quarter placing an exclamation point on the year twenty twenty one was again wrought with challenges and uncertainties but our teams were able to navigate the difficult environment to support our clients contribute to our communities and deliver for our shareholders and want to thank our team for your hard work dedication and commitment as you're here today we accomplished a lot even as the pandemic continue to impact the operations of our clients and of our company our team is capable and understands the assignment when it comes to meeting the challenge from the unexpected and anticipating opportunities with and for our clients are strong fourth quarter and year and report is an absolute testament to your talents and passions for the inspired and purpose driven work we do that enables people to a
spk_3: t their full potential
spk_2: what you'll see today is a story of execution and follow through of doing what we said we could and would do and in many earth is doing even more as we began twenty twenty one we focused on five core business objectives number one to regain growth momentum to to enhance the client experience by making it even easier to do business with snow this number three to provide seamless delivery of are solutions across all of our lines a business lead to a deeper while would share and client relationships for to better leverage analytics in order to provide more informed and pro active advice inside the development and attraction of talent to support our growth initiatives we have made significant progress and all five core areas and our success and twenty twenty one was largely drill
spk_3: in buyer execution of these business objectives
spk_2: moving to slide three let's review the year or lines of business succeeded in delivering core performance v a solid loan deposit and fee income growth while client loan demand was muted and the first half of twenty twenty one and the second half we sold double digit broad base commercial loan girls driven primarily by our wholesale back with all ten wholesale some lines of business posting growth for the year twenty twenty one funded commercial loan production increased fifty percent versus twenty twenty and was up forty percent versus two thousand and nineteen with significant productivity gains across our community and wholesale teams we expect this momentum to continue and twenty twenty two given the pipelines and activities of our bankers as well as the incremental growth that will be provided by our t twenty twenty one investments and talent in the middle market restaurant services and corporate and investment banking teams deposit growth was driven by continued balance augmentation as well as an ongoing cells focus on core operating accounts as a result core transaction balances have increased city seven percent in the past two years we have strategically allowed higher cost lower value deposits to a try with an oath over arching goal of remix seen our funding profile to optimize lower costs deposit composition during this period of excess liquidity at year end seventy seven percent of total deposits for core transaction deposits sources seventy percent said year and twenty twenty x security gains noninterest revenues screw five percent led by increases and core banking fees and income from various wealth businesses this was the seventh consecutive quarter of increases and well sees drivers of this growth include a strong equity market as well as net new assets under management firm kleiner grows including the onboard in of twelve new family off clients during the year and twenty twenty one we continue to make significant progress with our son overs forward initiatives as of year and we have achieved a hundred and ten million dollars and pretax run rate benefit ahead of our original projections evidence of success includes reducing real estate expenses lowering headcount and a reduction of third party spend all of which resulted in adjusted twenty twenty one expenses been flat vs
spk_4: twenty twenty
spk_2: lisa know the sport savings allowed us to make strategic and impactful investments in every area while managing overall expenses this year we will transition are some notice forward efforts into our overall strategic plan but remain committed in on pace to achieve the hundred and seventy five million dollar and over for target as part of our focus on innovation we launched several new digital solutions and services including enhance deposit online account origination accelerate a are are integrated receivable sweet and gateway or commercial banking digital platform these investments have enhanced capabilities and functionality and is leader into a better overall client experience we also implemented the smart commercial analytics tool that is giving or bankers better insights into solutions our clients need early warning on client attrition and proactive risk monitoring and twenty twenty one we also invested in people in particular those who have exp periods and expertise to expand our advisory services and to build strong relationship value we grew our treasury and payments team which had another record breaking year growing sales by almost forty percent and added to specialty banking and are middle market talent and are high growth central and west florida regions
spk_1: we also continued to emphasize the development of our existing team members to the launch of to new leadership development tracks for emerging and senior leaders despite the challenges associated with the pandemic or recent voice of the team member survey indicated that eighty four percent of our team members were actively engaged which is top quarter relative
spk_2: to the financial services benchmark and we were designated a great place to work by the great place to work institute we also have made measure progress and our diversity equity and inclusion efforts by meeting are short term ethnicity and gender based goals in the leadership ranks and twenty twenty one so overall a productive and rewarding year and one that carries a tremendous amount of momentum and twenty twenty two now let me see if the highlights from the fourth
spk_1: corner
spk_2: let's start on flights for with loan growth which increased one point four billion dollars or an annualized fourteen percent excluding p three the growth this quarter resulted from our second consecutive quarter of record funded commercial loan production at three point two billion dollars this represented a thirty percent and greece from the third quarter the quality of grows as measured by risk ratings and underwriting metrics is consistent with the existing portfolio which continues to perform well and is supported by reversal of credit losses of fifty five million dollars this quarter it's a similar story on the other side of the balance sheet with core transaction
spk_1: positive growth of one point three billion dollars or four percent versus the third quarter approximately thirty percent of the scores increase came from non interest bearing deposits the combination of balance augmentation and new account origination continues to be the drivers of growth net interest income growth was also strong this quarter as we delivered one point seven billion dollars and earning as aggro net interest income increased sixteen million dollars from the third quarter or four percent excluding the reduction in p three fees
spk_2: editor's margin decline five basis points in the quarter largely due to lower p three and calm but the name before ppp fees actually increase to one basis points as early as that yields were fairly stable and we continue to lower deposit rates during the quarter from a fee income perspective we continue to be pleased with overall performance as the fourth quarter totaled one hundred and seventeen million dollars core banking fees have returned and exceed pre pandemic levels and the fourth quarter as card in cash management income have more than offset reductions and nss and calm and our core strategic second such as wealth management continue to generate growth through a you am expansion deluded earnings per share were a dollar thirty one or dollars thirty five on an adjusted basis and increase from ninety six cents or dollar age adjusted per share from the same period and twenty twenty during the fourth quarter we successfully completed our capital plan with thirty three million dollars of share repurchases for the full year we balance core client loan growth a common dividends and two hundred million dollars and share repurchases to achieve our target c t one ratio of nine point five percent at year end with represents the middle of are operating range target for the upcoming year
spk_5: jamie will now share greater detail on the key initiatives and financial results for the quarter
spk_2: thank you kevin i'll begin on slide five we ended the year with total assets fifty seven point three billion dollars in loans of thirty nine point three billion dollars in the fourth quarter total loans excluding ppp balances were up one point four billion dollars or four percent from the prior quarter
spk_6: bolstered by strong commercial longer
spk_2: the commercial growth was broad based to profit businesses asset classes and markets and included robust production and several of our key business lines such as structured finance senior housing national accounts and commercial banking the positive momentum with also evident in theory
spk_6: driven by healthy industry fundamentals and are thing we achieved this growth while the hearing to our prudent underwriting standards and disciplined approach to portfolio management benefit from shooter growth initiatives are being realized and we're excited about the potential of the corporate in investment banking deemed be my baton dear doors and industry veteran who joined the team in november
spk_2: growth momentum into for was also supported by reduce pay offs and increase the and nine line use asian which increased approximately three hundred and forty basis points to forty three percent
spk_6: this is the first quarter where we have seen clear evidence of an inflection towards increase you as asian we also saw continued growth and commitments up four point four percent or five hundred and twelve million dollars which position that position as well for economic expansion particularly in the southeast were growth is expected to exceed national averages i continued mobilization of see and i line he was a on today's balance sheet would result in over three hundred and fifty million dollars in funding balances we should occur over time as liquidity subsides within our core consumer portfolio the tram remain somewhat mixed with growth and card and other consumer products be more than offset by continued declines and more it's in areas for consumer bounces declined twenty million dollars in the court looking outside of our core lending activities we did see a modest decline in our third party portfolios into for as purchases were more than offset by elevated pay down activity additionally our security for player into the quarter at eleven billion dollars a foreigner main hours in the prior quarter that aggro generally track that of overall balance sheet in are made and nineteen percent of total assets before for wales will remain central to our overall balance sheet management efforts and will continue to elaborate both as a means to manager capital and are little liquidity positions slide six highlights the deposit rooms for the fourth quarter as well as for the food four year twenty twenty one
spk_2: as you can see it was another very strong year for growth led back core transaction account balances which were up one point three billion dollars or four percent in the fourth quarter and up five point one billion dollars or sixteen percent for the for year
spk_6: notably the majority of the growth for the year was in non interest bearing deposits while we see continued strategic declines in time deposits
spk_2: for to for our total costs the deposits continue to decline to twelve basis points which was down one basis points from the third floor the fourth quarter also experienced seasonal inflows related to public funds while broker deposits are relatively stable both of these portfolios experience declines first one year ago and we expect further declines in the first quarter as seasonal balances normalized and as we further reduce broker balances
spk_6: in the first quarter we expect broker deposits to decline by approximately one to one and a half billion dollars as we efficiently manage our significant liquidity position five seven shows total net interest income goma three hundred and ninety two million dollars in the fourth quarter or three hundred and eighty million dollars excluding the impact of the paycheck protection program in i grows larger you resulted from strong ernie asset growth which began late in the third quarter and continued through the fourth quarter the net interest margin for the fourth quarter ended at two point nine six percent decline of five basis points from the prior quarter as expected to wind down of the paycheck protection program is serving as a notable and i haven't excluding the impact of ppp the margin was stable on the court our portfolio remains assets and stuff and stands to benefit from increases in raids across the yogurt to that an our know the much of the loan production we saw in the second half of twenty twenty one is variable rate the portion of our portfolio that is floating rate now stands at fifty eight percent which helps to support our in and i sensitivity estimated at an increase of six math percent for a one percent immediate increase and rates adjusted non interest revenue of one hundred and sixteen million dollars is highlighted on light a up two million dollars in the prior for this includes a one time eight million dollar increase a bully and gum that offsets or four million dollar reduction in mortgage income wealth management continue to see an increase in fy revenue and assets under management recording their seventh consecutive quarter of growth this growth is driven by continued strong plan acquisition and asset influences from a capital markets perspective we're a quarter another strong quarter despite overcoming head wounds from a large one time arrange your feet in the third quarter there was not expected to repeat as our commercial segments continue their robust growth we should expect to see continued stream from a ranger fees and swapping guns that would drive this line a full year basis and i are excluding security gains increased five percent despite headwinds driven by the normalization of mortgage ravenous drivers of this growth included wealth management and core banking fees which increased twenty four percent and twenty percent year over year respectively within core banking fees commercial cash management revenue increased ten million dollars or thirty four percent year over year this growth represents the momentum within our commercial segments including the deep the past relationships we have with our core customers blind nine highlights total adjusted non interest expense of two hundred and eighty six million dollars up nineteen million hours from the prior for
spk_2: this chain and we're both recurring expense increases and other notable expenses that we do not believe or repeating future course
spk_6: occurring expense increases total nine million dollars and were driven by several factors including growth initiatives related it's not this forward investments and tech and read risk infrastructure additional the i see expense and expenses related to normalize travel and entertainment's down other notable expense increase total ten million dollars and consisted of for main hours of incremental performance based management bonuses a four million dollar seed gift into a newly established donor advise fun and a two main our increase in health insurance expense driven by seasonal in pandemic related factors in spite of an elevator quarter of expenses you're able to manage to flat year by year just as expenses resulting in part of offering leverage and twenty twenty one benefits from the successful implementation of snow for initiatives can be seen and comparisons a key areas from twenty twenty to twenty twenty one particularly and base salaries are parties spend and real estate these are have helped lay the groundwork for future state or growth and distance the credit metres from fly can show continuing improvement now naughty categories the net charge of ratio fall loving basis points to point one one percent while criticizing classified loans declined sixteen percent bnp a ratio decline five basis points to point four zero percent and the npl ratio decline eight basis points to point three three percent
spk_2: due to drop one basis point to point one four percent excluding the increase from paycheck to action program loans
spk_6: there was a reversal of provision for credit losses or fifty five million dollars in the fourth quarter as further improvement in the economic outlook was partially offset by significant longer the a female ratio of excluding ppp loans decline twenty one basis points to keep one point two one person
spk_2: on flight eleven is a recap of our capital management efforts through twenty twenty one in the fourth quarter we executed the remaining thirty three million dollars of our twenty twenty one authorization and in doing so we ended a quarter with rct one ratio and nine math percent
spk_6: for the year we retired four point four million shares are approximate three percent of the common shares outstanding from the end of the prior year our ongoing capital management efforts have helped maintain strong and stable cabarets years which along with t v in our positions as well for continued balance sheet growth and twenty twenty two
spk_2: for twenty twenty two our capital plan continues the privatization of capital for client growth while returning an appropriate amount to our shareholders in the form of is evidence that includes an increase in the quarterly common shareholder dividends by one sense to thirty four sounds which would first be payable in april
spk_6: while our to twenty twenty two plan also includes authorization from the three hundred million hours and cherry purses our capital priorities are focus on supporting core client growth and managing r c one ratio around the target level of nine as personal as we look at we believe this focus
spk_2: on maintaining a strong capital position and prioritizing korver oath is not only in the best interest of our shareholders but also our clients our communities and our broader set of stakeholders attorney by the cabin for greater detail that includes or twenty twenty two hours thanks jamie excluding the impact of four hundred million dollars and remaining p three balances we expect loan girls have four to seven percent and twenty twenty two this growth assumes continued strong production and commercial lending some curtailment of prepayment activity particularly in this year he portfolio and relatively stable line utilization be adjusted revenue out to four to seven percent largely aligns with the current rate expectations assuming three fo nc rate hikes and excludes the impact of petri related revenue overall see income growth will be muted due to the industry wide reduction in secondary mortgage revenue however ever we expect continued growth and strategic be categories including core banking fees and wealth management
spk_7: are adjusted expense outlook of two to five percent incorporates increases in compensation i returned to pre pandemic travel and business development levels and includes our strategic investments and talent and technology x p three weeks back to continue to generate positive ah brain leverage and twenty twenty two while building out the bank of
spk_2: future benefits from sent over sword initials will continue to offset increased inflationary pressures and will remain discipline and agile and terms imagine expense grow throughout the year one significant efficiency initiative that is underway is the closing of an additional fifteen percent of our branch locations with an estimated one right savings of approximately twelve million dollars by year and moving the capital is jamie shared earlier we extended the upper range of are targeted c t one ratio by twenty five basis points providing a new range of nine point two five percent to nine point seven five percent this range will continue to support our strategic growth objectives while maintaining more than adequate protection against significant adverse conditions if they were to arise and in the terms of capital core relationship grows remains our top priority for capital deployment while whole bank him in a is not a priority we believe these expectations for twenty twenty to support our continued progress towards becoming a sustained top portal performer we have a tremendous amount of momentum and our core businesses and the team is performing at a very high level given the heightened levels of inflation it appears the interest rate environment will serve as a tail wow and and twenty twenty two as we continue to position the balance sheet for assets sensitivity we also believe that our strategic investments will begin to drive topline growth during the year we're making good progress on the build out of our banking as a service products called mast and are seen strong talent pipelines for the corporate an investment banking
spk_0: oh wow for all of these reasons my confidence and delivering on our twenty twenty two business and financial objectives is very high and i know our team is poised and ready to wear operator will now ready to begin to an a thank you will now begin the question and answer sessions tassie question you me press star than one on your tone some you're using a speaker phone please pick up your headset before pressing the keys to withdraw your question please post star and to
spk_8: in the interests of time please limit yourself to one question and one follow up at this time will pass momentarily to similar roster
spk_9: our first question comes from stephen alexa who from j p morgan please go ahead
spk_10: i morning everyone
spk_11: wednesday
spk_9: what's the start so inside five to thirty percent increase in productive productions us off the charts for you look at the charts more color and the increase was tied to existing customers getting more active or was this sure games coming through in the quarter
spk_1: it's the result is a little bit of and and when you look at the thirty percent you can look at it or both a significant increase in theory and when you look at the asset classes that we are able to increase production it led to growth and eight sub asset classes so we saw growth in warehouses we saw growth and hospitality shopping or senior housing and so was really across the board now in terms of new clients versus the of the existing book i came from both so we we continue to take share from other competitors at the same time we have
spk_8: seen our existing clients become a little more active from a demand standpoint similar story on d c and i sighed strong growth there as well or any be a look at it from a next codes for perspective you would see that cyber the next codes that we cover group greater than one hundred million dollars so very broad based again new clients as well
spk_10: well as existing customers line utilization actually increased about two hundred and thirty million dollars during the quarter and see an iso was about two percentage points and obviously that would have largely come from existing clients
spk_1: a tough opponent and then to pop sophie look at the outlook for forty seven percent longer than twenty twenty two without ppp a see are calling for legalization told about flat of prepayment activity to normalize some he understands the improved outlook look for twenty twenty two tied to eat these expectations for new client or on boarding or this because you're think prepayment levels are going to decline quite a bit and twenty twenty two know more more the former so as we look out into our forecasts and are pipelines we think production levels will remain elevated as we on board some of our new team members that will add edition all incremental production to what we're already doing so it's much more of a production story i think when you start breaking down the balance sheet next year just look at the commercial side we think we can grow mid to high single digit commercial loan growth next year we're keeping the third party consumer portfolio flat
spk_10: and the core won't go consumer portfolio may shrink a little bit just based on some of the turn that happening there so that did we mentioned that to pay off activity because the last two quarters we've seen about two billion dollars of pay off activities we generally have averaged over the last nine quarters about a billion five so
spk_8: oh it was elevated by about a half a billion dollars we think over the year that will continue to decline we saw a lot of activity especially on the c r he france given lower cap rates so we think that will subside but the bigger driver around loan growth in the mid to high single digit commercial loan growth is around production
spk_1: thanks that's really helpful the maybe kevin i could squeeze while more and see covered a lot in terms of what the company accomplish this year and i know the events or day actually twenty twenty one but the investor days around the corner from a revenue perspective maybe give us a bit of a teaser an investor daily like when initiatives are you most excited about for twenty twenty two on the revenue sides thanks well look at you know i think obviously the assets sensitivity that were putting ourselves in a position to be able to drive and i but from a revenue standpoint the initiatives i'll start with master at we talked a lot about how the industry is changing especially round small business i think that masters gonna give us a platform to provide the software providers a very flexible configurable brand of all embedded finance platform and as we talked with those software vendors yeah they haven't had an offering that combines both a banking as a service platform with a payments as a service platform so when we look at the uniqueness of what we're providing in the timing to be able to roll out our pilot and second quarter i think it has a tremendous opportunity to start to drive revenue next year now
spk_10: jamie mentioned in his comments that we are planning to invest and twenty twenty two and that's about twenty five million dollars worth of expense we think even on those initiatives will be able to record revenues that cover almost twenty million dollars of revenue during the year so we're not looking for large paybacks but
spk_0: a bit of those new initiatives will continue to build a through twenty twenty two and twenty twenty three the second i would mention is just our corporate investment bank we made great progress in just the short fifty days that tom dear dorf has been with us he is building pipelines and already starting to line up talent we expect on board as many as
spk_12: fifteen team members and the second quarter of this year and and those individuals will hit the ground running and also start to provide revenue
spk_1: terrific thanks for taking my questions thank you steve
spk_6: or next question comes from michael rose from raymond james please go ahead michael take more guys how are you more well
spk_13: are good so obviously the i was includes you know some rate hikes years is one or to get a sense for how rich to think about you know further build in the securities portfolio you know assuming we do get those those rates and and just remind us again
spk_6: you know where the comfort level is with the size of that for folio sex
spk_1: yeah michael that's a great question as we look forward and twenty twenty two we do expect to
spk_14: build or grow the series or foil on the margins where it nineteen percent assets today and and we could see getting up to twenty percent how but we're going be very prudent that and and really it's a reaction to all the other movements on the balance sheet as kevin kevin mention were forecasting strong client long road
spk_1: the least i got to continue we expect our deposit growth to allow us to continue to look at those makes of deposits but all those considerations play together but in our base case forecasts we do expect some marginal growth in the portfolio okay that's how for and then just fact alone so the rangers is somewhat wide which is which is understandable help us appreciate what factors would your drive towards the upper operands vs our and i assume it's a combination of of pay offs and pay downs and on utilization assumptions and things like that but if you can put a fighter for not it i'd appreciate it thanks yeah you know my closet you nailed it i think the we feel very confident in the production levels and and we're we're going into twenty twenty two assuming it's gonna be a very constructed economic environment obviously there are challenges still
spk_2: in front of us as it relates to supply chain and potentially that we don't know the impact of any other pandemic influences and so we we kept the range a little wider i think we were being conservative knowing that there are some things they are that continue to present some challenges and more importantly i would tell you that yeah
spk_6: we've kept the third parties that zero and that in this year's rep represented significant growth and if we see the same liquidity positioning that we have we hadn't twenty twenty one we also know that complex off and we haven't assume that into forecasts but it's more so just some of the unknown variables that that we kept or the range at that wide but we're we're very confident as as is imagine and the commercial lending side we solved tremendous momentum in the fourth quarter and we think that's gonna carry over into first quarter throughout this year ray far as i could just squeeze one last then you mentioned the three hundred million authorization bank at the sense that you guys are going to be really active with that five back yeah this year obviously given some of the the the investments that you're making is is that the way for i were to think about it thanks
spk_12: that is the right way to think about it i think that the fourth quarter is a really good example of how we plan to deploy capital if the environment remains as we expect and twenty twenty two
spk_0: you look at our capital generation that people are catholic generation of forty six basis points and any nat out the dividend ah yes you have an accretion in the mid thirties
spk_15: and that's exactly what we deployed to risk way to at the core client loan growth in the fourth quarter now that's a that's a pretty high growth rates but that's the context of how we will look to manage it is to deploy the capital we generate through warnings to our clients on balance sheet
spk_16: and then we will use sherry parses ever toggle on the back in to manage our capital as eg one ratios to the dog very helpful thanks to take my questions thank you michael or next question comes from he for him poon walla from bank of america
spk_1: the morning mourning mourning
spk_9: yes now just don't know maybe it's just me but
spk_11: in of in a world where like nominal gdp gonna be media seventy percent and twenty twenty two things that you shouldn't be much stronger us given all the investments you made given defense age exposure to atlanta us
spk_1: talk to us in terms of upside disks in also it's you could remind us what normalization in line utilization implies for a loan balances i know it's or heartbeat into your forecasts as be a good met number to have in dozens of what zone balance is good look like of things actually normalized abraham out i'll start with added we we with the slight increase that we saw the fourth quarter if if things normalized back and that mid forty percent range we're talking about another five hundred million plus an outstanding
spk_16: i'm and and we were not including that and in our forecasts are back to your point in terms of if we saw seven percent gdp growth i think you would see line utilization increase and again not not included in our sanctions and we went into are forecasting for next year assuming gdp and the three to four percent range and we we think that if if the economy is stronger than that obviously to your point there could be upsides i just mentioned that there's upside if we decide to deploy additional capital and liquidity into the third party partnership loans and you are or bankers have continue to produce at a higher level than what we thought so
spk_6: the real driver there is the productivity level of our bankers and you're right we have markets that are performing very well atlanta continues to performed very well and we're bringing on new talent in florida in our corporate in investment banking world and so the faster the those individuals on board additional talent and we built budget for that the fast food alone growth will calm and so there are a lot of variables we we wanted to see and forecasts what we see in front of us are based on the economic forecasts that we have and based on the team members in the expectations for those folks but obviously there's an opportunity to outperform if we hit on all the cylinders that his game and thank you insists on a separate question they see your adjusted avenue guidance ah but if he can just come on back on the seat of a new outlook of this new building on to corporate investment bank do us a sense of the put syntax and on the seat avenue is that one out for fall under performed at adjusted avenue guidance in what to put some pizza yeah ibrahim you know as we look forward and twenty twenty two on the on the revenue
spk_16: we do expect the ravages be down year over year and the reason for that is with their headwinds in mortgage as you look at the normalization a mortgage and to add those strong quarters in early twenty twenty one how to excite more revenue to be down higher interest rates will impact production there
spk_1: ah but then we also had benefits and fee revenue and both bolin income as well as equity gains and twenty twenty one either we're not expecting to recur and twenty twenty two so those are more environmental headwinds but i wouldn't i don't want that to take away from the brawl based growth that we expect to see it really every other line item outside of enough south as we look forward and a twenty twenty two i'm in our core core banking fees the deposit service charge card fees were expecting broad based growth across the board outside of those both unique to twenty twenty one headwinds and the mortgage normalization but if i can just still sneaking one follow up on that do this and bank best out and i'm assuming you have some of the seems to have invested but does give us a sense of the ramp up in terms of hiding that you doing right now in are the any certain verticals that you're particularly focused on as you build build that out
spk_16: yeah abrahams i'm so we we're focusing on three initial verticals attack in media communications health care and the financial institutions groups and one of the things that we that time to do is to time the such that as you know the time of year we're we're not recruiting people to come in today we're
spk_1: we're waiting for them to finish out there year and and receive their bonus payments from their previous institution and so you would expect to see probably the said fifteen folks join us in the second quarter maybe even early third quarter from a time in standpoint and so at we're looking for teams of individuals the fit those those specific industry verticals and to your point on c and calm i think what you're going to see in the beginning is a lot of coverage banking so you're going to see the traditional lending capabilities with our syndicated finance
spk_0: opportunity to offload some of those outstanding jurgen see that the to depository and treasury business for now over time will continue to build out some of the capital market solutions that those size clients neat and so it would be an increase that capital markets capability it may be things like securitizations but a ridge
spk_17: only deep these guys are going to focus on just pick the coverage back inside so you'll see it more on the and i sighed and with you'll see on that on the the income side to to begin with
spk_18: but it and i assume that there are some of this hiding is baked into your expense guide for the other two provided it it is and so as i mentioned earlier week we've included about twenty five million dollars for all of our investments in the twenty twenty two expense
spk_19: guidance and that includes things like see i be it includes mask but it also includes building out our middle market teams in florida so are are guidance that we've provided you would be inclusive of all of those investments as i mentioned earlier we think that twenty five million dollars could generate as much as twenty million dollars in revenue next year so you can see it's a fairly quick a payback period when we make as investments the thinking
spk_11: the next question comes from bad brad millsap from piper sandler please go ahead
spk_20: a good morning
spk_6: good morning breath saying thanks for take my questions and to i was just curious if you could offer maybe a little more color around just your how as sensitive you are and as you give the interest rate table on the deck but downstairs if you could even maybe define just maybe basis points kind of what you feel like you know each rate increase would have in terms of impact in the name and and how much how much a rate support any have three in there but they be on a personal basis what what what percentage of that of your revenue it's in in in twenty twenty two that that would the related rates yeah so first off as you can look at our core balance sheet you look at the ratio of floated flooding er loans to total loans you can see that increasing overtime so are our native asset sensitivity is increase and and we're pleased with that get given i'll look for interest rates further the exposure relative exposure to the front of the curve will increase as long term rates increase in premium memorization declined so so you'll see that happening as as we have these increases and and longer term interest rates are they were see
spk_2: as of the as of year round and that's where where metrics or learns that are out of exposure between the short and long and the car was relatively balanced when you assume a thirty five beta and that's our through the cycle estimate that embedded in our in i i sensitivity tables
spk_6: but we believe it's likely depending on the velocity and the magnitude of right moves that the deposit beta is lower in the initial stages of of ads hiding cycle and so if you to isolate that sensitivity
spk_19: to the front of the car of and hold them back into the curve constant and use a twenty beta for example and that was consistent with our revenue guidance
spk_2: we decide the margin to expand approximately three basis points in the first right move and for basis points thereafter
spk_6: and and to your question rabbit total impact of as far as our guide and of or forty seven percent revenue growth our expectations for right moves are april august december so obviously december does not have much of an impact for for this year but you can take about the partial year impact of april one august and as is less than one percent of that total revenue pray thank you and then just as much all up to just on the credit saudi equation you guys were you around twenty one days pointed towards us with your i think that's pretty well lie with your twenty to twenty five any any change in the way you're thinking about that in twenty twenty two and immutable site you you kind of exhausted most of your ability to to take down the reserve but digits any comments around now the up for well no changes in i'll lock medium term outlook for charge off you're right below twenty the area it is you know a good baseline as with as we look forward to twenty twenty two
spk_21: with regards to the allowance and our life alone estimates and rc to calculations
spk_0: if the the economic outlook continues to improve and uncertainty declines in the outlook
spk_22: can we do still expect to see daisy out alone ratio to decline
spk_23: it to approximately the day one levels for us at one point six percent i'm obviously loan makes low but different today than it was back a couple years ago but
spk_24: we do believe the day one levels are you know an appropriate outlook for the medium term
spk_1: great thank you like you the next question comes from jan jennifer damper from through a securities please go ahead the morning
spk_25: that one of the topic happy to see i be
spk_11: seven limits loud and see and on grandson think this to represent us know the sort of the next few years key sides the opportunity for us
spk_25: ah yes
spk_1: yeah jennifer i think know what we've said is that we think in the first three years this can contribute upwards of three billion dollars of loans from a commitment standpoint but all of that is predicated on the fact that we recruit the teams that that were that were targeting and we bring him and at within the time frames that we've established but i just can be a meaningful impact to our overall balance sheet by your based on the size amount you can see that it's it's i've seen to be less than ten percent of total loans but from a fee income same points as i mentioned earlier it's gonna start off as being a relatively and i am more of our and about and i i story just based on the coverage nature of these bankers but over time i will continue to add capabilities and just the size of their business from a treasuries damn point there will be fee income that's generated there but we haven't shared at this point because it's such a a tough number tap to be able to provide without knowing the timing and the size of the teams that will be able to on board are you finding their creating environment for this effort as in the sun in in today's landscape getting wrists we're seeing so much wage inflation right now
spk_0: just just and see id jennifer
spk_26: yes and otherwise it's a one thousand yeah
spk_27: yeah we'll look i think you're the the way which route you recruit and environments like this number one is you have to offer a flat yet all for up a platform for which bankers want to come in and work at and one of the reasons that your tom dear to our came here in and he's gonna be at are invested a so you'll get a chance to meet him at was the attraction have been able to come to a bank
spk_28: that is of our size that has the capabilities and functionality that we have but provides an environment that allows those bankers to really serve their clients and so our platform is very attractive to those does bankers especially from a corporate investment banking sides to your salary is obviously important
spk_11: you'll hear that from us as we look at our expense guidance we were we recognize the changing landscape around our salary inflation but i don't think that's the most important thing we have to provide an incentive plan that is that allows individuals to be paid for their success and and world we we were building that as we speak and that
spk_12: one that will attract folks here and then lastly yeah i would tell you that your that the that people like tom who are well respected leaders in the industry they attract people because they they know that these individuals have at that time has a great track record of success and that are they want to come work for for folks like himself
spk_1: you have the right leaders you have the right can't packages and you get on the right platform or you can attract top talent from around the industry
spk_11: summit
spk_6: the next question comes from brody president from stevens inc please go ahead
spk_1: a good morning everyone
spk_29: and warner abroad
spk_6: i so i wanted to follow up on the fee income comments jamie said he expected to be and down this year and i know that includes you know some some securities games and and some one time as boldly but i guess if we if we strip all of that out
spk_2: you know i have you had like a hundred nine million and course the income this quarter and so just because given the pipeline en masse given all the investments you've made in you made on the fee income side of the house you know maybe setting see i be a side to that ah that's a longer along retail on on that revenue source but i guess i'm struggling to see why the why the revenue guide would be down from here because it would kind of implied about one oh nine is what you're expecting for the run rate for next year lease on a core basis and so they resist
spk_13: some some greater clarity they're setting aside kind of the one time items of be helpful
spk_6: yeah good good question and to dive into that a little bit and they were we still with you look at the growth and wealth management sees me as a sustained growth rate if you look at our core banking fees we feel really good about the sustained growth rate of those businesses and even core banking fees it had a really strong twenty twenty one we're expecting those to continue increasing in the high single digits
spk_2: and twenty twenty two
spk_1: and so we're we do expect to see this broad based growth continues and you know the headwinds though are fairly significant other you have approximately
spk_11: the ten million dollar a year over year change and in bali and com yeah have a little less than ten million dollars on games on equity investments
spk_1: in you have normalization a mortgage and in percentage terms these are a large headwinds and they have nothing to do with our core business performance
spk_6: of what we're doing our but they are headwinds when you have when you're comparing a year over year and so we believe that that initiatives like mast we believe that initiatives like see be when you think about
spk_1: the the revenue and that business we believe those will all be tail tailwind to and i are growth but as kevin just mentioned that likely to be a little delayed than just coming in and having a full year twenty twenty two benefit and so will we will speak more to the financial statement impact longer term
spk_6: in a in a couple weeks we have a better day but that we believe that we have a platform is actually proven task sustainable strong the revenue growth and we're going to augment that with the strategic initiatives
spk_1: unfortunately and twenty twenty two we have this headwind of more is normalization and then these other one off and equity investments and bowl he said as much kind of a little deeper dive into the full story okay got it and then maybe us on the the expense front so if i if i strip out you know if i strip out a one time items including the the donation that shall set up a black steel core expenses run in about two hundred and eighty two million or so and so you know looking at the guide and side and looking at fourth quarter results it's a kind of implies that you know you would expect expenses to be flattened shrum this fourth quarter
spk_30: level on average throughout the rest of the year just taken the midpoint of the guidance is that an accurate assessment and i guess is there anything beyond the branch closures an earlier kevin that are driving us
spk_1: yeah that's that's a fair assumption and another way to look at that is if you roll forward from the third quarter and then add what we define as recurring expenses the nine million dollars an hour presentation you get to the mid to seventies and what you should expect to see in the first voters the normal seasonal employment expenses approximately seven million dollars and you add that on and so to your point that gets you into the low two ladies and we believe that beyond the first quarter that's when you'll start to see the norm one place
spk_6: mary pressures that come from employment expanse married increases etc but also our just you know included in that guidance has cabin mentioned is approximately twenty five million hours to spend on these growth initiative so yeah what do you see in there is growth initiatives band normal personnel expense increases our role and for from from the into this year
spk_31: in and out that ready asked from snopes and point we we have an appendix why they're that you can see we have another fifteen to twenty million dollars of savings that will come in throughout the year we reference to twelve million on branch at we have other savings as it relates to third party stand and and smaller items that add up to that number but add to be be
spk_0: three clear as janey mentioned what we're going to be monitoring the expenses throughout the year i think we've proven this year with been able to go through a year and and have our expenses flat and so when you take our guidance for next year and this year over a two year period of seen some of the high inflation or that that i've seen him in my time a bank
spk_32: aimed at will be able to keep art total expense growth of that two years into that you have two to five percent growth range so at will continue to pull the lever we have to pull out we've been very i think forthright in some of the initiatives that we've already executed on that's delivered fifty five million dollars and expense reductions are headcounts down five percent
spk_33: yeah every year and so we we we know that we have to look at the environment and every dollar that we can generate a new efficiency initiative from it allows us to either drop into the bottom line or invest more in some of the strategic initiatives that we've that we've established yeah to thank you for that if i could sneak just a quick wanting your mommy what the effect of duration of a securities portfolio and the diablo know what percent of the securities portfolio is floating rate
spk_6: the duration of the stories for voice just under four years approximately three point seven years and and i don't have the percent that's floating rate top of hands a bubble will get se thank you very much our next question comes from zero shaw from wells fargo securities please go ahead a good morning journaling up on the on the growth targets how are you expecting and which which your view for funding on that in terms of the expectation for deposit growth as was cash deployment into into those long categories and looking at some of those more optional years he talks alex as a third party
spk_33: originators is i've really more going to be dependent upon liquid than anything else yeah you know as we look at funding the loan growth we're no we're in a very strong liquidity position and so
spk_13: we do expect there to be a deposit growth tailwind are continues and twenty twenty two
spk_0: but we believe that even with this growth outlook and in our thinking about asset growth and twenty twenty two including the series growth
spk_1: it's debt that we will still have the opportunity to improve our deposit mix and so what you should expect to see the masses who transaction deposit growth
spk_34: being nat west or continue to an auction and broker deposits continued with reduction an hour time deposits as we manage that mix and so are we believe that we have plenty of flexibility to do that
spk_1: and that's that's our outlook for funding for funding the long growth with guards to the third party portfolio you know we do view that as a surrogate for this investment portfolio
spk_35: and we will look to deploy assets into the into a third party loans as appropriate you can see in the third emmy and the fourth quarter that are that portfolio was down quarter on quarter but as largely due to the fact that we didn't feel compelled to and vast and and chase
spk_1: it assets an apple fillet when we had such strong claim long growth which is our priority okay thanks and enda som on the expense savings coming from from the branch optimization should be expected that equally spread throughout the year or is that really more back and loaded
spk_36: that's right be evenly spread throughout the year
spk_1: thank you the next question comes from kevin fitzsimmons from the a davidson please go ahead a good morning everyone c'mon ago sobs the most of my questions have been asked but one thing that's i'm i'm just curious about when thinking about the franchise kevin looking know i know this year the focus is really on tom finalized her are getting them to finish savings from snobs forward and and these investments and see id and in other areas but when you
spk_35: and i appreciate your comment about him in a that's that's really not a focus for you have a way you think about
spk_0: the prospects of
spk_37: thing on certain markets say in north carolina
spk_1: you know maybe that's not an opportune for this sheer made it's more next year if if you don't go about it or for you wanna avoid emanate is is it on on the radar at all to look to do list outs of teams and certain metro markets in north carolina into to those seem like they would be very attractive markets for you to add from a bank perspective but maybe the investments are really are for the opportunity for investing spoken for and twenty two maybe just more that's when three work beyond item but just wondering how you think i'm fast long term that prospect thanks yeah kevin it it's a great question because i think that as as we transform back into this growth orientations there's a
spk_9: lot of opportunities to expand our talents we actually do have a small alone production office in charlotte today
spk_37: but it's it's not i'm a meaningful a portfolio of my belief is that i would rather go out and build industry expertise through some of our specialty verticals and have those individuals not be limited by geography so that technically they can be national air in in there there
spk_1: portfolio vs at constraining a a new lpl in a north carolina markets are because i think that your it's very difficult i believe to go in with a general was banker in a marketplace where you don't have a strong brand and generate the type of value added i think we are generating with somebody says
spk_14: specialty industry vertical hires that we've been able to make so although i would never say never it would be low on on my priorities i think we have a tremendous opportunity first and foremost to continue to invest in the five day footprint that we serve we continue to be able to pick up great talent from other institutions that are
spk_1: creating growth in our existing markets we've we've announced recently to great hires in the middle market space in florida so we're going to focus inside our footprint we're going to continue to add some specialty a skillset around as the the industry verticals and and go down the road never say never but she's not a top priority got it great thanks very much gas
spk_14: thank you
spk_1: as a cook reminder please limit yourself to one question and one follow us or next questions comes from christopher meronek from jenny mchenry scott please go ahead the information this morning on the job of this one asked about the pipeline and the wealth management stacey mention the family office clothes and twenty one just to instead of with the pipeline looks like city and of several course
spk_37: yeah be phenomenal growth they're dressed so when you look at the twelve first your are are i was mainly officer that an asset management for for live about ten billion dollars so i think that there's a x x or execution the they had this past year is indicative of the type of skillset we have and that team but it also
spk_0: this is a function of the way in which they go to market their not just asset managers these are are offering there is a business that goes out into these generation all have families and provides full service and i think it is a unique value proposition and we want a lot of awards for be recognized for being you
spk_1: so i think you can change see that business grow our leader their katherine dunn levy said out a plan several years ago to double the size of her business and she's well on track and be able to deliver on that so we've we're confident that she will continue to grow that business and it it'll be something that will continue to provide not only growth on the feet i but also on the assets under management side i can answer to that and by quick fall off just has to do with the the moon on receivable business like awesome turns sense that something must digitizing what all over the existence another source of the brand new product offerings the i missed the first part just saw the receive for the me receive our business and noble them kinda detail as a couple generally just curious if that's digitizing something that already exists or is it from this that's right now it's it's brand new so we would we what we're providing is a suite of products for our clients to better manage their receivables process so on imagine today you have a a clerk who's matching invoices with payments and the product that we provide provides artificial intelligence that allows that process to happen behind the scenes so it makes our clients much more efficient and not needing a clerk to do that it makes it obviously a quicker process in general so so we built a really strong pipeline with that product and and were out selling it to our clients today the really exciting part is will have a similar product for the accounts payable side that will roll out in the latter half of twenty twenty two or that would provide a similar functionality for for our commercial payments platforms
spk_0: critics overtime asking the lead to additional love the business of attention additional fees as as such as price absolutely i think we said last quarter are pipeline with the accelerate a are was right around six million dollars and product revenue and so overtime those will continue to grow in and that's what's gonna fuel or lot of our treasury growth going forward to this point catherine weiss logo and her team have done a great job of deepening the wallet share with in treasury we now are starting to expand with these new businesses where she's getting a new sandbox to play and but she's also add a new solutions that will also add to that revenue
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