NYSE:RF Regions Financial Q4 2023 Earnings Report $20.28 -0.26 (-1.27%) Closing price 03:59 PM EasternExtended Trading$20.25 -0.03 (-0.15%) As of 06:41 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Regions Financial EPS ResultsActual EPS$0.39Consensus EPS $0.48Beat/MissMissed by -$0.09One Year Ago EPS$0.67Regions Financial Revenue ResultsActual Revenue$1.81 billionExpected Revenue$1.80 billionBeat/MissBeat by +$11.58 millionYoY Revenue Growth-9.50%Regions Financial Announcement DetailsQuarterQ4 2023Date1/19/2024TimeBefore Market OpensConference Call DateFriday, January 19, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Regions Financial Q4 2023 Earnings Call TranscriptProvided by QuartrJanuary 19, 2024 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00morning, and welcome to Speaker 100:00:01the Regions Financial Corporation's Quarterly Earnings Call. My name is Christine, and I'll be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. I will now turn the call over to Dana Nolan to begin. Speaker 200:00:25Thank you, Christine. Welcome to Regions 4th quarter 2023 earnings call. John and David will provide high level commentary regarding our results. Earnings documents, which include our forward looking statement disclaimer and non GAAP information are available in the Investor Relations section of our website. These disclosures cover our presentation materials, prepared comments and Q and A. Speaker 200:00:50I will now turn the call over to John. Speaker 300:00:53Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. This morning, we reported full year 2023 earnings of $2,000,000,000 reflecting record pre tax pre provision income of $3,200,000,000 and one of the best returns on average tangible common equity in our peer group at 22%. Our results speak to and underscore the comprehensive work that's taken place over the past decade to position the company to generate consistent, sustainable earnings regardless of the economic environment we are experiencing. We've enhanced our credit and interest rate risk management processes and platforms while sharpening our focus on risk adjusted returns and capital allocation. Speaker 300:01:41Although the industry continues to face headwinds from lingering economic and geopolitical uncertainty as well as the continued evolution of the regulatory framework. We feel confident about our positioning and adaptability heading into 2024. We will continue to benefit from our strong diverse balance sheet, solid capital and liquidity and prudent credit risk management. Our proactive hedging strategies continue to position us for success in an array of economic conditions. In our desirable footprint, granular deposit base and relationship banking approach will continue to serve us well. Speaker 300:02:23Our strategic plan continues to deliver consistent, sustainable long term performance as we focus on soundness, Profitability and growth. In closing, I'm excited to work alongside the 20,000 regions associates who put customers and their needs at the center of all we do and focus on doing the right things the right way every day. Now Dave will provide some highlights regarding the quarter. Speaker 400:02:50Thank you, John. Let's start with the balance sheet. Average and ending loans decreased modestly on a sequential quarter basis, while ending loans grew a little over 1% compared to the prior year. Within the business portfolio, average and ending loans declined 1% quarter over quarter. We are remaining judicious, preserving capital for business where we can have a full relationship. Speaker 400:03:14Loan demand remains soft as clients continue to exhibit cautious behavior. We are seeing clients make long term investments when they have to, but if they can defer, they're holding off. In general, sentiment varies across industries with some continuing to expect growth, while others have a more muted outlook. Average and ending consumer loans remained relatively stable as growth in mortgage and interbank was partially offset by declines in home equity and the GreenSky exit portfolio sale we completed this quarter. Looking forward, we expect 2024 average loan growth to be in the low single digits. Speaker 400:03:57From a deposit standpoint, Deposits increased modestly on an average and ending basis primarily due to increases in interest bearing business products, which we expect will partially reverse with tax season in the Q1. Across all three businesses, we continue to experience remixing from non interest bearing to interest bearing deposits. However, the pace of remixing has slowed. Within consumer, we continue to see balanced normalization, but we believe the pace of remixing will continue to slow As short term market rates appear to have peaked and the relationship of checking balances to spending levels is getting closer to pre pandemic levels. Our overall views on deposit balances and rates are unchanged. Speaker 400:04:47We expect incremental remixing out of low cost savings and checking products of between $2,000,000,000 $3,000,000,000 and total balances stabilizing by mid year. This results in a non interest bearing mix percentage remaining in the low 30% range. So let's shift to net interest income. Net interest income declined by approximately 4.5% in the quarter, driven mostly by deposit cost and mix normalization as well as the start of the active period on $3,000,000,000 of incremental hedging. Asset yields benefited from the maturity and replacement of lower yielding fixed rate loans and securities. Speaker 400:05:33Notably, during the quarter, we returned to full reinvestment of pay downs in the securities portfolio and added $500,000,000 over and above that to the portfolio balance, taking advantage of attractive market rate and spread levels. Interest bearing deposit costs were 2.14% in the quarter, representing a 39% rising rate cycle beta. Growth in higher cost corporate deposits increased our reported deposit betas by approximately 1% but allowed for the termination of all outstanding FHLB advances. This and a more pronounced Slowing in the pace of rate seeking behavior by retail customers drove modest net interest income outperformance compared to expectations. As we look to 2024, we expect net interest income trends to stabilize over the first half of the year and grow over the back half of the year. Speaker 400:06:34Dollars 3,000,000,000 of additional forward starting hedges in the first quarter And further, late cycle deposit remixing will be a headwind. However, we expect deposit trends to continue to improve With interest bearing betas peaking in the mid-forty percent range, the benefits of fixed rate asset turnover will persist, overcoming the headwinds and driving net interest income growth in the second half of the year. With respect to outlook, we expect full year 2024 net interest income to be between $4,700,000,000 and $4,800,000,000 Our guidance assumes 4 25 basis point rate cuts with long term rates remaining stable from year end. However, the path for net income is well insulated from changes in market interest rates. The primary driver of net interest income in 2024 will be deposit performance. Speaker 400:07:42The lower end of our expected 2024 net interest income range assumes a 25% beta as rates fall, while the higher end assumes a deposit beta similar to what we have experienced during the rising rate environment. In a falling rate environment, we are prepared to manage deposit costs lower to the margin. A relatively small portion of interest bearing deposit balances is responsible for the majority of the deposit cost increase the cycle. These market price deposits include index and other high beta corporate deposit types that will reprice immediately with Fed funds. The other primary contributor is CDs with a 7 month average maturity. Speaker 400:08:32While these products will lag in a falling rate environment, we are positioned to offset this cost. So let's take a look at fee revenue and expense. Adjusted non interest income increased 2% during the quarter as a sequential decline in capital markets was offset by modest increases in most other categories. Full year adjusted non interest income declined 5%, primarily due to reductions in capital markets and mortgage income as well as the impact of the company's overdraft grace feature implemented late in the second quarter. Partially offsetting these declines were new records in 2023 for both treasury management and wealth management revenue. Speaker 400:09:20With respect to outlook, we expect full year 2024 adjusted non interest income to be between 2.3 and $2,400,000,000 Let's move on to non interest expense. Reported non interest expense increased 8% compared to the prior quarter, but included 2 significant adjusted items, $119,000,000 for the FDIC special assessment and $28,000,000 in severance related costs. Adjusted non interest expense decreased 5%, driven primarily by lower operational losses. Full year adjusted non interest expense increased 9.7% or approximately 6%, excluding elevated operational losses experienced primarily in the 2nd and third quarters. We remain committed to prudently managing expenses to fund investments in our business. Speaker 400:10:21We will continue focusing on our largest expense categories, which include salaries and benefits, occupancy and vendor spend. We expect full year 2024 adjusted non interest expenses to be approximately $4,100,000,000 From an asset quality standpoint, overall credit performance continues to normalize as expected. Reported annualized net charge offs for the 4th quarter increased 14 basis points. However, Excluding the impact of the GreenSky loan sale, adjusted net charge offs decreased 1 basis point versus the prior quarter to 39 basis points. Full year adjusted net charge offs were 37 basis points. Speaker 400:11:11Total non performing loans and business services criticized loans increased during the quarter. Nonperforming loans as a percentage of total loans increased to 82 basis points due primarily the downgrades within industries previously identified as higher risk. Keep in mind, between 2013 In 2019, our average NPL ratio was 107 basis points. We expect to see further normalization towards these levels in 20 provision expense was $155,000,000 or $23,000,000 in excess of net charge offs and includes an $8,000,000 net provision expense related to the consumer loan sale. The allowance for credit loss ratio increased 3 basis points to 1.73%. Speaker 400:12:10Excluding the loan portfolio sold during the quarter, the allowance for credit loss ratio would have increased 6 basis points. The increase to our allowance was primarily due to adverse risk migration and continued credit quality normalization as well as higher qualitative adjustments for incremental risk in certain higher risk portfolios. Our average net charge offs from 2013 to 2019 were 46 basis points. We've seen modest acceleration towards these normalized levels in recent quarters. As a result, we expect our full year 2024 net charge off ratio to be between 40 50 basis points. Speaker 400:12:59Turning to capital and liquidity. Given the evolution of the regulatory environment, we expect to maintain our common equity Tier 1 ratio around 10% over the near term. This level will provide sufficient flexibility to meet the proposed changes Along the implementation time line, while supporting strategic growth objectives, it allow us to continue to increase the dividend commensurate with earnings. We ended the year with an estimated common equity Tier 1 ratio of 10.2% while executing $252,000,000 in share repurchases and $223,000,000 and common dividends during the quarter. With that, we'll move to the Q and A portion of the call. Speaker 100:13:50Thank you. We will now be conducting a question and answer session. Speaker 500:14:08Thank Speaker 100:14:12you. Our first question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Speaker 600:14:18Good Thank you for taking the question. Excuse me. Appreciate the comments on the main levers for NII or within NII for your guidance. I was hoping you could discuss a little more about the deposit repricing thoughts that you had. Maybe specifically thoughts about sort of the bifurcation between commercial and Consumer deposits? Speaker 600:14:44And then just any opportunities you've seen with the Fed already having sort of peaked out presumably? Any opportunities you've had already to maybe take some actions to ease the pressure on costs? Speaker 400:14:56Sure, Scott. This is David. One important thing to note is that about 30% of our customer base is really the driver of our interest bearing deposit beta. If you look at that, a little over half of that's related to our commercial book and those deposits are indexed. So to the extent the Fed changes rates, those Windex today that changes. Speaker 400:15:20So you're talking about roughly 55%, almost 60 So that will come down as rates come down. The other, represents consumer deposits. So these have been CDs and money market accounts there where we've seen migration out of non interest bearing accounts. The money market piece, both of these have to be competitive. We have to watch What our competitors are doing to some degree, but we have mechanisms to really start working that down. Speaker 400:15:52Part of that is making sure we don't go too long on our CD maturities. So we've been fairly short. I think I mentioned in the prepared comments, our Average CD term is 7 months. And so we don't want to extend that much going forward. As a matter of fact, we'd like to shorten that The coincide with what we think is going to happen with the Fed, now we have 4 cuts baked in to our guidance to hit the midpoint of our Guidance, which is on Page 6 of our presentation. Speaker 400:16:25And we think that starts probably at the May meeting. And we know that's different than what the market participants believe, but we think that that's going to I think it's going to be slower versus faster. It's important to note we're neutral to short term rates. And so it's all about managing our deposit costs. And I think we have a good plan to do so. Speaker 400:16:48We've given you really a range. It's a pretty tight range on NII performance on the Page 6. And we kind of talk about betas. So if our betas kind of follow what we had and As rates have gone up, we're at 39 today. We said we'd probably finish in the mid-40s. Speaker 400:17:06If we have that coming back down, then we'll be at the upper end of our range. If we're only at 25% beta as rates come down, knowing things won't match perfectly, then we'd be at the lower end of the range. So our midpoint is a 35% beta, which we think is very doable, in particular, relative to that half of that a little over half of that is related to index deposit on the commercial side. Speaker 600:17:32Perfect. Thanks for that color, David. And then maybe on the lending side, you noted soft client demand, which is very understandable. Just curious, how you expect demand to trend as the year unfolds? Speaker 300:17:46Yes. Scott, this is John. I would our current Projections are we believe economic activity picks up towards the second half of the year, and we believe we will experience some growth in core middle market banking and small business banking through our Sentient platform asset based lending, which would be typical of this period of time. And on the consumer side, mortgage and interbank continue to contribute to growth. Again, any growth we have will be modest and will occur likely towards the back half of the year. Speaker 700:18:20Yes, perfect. Speaker 600:18:21All right. Thank you all very much. Speaker 100:18:26Our next question comes from the line of Ebrahim Kounawala with Bank of America. Please proceed with your question. Speaker 400:18:33Good morning. Operator00:18:34Hey, good morning. Just maybe wanted to follow-up on the fee income guide. Maybe if you can delve into Where do you see growth across fee revenue, particularly what are you assuming in there For Capital Markets, was it weakish 4th quarter? So would love to hear outlook on Capital Markets income within fields? And then do you expect to do more purchases for mortgage servicing rights as you did in the quarter and should that boost mortgage income? Operator00:19:03Thank you. Speaker 400:19:05Yes. So your first point on Capital Markets, we had a pretty tough Capital Markets finish in the 4th quarter. A bit of that is timing. We think some deals in particular in the M and A world got pushed into the Q1. The rate environment has really hampered our Real Estate Corporate Banking income line a bit. Speaker 400:19:28We think those rebound both of those rebound. We think M and A has a Tennessee, a chance to pick up probably towards the back half of the year after we've seen a little bit of rate relief, If you will, so we have a pretty good feel about our capital markets rebound for 2024. Relative to mortgage servicing rights, as you know, we have good capital position. We look to support our business to grow our loan book. Think loan growth will be muted. Speaker 400:20:02So we look to other ways to put the capital to work. Mortgage servicing rights has been one of those. We feel good about that asset class because we're good at it. We have a low cost servicing group and We're looking to grow when packages make sense and the economics work to our advantage. There have been a number of those on the market. Speaker 400:20:27If we can hit the bid that we have to make sure we get appropriate risk adjusted return, we'll do that. We suspect there'll be a couple of opportunities during the year as there usually are. But we have room to grow that without adding a lot of fixed overhead, have to add people to do the servicing, but we don't have to add a lot of fixed overhead. Speaker 300:20:47Yes. I'd just add 2 things, Ebrahim. One is we continue to grow consumer checking accounts and consumer households. That contributes to growth. Secondly, we had the best year we probably ever had in treasury management as we see increases in the number of operating accounts that we are originating and services we're providing to customers. Speaker 300:21:10And finally, Wealth Management had maybe the best year it's had certainly in some time, and we expect Wealth Management fee revenue to continue to grow in 2024. Operator00:21:21That's helpful. And just one other one, David. I guess the one flex on deposit pricing is loan to deposit ratio at 77%. Just give us a sense of is this steady state in somewhere in the mid to high 70s where you see running the bank going forward? Or if rates get cut, you could see this ratio drift into the 80s and that probably provides you some pricing flexibility? Operator00:21:45Thank you. Speaker 400:21:46Yes. So we really don't run the bank trying to solve for our loan deposit ratio. It's just kind of result of all of our activities that we have. At 77%, we're a little bit lower than the peer median by 2, 3 points. It gives us some flexibility to not have to put A lot of pressure on the deposit base. Speaker 400:22:06Remember my opening comments where we want to be fair and balanced with regards to our customers making sure that We're competitive, but we don't have to push. We don't have to be at the upper end of pricing just to maintain those deposits. We have a good core deposit base And it gives us flexibility to not have to chase with rate. And that's why our deposit costs have a tendency to be a bit lower across the board. Operator00:22:35Thank you. Speaker 100:22:39Our next question comes from the line of Manav Gathalia with Morgan Stanley. Please proceed with your question. Good Speaker 800:22:46morning. Speaker 900:22:49I think you mentioned earlier on in the call that clients are deferring longer term investments if they can. Can you talk about what's driving that? Is it just rates and they're waiting for rates to come down? Is part of it the environment, they need more certainty there? So any light on your conversations there would be helpful. Speaker 300:23:09Yes. I think probably all of the above. Clearly, rising interest rates have had some impact. Rising cost, Cost of goods, cost of labor has had an impact. And then uncertainty related to the economy, geopolitical conditions, the political environment Here in the U. Speaker 300:23:27S, all have, I think, created some restraint. Borrowers are, I believe more optimistic today than they were 60 to 90 days ago, and that's in line with what appear to be improving economic conditions, but still reluctant to initiate long term investments currently just based upon the things that I described. Speaker 900:23:55So as we think about deposit betas when rates go down, I think You and a number of your peers have suggested that, okay, loan growth will accelerate as we get a resolution in some of these matters and as rates go down. But then on the flip side, does that mean that deposit competition picks back up? I'm just trying to assess The level of confidence on the high and low end of that range of that 25% to 45% down beta? Speaker 400:24:28Well, we still think loan growth for the year is going to be relatively muted. And, we've Competition for deposits has always been fairly intense. What you don't want to do is use rate. You want to have a relationship banking model, which is what we do. We leverage off of the checking account of the consumer and an operating account of a business. Speaker 400:24:52And with that comes all other type of funding. For us, we have no wholesale borrowings to speak of. Paid off all of our FHLB advances. So we have the ability to lever up there to cover incremental growth without having to reprice our deposit base. So, if there's incremental Pressure or competition on deposit, I don't think it'll be all that meaningful for us in particular. Speaker 900:25:25Thank Speaker 1000:25:27you. Speaker 100:25:29Our next question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question. Speaker 300:25:35Good morning, Ryan. Good morning. Speaker 800:25:36Hey, good morning, John. Good morning, David. Maybe a question on Capital, David, in the slides you talked about maintaining 10%. You're over 8% on an adjusted basis. Speaker 100:25:49Maybe just Speaker 800:25:50talk about how you think about uses of capital outside of loan growth. I know we had some buyback this quarter. I think in December, we were talking about the potential For securities portfolio restructuring, maybe just talk a little bit about how you're thinking about incremental uses of capital from here? Speaker 400:26:05Yes. So, obviously, let me just go through the kind of checkpoints as we think about it. So we want to use our capital to support loan growth. Going to be fairly muted as I mentioned. We want to pay a fair dividend 35% to 45% of our earnings. Speaker 400:26:18So we think that's covered. We didn't have excess capital that we look to put to work in growing our business. We've looked at, mortgage servicing rights as I mentioned just A couple of calls ago, and we'll continue to look for businesses that we think can help us grow. We have talked about the securities repositioning. We continue to evaluate that. Speaker 400:26:42We have not made any decisions to do that Just yet. And outside of that, we don't want our capital to get too far away from 10%. And the 10% is pegged on the fact that we think We're close enough with our ability to accrete capital every quarter to adapt to whatever the regulatory environment is going to be. There's a lot of uncertainty with regards to what that's going to look like and there's no need for us to continue To ramp up capital to an unnecessary level and hurt our return, we think we're in an optimal spot to be able to maneuver. And so we think the 10% number is the right thing to do, the right place to be. Speaker 800:27:26Got it. Maybe To come at net interest income and net interest margin from a little bit of a different perspective, you gave us guidance for the 1st quarter and NIM is expected to be around $350,000,000 for the full year. Maybe David, you or Darren talk about how you see it evolving over the course of the year. And When you look out as we think about the declining rate cycle, where do you foresee the net interest margin settling out over time? I know historically we've talked about A 3.6% to 4% range, maybe just a little bit of color on where you see it settling out over the course of the next couple of years? Speaker 800:28:02Thank you. Speaker 400:28:04Yes. So I think you're going to see that margin pressure in the a little bit in the Q1 and Slightly in the Q2. The Q1 has another call it $3,000,000,000 of received fixed swaps that will become effective that will have some negative carry that hurts us a bit in the Q1. And then things start to change a bit beginning in the Q2, so literally like after the 1st month. So I think you'll see a little bit more of a movement in the Q1 and a tiny movement second. Speaker 400:28:37And then we can start to rebound a bit where we'll finish, we think, for the year in the 3.50 range. I think as things settle down, we had talked about 3.60% to 4%. That 3.60% was predicated on rates really going back down to, at the very low levels. And that's the purpose of our whole hedging strategy is because we have lower deposit cost most everybody. If we're going to protect our margin, we have to do it synthetically. Speaker 400:29:08And so we have about $20,000,000,000 in any given year of received fixed swaps and some other derivatives to help us manage the net interest margin in the 3.60% to 4% range. So You're likely over time to be kind of in the middle of that. And we think that that's a possibility in time. Now things have to settle out. We've got to get deposit cost back to tie up with where rates are, but we can probably exit the year in the 3.60 range. Speaker 800:29:41Thanks for the color, David. Thanks. Speaker 100:29:45Our next question comes from the line of John Pancari with Evercore ISI. Please proceed with your question. Speaker 600:29:53Good morning. Speaker 1000:29:55Good morning. On the operating leverage side, I mean, your guidance implies negative operating leverage unsurprisingly for 2024. But as you look at your trajectory on the revenue front, your assumptions there combined with your expense expectations, how do you view the likelihood of achieving positive operating leverage in 2025? And when do you expect that you could break into a more positive trajectory on a quarterly basis? Thanks. Speaker 400:30:28Yes, John. I saw I have a tendency to look at it on an annual basis. And you're right, we can't generate positive operating leverage in 'twenty four primarily because of our outperformance in the 1st two quarters of 'twenty three where we were having above 4% margin, which is way above most everybody. And so I think that's been acknowledged in the marketplace. I do think we can get back in 2025 to generate positive operating leverage and we'll start trending there towards the back half of the year as we see us bottoming out in terms of and net interest income and margin in the second quarter and then we can start to grow from there. Speaker 400:31:09We'll see what the economy looks like. We'll see what loan growth looks like. That picks up a bit. And we think the pressure on deposit betas start to go the other way. And as I just mentioned, we can exit with a little stronger margin. Speaker 400:31:24So I think positive operating leverage towards the back half is a possibility. Speaker 300:31:29And definitely for 2020. Speaker 400:31:31And we're going to get there for 2025. Speaker 1000:31:34Right. Okay, great. That's helpful. And then secondly around credit, Regarding the NPA increase, I know you flagged the downgrade, the risk rating downgrade in some of the higher risk sectors. Operator00:31:49Maybe can Speaker 1000:31:50you give us a little bit more color? Was it concentrated in any one sector? Was there A broader scrub of the loan book that you completed that led you to the multiple of The multiple downgrades or is it just episodic? And then I guess just separately, can you just talk about the reserve? I know you build it Speaker 300:32:11a bit here. What's the outlook there? Is it Speaker 1000:32:13continue to add from here? Thanks. Speaker 300:32:17I'd just say, John, with respect to the increase in NPLs, we've called out portfolios that have been under some stress for A number of quarters now, what we saw in the quarter was some migration from criticized classified to nonperforming, specifically in senior housing, in transportation and warehousing, transportation specifically and office, and then Additionally, manufacturing of consumer discretionary items. So, that is and that was our expectation. We have one large technology credit that moved in the 3rd quarter. That is episodic, we believe, and something that we And believe we will manage through. So when you look at the migration, as we pointed out, We are moving back to more traditional sort of historical levels of non performing loans, which is somewhere between 80 basis points to 100 basis points. Speaker 300:33:16Points. I think maybe David said the average was 102 or 106, 107 from 2014 and 2019. And we've guided to 40 to 50 basis points of charge offs, which we think is in line with our expectations for potential loss in the portfolio over time. So I think we feel we have good insight into the credits that we're managing. As to why, I would say the burden of increasing interest rates, increasing cost, cost of labor, operating costs, all those things have had an impact, Specifically, on the industries that we've historically now called out, transportation, senior housing, office, consumer discretionary. Speaker 300:33:59And with respect to the allowance, we have a process we follow and go through every quarter. And I think we believe that we currently believe, obviously, that we've provided for potential losses in the portfolio over time unless we experience growth in the portfolio, Pay downs in the portfolio, some changes in outstandings in the portfolio or in economic conditions. You can assume that our Allowance is appropriate and likely won't change. The trajectory of it will not change unless the economy changes. Speaker 400:34:30And the only other thing, John, on that would be if the risk ratings change, then that up or down, that also impacts your provisioning or release of reserves. So I had that point with the 2 or 3 that John mentioned. Speaker 1000:34:47And David, I'm sorry, if I could just add on. Regarding that last point, isn't risk rating migration negatively assume is it now assumed as part of your outlook just given where we are in this downturn? Speaker 400:35:01Yes, that's right. You look at your reasonable and forecast period and think about where the credits are going. If that changes, so to go the other way, that can Cause you not have to provide any more. So we've provided what we think we need to have. If things get better, Then you don't need the reserves that you put up and you can release those reserves. Speaker 400:35:24If things get worse, then you have to provide more. Generally loan growth is also a driver of having to add to the provision. If your loans are going the other way then you don't need the reserves that you had set up for them. So you can have a release related to that. Economic conditions got a little better in the 4th quarter than 3rd. Speaker 400:35:43So That was a positive. But net net, we're continuing to look at the life of the loan and where that's going to go and we think we have appropriate reserves for losses that are there. Speaker 1000:36:00Okay, great. Makes sense. Thank you, David. Speaker 100:36:05Our next question comes from the line of Dave Rochester with Compass Point. Speaker 1100:36:13On the NII guide, I was just wondering how Slide 6 might change If we don't get those cuts you're factoring in for the year, I know you mentioned you're neutral to those and maybe this range wouldn't change much. Just figured that might Maybe change some of the deposit flow and beta assumptions in here and maybe some other stuff. Speaker 400:36:30Yes. So we tried to Put that in. If you look at the lower box, on the lower end of that, we say stable. That was trying to address exactly what your question is. So To the extent that we're kind of where we are, Speaker 1100:36:44That would fall within this range. Speaker 400:36:46That's right. That's right. Speaker 600:36:48But at Speaker 400:36:48the lower end. Speaker 1100:36:49Yes, got you. And then for the $12,000,000,000 to $14,000,000,000 in the fixed rate loan production and securities investment you mentioned per year, I was just curious what the breakdown of that was for securities and loans and what yields you're putting on today and on both the securities investment and loan production just on average? I know you've got many different categories of loans you're producing. Speaker 400:37:10Yes. So I think just in total, kind of the front book, back book between those two is about 200 basis points, 2 50 basis points of pickup. If you look at That 12% to 15%, about a quarter of that's related to securities. That going on is front book, back book pieces of call it 300 basis points in loans, front book, back book are probably in the 150 basis points to 200 basis points range. Speaker 1100:37:40Okay, great. And then just on capital, given your comments on 10% CET1 targeting that unadjusted, What does that mean for the pace of buybacks here? Is the 4th quarter pace a good one going forward for the next few quarters maybe? And then as it relates to your adjusted CET1 ratio, which is just over 8% you've got here, how are you thinking about where you want that to be over time as the new regs kick in? Speaker 400:38:04Well, 1, we don't know what the new rules are going to be. So we fully loaded it with 82 to say To show you that that doesn't impact our stress capital buffer or our absolute minimum, we're in good shape there. We just need to see where the rules come out. And by the time all that happens, AOCI is going to be in a different spot than it is today, Assuming rates continue to come down a bit, we saw a pretty big move in all of the peers with AOCI This quarter. From a capital standpoint, we think 10% is the right number. Speaker 400:38:44What was the Buyback pace. The buyback pace. So, again, we use the buyback as our last mechanism to help us keep our common equity Tier 1 in that 10% range. And so the pace is do your favorite earnings expectation, take out the dividend, use a bit of that with low single digit loan growth And then the rest is either going to be buying mortgage servicing rights or things of that nature. And then we toggle with share repurchases. Speaker 400:39:20So I don't want to comment on whether we stay on the page because then I'm getting your earnings Got Speaker 600:39:29it. That's a trick. Understood. Speaker 1200:39:33All right. Speaker 300:39:33Thanks, guys. Speaker 600:39:34Appreciate Thank you. Speaker 1000:39:35All right. Thanks. Speaker 100:39:38Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question. Speaker 400:39:44Good morning, Gerard. Hey, Gerard. Speaker 1200:39:46Hi, John. Hi, David. David, can you Speaker 1300:39:49share with us, you guys have given us good detail on credit quality and John you pointed out that the non performing loan increase was to this sectors of your portfolio that you've already identified as being weak. Could we look at it another way? And you give us good details on slides 2728 on the leverage portfolio and the shared national credit portfolio. How are those portfolios holding up credit wise? And when you think back to where we were a year ago, I remember many of the calls, the word recession was used quite often in those calls. Speaker 1300:40:28We're not hearing that on this Q4 earnings call for most nearly all the banks. So have these portfolios held up better than what you would have thought it from a year ago? Speaker 300:40:39I would say yes, Gerard. The leverage portfolio is largely relationship based credit business. Those are banking relationships that we enjoy. We're close to those customers and we've been close to them throughout This period of elevated rates, there was some risk as rates rose that we had that there may be some softness in the portfolio, but I think it's performed well. The same is true of our Shared National Credit book. Speaker 300:41:06As we began to build the Capital Markets business to help us grow and diversify revenue and to meet more needs. We naturally then began to expand the size of our shared national credit book so that we could serve those customers that had need for those products and services. And with that, as you can imagine, comes some toll free risk, single name risk. And While I mentioned earlier, we have a technology credit that's fairly substantial, that's an NPL. That is an example of a Shared National Credit exposure that we have good visibility into. Speaker 300:41:43We think has very limited risk of loss, but still is a nonperforming loan. But overall, I would say just based upon Reflection on the performance of that book, it's been good. We've enjoyed expanding relationships, growing revenue from capital markets and or deposits, treasury management that we enjoy with those customers. And so, I think we've been pleased with the performance of both the leverage book and the Shared National Credit book. Speaker 1300:42:13Very good. And then coming back to loans, I think David in your comments you talked about loan demand remains soft and you're looking for low single digit growth for average loans in 2024. I know during our careers, the shadow banking industry has continued its competition against the banks, but it seems today There's more coverage of the private equity side getting into lending maybe greater than we've seen in years. How are you guys competing against the private credit markets? And at the same time, are any of those private credit lenders customers of yours that you have to balance that relationship of a customer competing against you? Speaker 300:42:59We have a very modest exposure to private equity who then is we're not lending to private equity to in turn lend into our customer base. So, if we have any exposure, it would be very modest there. Separately, we don't See private equity as a competitor necessarily within our core middle market customer base. I asked Ronnie Smith, the question the other day, if he could name a customer that we lost to private credit, and we can't Think of 1. Now it doesn't mean it's not occurring in some of the markets that we're in. Speaker 300:43:40But by and large, given our focus on the core middle market business And investment grade type shared national credit exposure, we're just not we're not seeing private credit as a competitor today On the wholesale side now, there are lots of competitors on the consumer side that we're seeing in a variety of different ways, including mortgage and home improvement that we compete with. Speaker 1300:44:07Which are non traditional depository? Speaker 300:44:12That's right. Speaker 1300:44:13Okay, great. Thank you, John. Speaker 100:44:18Our next question comes from the line of Christopher Spar with Wells Fargo. Please proceed with your question. Speaker 400:44:24Good morning. Good morning. Hello? Speaker 100:44:31Christopher Spahr, your line is live. Speaker 200:44:37Let's go ahead and move to the next caller. Speaker 100:44:39Our next question comes from the line of Brandon King with Truist. Please proceed with your question. Speaker 400:44:45Good morning. Speaker 1200:44:46Hey, good morning. So appreciate the guidance on expenses and expense control there. So I did have a question on just an update on the technology modernization project And kind of what you're baking in for expenses in 2024? And if part of that, all the expense savings is related to maybe delaying some of that project into further use? Speaker 400:45:15Yes, Brandon. So, we've given you our overall Expense guide to be essentially flat after you carve out operational losses from the past year. We continue to make investments in our business. We call it ARC2, which is our transformation project in cyber and Risk Management, consumer compliance, a lot of investment in areas of the bank that we're looking to offset elsewhere. Our R2 project is coming along very well. Speaker 400:45:50We spend anywhere depending on the year 9% to 11% of our revenue in terms of technology cost. We don't expect that to change materially in the short term. We continue to evaluate how we can better leverage technology. And I think we have a lot of upside potential to leverage that in our business to continue to improve and to continue to take out manual steps and manual processes and have a technology solution to. So We think our investment in technology is the right thing to do. Speaker 400:46:28And we're going to have a modern core deposit platform in the not too distant future, which we think will be a competitive advantage for us as well. So anyway, that's kind of the spending range, if you will, 9 to 11 for revenue. Speaker 1200:46:45Okay. And just to clarify, no delays in the timing Speaker 300:46:48Yes. No, to answer your question specifically, that project is on time and on budget, no delays. Speaker 1200:46:55Okay. And then just had a follow-up on credit and particularly in senior housing. Just wanted to get more details as far as your exposure there What are you thinking as far as ultimate loss content in any protections from a credit loss? Speaker 300:47:14We're seeing improvement in the senior housing space, notwithstanding the fact that we have a couple of credits we're carrying as nonperforming. We generally occupancy rates are improving over time. Today, we've got about $63,000,000 in I'm sorry, dollars 57,000,000 in $118,000,000 in nonperforming loans and reserves against those credits of about 3.7%. So I think we've maybe provided information on Slide 20 In your deck, but we are seeing improvement in senior housing as occupancy rates pick up and people become a little more comfortable Communal living again amongst that age group. Speaker 1200:48:04Okay. Thanks for all the color. Speaker 100:48:10Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question. Hi. Good morning. Speaker 500:48:17Good morning. Good morning. One follow-up question, Dave. I think Very notable what you said to Ryan's line of questioning, the 3.6 exit rate for the net interest margin in the 4th quarter. A lot of investors are now focused on that exit rate. Speaker 500:48:35So I'm just wondering if I could ask you sort of what the component pieces is Or rather. So unless you would change anything on the in terms of adding swaps, it seems like you do have 1,600,000,000 Of notional rolling off in the Q4, so I guess that's a good guy. You also mentioned a terminated swap gain in your 10 Q, but you had like a forward look for 4 quarters, wondering what that could be for 4Q 'twenty four. And then more notably, obviously, you guys have said unequivocally that it's the deposit assumption that's really going to make a difference. I'm wondering sort of what the speed is that you're assuming on that 35% down beta, especially if you think that the first Great cut. Speaker 500:49:27I think you said it was in May. Yes. Speaker 400:49:30So, I think all in, the big drivers there are controlling the Deposit costs, we do have a headwind of the $3,000,000,000 notional forward starting swap in the Q1. And then we're kind of in the run rate. The terminated Swaps are in the amortization already. Those aren't the huge drivers. I think after we get our headwind and if rates start to come down, then like I said, almost 60% of our beta is associated with index deposits on the commercial side. Speaker 400:50:03So they'll start to come down. And you start then having, the loan and security repricing, fixed maturity repricing adding 200 basis points, 2 50 basis points that overwhelms that headwind towards the back end of the year you get a little bit of loan growth in the back end. All that helps you propel you to a much stronger 4th quarter finish than you have at the beginning of the year. So I think if you really looked at what is the one big thing that you have to get done and it's controlling the deposit cost And we do that through managing the beta as rates change. Like I said, 55%, 60% of an index. Speaker 400:50:42The other is decisioning we have to make. And that gets to be a little herky jerky because as I mentioned, some of that's money market that we can change pretty quickly. The other CDs that were locked in Today, it's 7 months. And as things renew this month, next month and going forward, we're looking to be shorter rather than longer so that we are prepared to take advantage to reduce our deposit costs as rates come down. Speaker 500:51:11And a follow-up to that, you mentioned 55% to 60% of that down rate of coming from these index commercial deposits. One of your peers made a differentiation between index and contractual yesterday. And I guess just give us some sense of How much of that is contract versus index? And but really it sounds like you're confident that either way you can control that to the downside, especially if as you said loan growth remains soft this year? Speaker 400:51:44Yes. So when we say index, we're talking about it's tied to Fed funds. When Fed funds changes through the contract, it changes automatically. There's no it's not a contractual number locked in like Effectively a CD. It's the day just like a loan that's based on SOFR. Speaker 400:52:02I mean SOFR changes, so there's a loan rate that day. And so that's what we're talking about when we say index deposits. Speaker 500:52:12Okay. Got it. Thank Speaker 300:52:14you. Thank you. Speaker 100:52:17Thank you. Our final question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Speaker 1200:52:23Good morning, Matt. Good morning. Speaker 700:52:25Any updated thoughts on potential regulatory changes to the debit card interchange rate or overdraft fees And thinking about potential offsets to that? Speaker 400:52:37Well, the so Debit interchange going through discussion to adjust that down. This was written in the original law. They had to revisit Costs associated with debit interchange, to the extent that does get put into place that will have a negative impact to us Starting, I think that was going to be kicking in June. So it's about a half a year and based on our numbers that's about a $45,000,000 risk item to us in our NIR. Relative to the overdrafts, we're a long way from Knowing where that comes out, if there are any changes and I think that's a 2025 date that was mentioned. Speaker 400:53:24That just hit the wire. I think there's going to be a lot of discussion on that because we're disappointed in that. We think provision of liquidity to our customer base is really, really important. We do charge a fee for that. We're paying an item For somebody and charging a fee and to the extent we return that item to wherever it was written or used that entity is going to charge a fee. Speaker 400:53:51And so it doesn't it's not helpful to not be able to provide liquidity to our customer base. And, so we're hoping there's going to be further discussion on that point. And I think it'd be premature to really talk about the impact to OD until we get further down the road. Speaker 700:54:09Okay. And then just separately, good to see the Elevate check fraud came down as you And the outlook kind of implies Speaker 400:54:17that you're Speaker 700:54:18confident that you're past this issue. I guess Just want to reconfirm that. And then also just any meaningful changes that you made to address it and whether it showed up in expenses or well? Speaker 300:54:33I would just say that the countermeasures that we've put in place, which include talent technology, process changes, All have been effective. And we believe going forward, the run rate will be $20,000,000 to $25,000,000 a quarter in operating losses. And the expenses associated with those countermeasures are embedded in our run rate and in our projection for expenses for 2024. Speaker 400:54:58Yes. We got to continue to be vigilant with regards to this just like we are with cyber. So we have bad people attacking us as does every financial institution and we have to continue to stay ahead of it. We feel good about What we put in place, but we are not sitting idle. We're continuing to push and challenge ourselves to get even better than we are today. Speaker 600:55:21Okay, perfect. That's helpful. Thank you. Speaker 300:55:24Thank you. Okay. Operator, is that the end of the calls? Speaker 100:55:29Yes. I would now like to turn the floor back over to you for closing comments. Speaker 300:55:33Okay. Well, thank you very much. Appreciate everybody's participation today and interest in our company. Have a good weekend. Speaker 100:55:41This concludes today's teleconference. You may disconnect your lines at this time.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRegions Financial Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Regions Financial Earnings HeadlinesFY2025 EPS Estimate for Regions Financial Lifted by AnalystApril 25 at 3:55 AM | americanbankingnews.comArgus Research Sticks to Their Buy Rating for Regions Financial (RF)April 24 at 10:10 PM | markets.businessinsider.comWarning: “DOGE Collapse” imminentElon Strikes Back You may already sense that the tide is turning against Elon Musk and DOGE. Just this week, President Trump promised to buy a Tesla to help support Musk in the face of a boycott against his company. But according to one research group, with connections to the Pentagon and the U.S. government, Elon's preparing to strike back in a much bigger way in the days ahead.April 25, 2025 | Altimetry (Ad)Regions Financial Corp (RF) Launches Financial Literacy Initiative for April | RF stock newsApril 24 at 5:13 PM | gurufocus.comArgus Adjusts Price Target for Regions Financial (RF) Amid Economic Uncertainty | RF Stock NewsApril 24 at 10:14 AM | gurufocus.comBrokers Offer Predictions for RF Q2 EarningsApril 24 at 2:19 AM | americanbankingnews.comSee More Regions Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Regions Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Regions Financial and other key companies, straight to your email. Email Address About Regions FinancialRegions Financial (NYSE:RF), a financial holding company, provides banking and bank-related services to individual and corporate customers. It operates through three segments: Corporate Bank, Consumer Bank, and Wealth Management. The Corporate Bank segment offers commercial banking services, such as commercial and industrial, commercial real estate, and investor real estate lending; equipment lease financing; deposit products; and securities underwriting and placement, loan syndication and placement, foreign exchange, derivatives, merger and acquisition, and other advisory services. It serves corporate, middle market, and commercial real estate developers and investors. The Consumer Bank segment provides consumer banking products and services related to residential first mortgages, home equity lines and loans, consumer credit cards, and other consumer loans, as well as deposits. The Wealth Management segment offers credit related products, and retirement and savings solutions; and trust and investment management, asset management, and estate planning services to individuals, businesses, governmental institutions, and non-profit entities. It also provides investment and insurance products; low-income housing tax credit corporate fund syndication services; and other specialty financing services. The company was founded in 1971 and is headquartered in Birmingham, Alabama.View Regions Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 14 speakers on the call. Operator00:00:00morning, and welcome to Speaker 100:00:01the Regions Financial Corporation's Quarterly Earnings Call. My name is Christine, and I'll be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. I will now turn the call over to Dana Nolan to begin. Speaker 200:00:25Thank you, Christine. Welcome to Regions 4th quarter 2023 earnings call. John and David will provide high level commentary regarding our results. Earnings documents, which include our forward looking statement disclaimer and non GAAP information are available in the Investor Relations section of our website. These disclosures cover our presentation materials, prepared comments and Q and A. Speaker 200:00:50I will now turn the call over to John. Speaker 300:00:53Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. This morning, we reported full year 2023 earnings of $2,000,000,000 reflecting record pre tax pre provision income of $3,200,000,000 and one of the best returns on average tangible common equity in our peer group at 22%. Our results speak to and underscore the comprehensive work that's taken place over the past decade to position the company to generate consistent, sustainable earnings regardless of the economic environment we are experiencing. We've enhanced our credit and interest rate risk management processes and platforms while sharpening our focus on risk adjusted returns and capital allocation. Speaker 300:01:41Although the industry continues to face headwinds from lingering economic and geopolitical uncertainty as well as the continued evolution of the regulatory framework. We feel confident about our positioning and adaptability heading into 2024. We will continue to benefit from our strong diverse balance sheet, solid capital and liquidity and prudent credit risk management. Our proactive hedging strategies continue to position us for success in an array of economic conditions. In our desirable footprint, granular deposit base and relationship banking approach will continue to serve us well. Speaker 300:02:23Our strategic plan continues to deliver consistent, sustainable long term performance as we focus on soundness, Profitability and growth. In closing, I'm excited to work alongside the 20,000 regions associates who put customers and their needs at the center of all we do and focus on doing the right things the right way every day. Now Dave will provide some highlights regarding the quarter. Speaker 400:02:50Thank you, John. Let's start with the balance sheet. Average and ending loans decreased modestly on a sequential quarter basis, while ending loans grew a little over 1% compared to the prior year. Within the business portfolio, average and ending loans declined 1% quarter over quarter. We are remaining judicious, preserving capital for business where we can have a full relationship. Speaker 400:03:14Loan demand remains soft as clients continue to exhibit cautious behavior. We are seeing clients make long term investments when they have to, but if they can defer, they're holding off. In general, sentiment varies across industries with some continuing to expect growth, while others have a more muted outlook. Average and ending consumer loans remained relatively stable as growth in mortgage and interbank was partially offset by declines in home equity and the GreenSky exit portfolio sale we completed this quarter. Looking forward, we expect 2024 average loan growth to be in the low single digits. Speaker 400:03:57From a deposit standpoint, Deposits increased modestly on an average and ending basis primarily due to increases in interest bearing business products, which we expect will partially reverse with tax season in the Q1. Across all three businesses, we continue to experience remixing from non interest bearing to interest bearing deposits. However, the pace of remixing has slowed. Within consumer, we continue to see balanced normalization, but we believe the pace of remixing will continue to slow As short term market rates appear to have peaked and the relationship of checking balances to spending levels is getting closer to pre pandemic levels. Our overall views on deposit balances and rates are unchanged. Speaker 400:04:47We expect incremental remixing out of low cost savings and checking products of between $2,000,000,000 $3,000,000,000 and total balances stabilizing by mid year. This results in a non interest bearing mix percentage remaining in the low 30% range. So let's shift to net interest income. Net interest income declined by approximately 4.5% in the quarter, driven mostly by deposit cost and mix normalization as well as the start of the active period on $3,000,000,000 of incremental hedging. Asset yields benefited from the maturity and replacement of lower yielding fixed rate loans and securities. Speaker 400:05:33Notably, during the quarter, we returned to full reinvestment of pay downs in the securities portfolio and added $500,000,000 over and above that to the portfolio balance, taking advantage of attractive market rate and spread levels. Interest bearing deposit costs were 2.14% in the quarter, representing a 39% rising rate cycle beta. Growth in higher cost corporate deposits increased our reported deposit betas by approximately 1% but allowed for the termination of all outstanding FHLB advances. This and a more pronounced Slowing in the pace of rate seeking behavior by retail customers drove modest net interest income outperformance compared to expectations. As we look to 2024, we expect net interest income trends to stabilize over the first half of the year and grow over the back half of the year. Speaker 400:06:34Dollars 3,000,000,000 of additional forward starting hedges in the first quarter And further, late cycle deposit remixing will be a headwind. However, we expect deposit trends to continue to improve With interest bearing betas peaking in the mid-forty percent range, the benefits of fixed rate asset turnover will persist, overcoming the headwinds and driving net interest income growth in the second half of the year. With respect to outlook, we expect full year 2024 net interest income to be between $4,700,000,000 and $4,800,000,000 Our guidance assumes 4 25 basis point rate cuts with long term rates remaining stable from year end. However, the path for net income is well insulated from changes in market interest rates. The primary driver of net interest income in 2024 will be deposit performance. Speaker 400:07:42The lower end of our expected 2024 net interest income range assumes a 25% beta as rates fall, while the higher end assumes a deposit beta similar to what we have experienced during the rising rate environment. In a falling rate environment, we are prepared to manage deposit costs lower to the margin. A relatively small portion of interest bearing deposit balances is responsible for the majority of the deposit cost increase the cycle. These market price deposits include index and other high beta corporate deposit types that will reprice immediately with Fed funds. The other primary contributor is CDs with a 7 month average maturity. Speaker 400:08:32While these products will lag in a falling rate environment, we are positioned to offset this cost. So let's take a look at fee revenue and expense. Adjusted non interest income increased 2% during the quarter as a sequential decline in capital markets was offset by modest increases in most other categories. Full year adjusted non interest income declined 5%, primarily due to reductions in capital markets and mortgage income as well as the impact of the company's overdraft grace feature implemented late in the second quarter. Partially offsetting these declines were new records in 2023 for both treasury management and wealth management revenue. Speaker 400:09:20With respect to outlook, we expect full year 2024 adjusted non interest income to be between 2.3 and $2,400,000,000 Let's move on to non interest expense. Reported non interest expense increased 8% compared to the prior quarter, but included 2 significant adjusted items, $119,000,000 for the FDIC special assessment and $28,000,000 in severance related costs. Adjusted non interest expense decreased 5%, driven primarily by lower operational losses. Full year adjusted non interest expense increased 9.7% or approximately 6%, excluding elevated operational losses experienced primarily in the 2nd and third quarters. We remain committed to prudently managing expenses to fund investments in our business. Speaker 400:10:21We will continue focusing on our largest expense categories, which include salaries and benefits, occupancy and vendor spend. We expect full year 2024 adjusted non interest expenses to be approximately $4,100,000,000 From an asset quality standpoint, overall credit performance continues to normalize as expected. Reported annualized net charge offs for the 4th quarter increased 14 basis points. However, Excluding the impact of the GreenSky loan sale, adjusted net charge offs decreased 1 basis point versus the prior quarter to 39 basis points. Full year adjusted net charge offs were 37 basis points. Speaker 400:11:11Total non performing loans and business services criticized loans increased during the quarter. Nonperforming loans as a percentage of total loans increased to 82 basis points due primarily the downgrades within industries previously identified as higher risk. Keep in mind, between 2013 In 2019, our average NPL ratio was 107 basis points. We expect to see further normalization towards these levels in 20 provision expense was $155,000,000 or $23,000,000 in excess of net charge offs and includes an $8,000,000 net provision expense related to the consumer loan sale. The allowance for credit loss ratio increased 3 basis points to 1.73%. Speaker 400:12:10Excluding the loan portfolio sold during the quarter, the allowance for credit loss ratio would have increased 6 basis points. The increase to our allowance was primarily due to adverse risk migration and continued credit quality normalization as well as higher qualitative adjustments for incremental risk in certain higher risk portfolios. Our average net charge offs from 2013 to 2019 were 46 basis points. We've seen modest acceleration towards these normalized levels in recent quarters. As a result, we expect our full year 2024 net charge off ratio to be between 40 50 basis points. Speaker 400:12:59Turning to capital and liquidity. Given the evolution of the regulatory environment, we expect to maintain our common equity Tier 1 ratio around 10% over the near term. This level will provide sufficient flexibility to meet the proposed changes Along the implementation time line, while supporting strategic growth objectives, it allow us to continue to increase the dividend commensurate with earnings. We ended the year with an estimated common equity Tier 1 ratio of 10.2% while executing $252,000,000 in share repurchases and $223,000,000 and common dividends during the quarter. With that, we'll move to the Q and A portion of the call. Speaker 100:13:50Thank you. We will now be conducting a question and answer session. Speaker 500:14:08Thank Speaker 100:14:12you. Our first question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Speaker 600:14:18Good Thank you for taking the question. Excuse me. Appreciate the comments on the main levers for NII or within NII for your guidance. I was hoping you could discuss a little more about the deposit repricing thoughts that you had. Maybe specifically thoughts about sort of the bifurcation between commercial and Consumer deposits? Speaker 600:14:44And then just any opportunities you've seen with the Fed already having sort of peaked out presumably? Any opportunities you've had already to maybe take some actions to ease the pressure on costs? Speaker 400:14:56Sure, Scott. This is David. One important thing to note is that about 30% of our customer base is really the driver of our interest bearing deposit beta. If you look at that, a little over half of that's related to our commercial book and those deposits are indexed. So to the extent the Fed changes rates, those Windex today that changes. Speaker 400:15:20So you're talking about roughly 55%, almost 60 So that will come down as rates come down. The other, represents consumer deposits. So these have been CDs and money market accounts there where we've seen migration out of non interest bearing accounts. The money market piece, both of these have to be competitive. We have to watch What our competitors are doing to some degree, but we have mechanisms to really start working that down. Speaker 400:15:52Part of that is making sure we don't go too long on our CD maturities. So we've been fairly short. I think I mentioned in the prepared comments, our Average CD term is 7 months. And so we don't want to extend that much going forward. As a matter of fact, we'd like to shorten that The coincide with what we think is going to happen with the Fed, now we have 4 cuts baked in to our guidance to hit the midpoint of our Guidance, which is on Page 6 of our presentation. Speaker 400:16:25And we think that starts probably at the May meeting. And we know that's different than what the market participants believe, but we think that that's going to I think it's going to be slower versus faster. It's important to note we're neutral to short term rates. And so it's all about managing our deposit costs. And I think we have a good plan to do so. Speaker 400:16:48We've given you really a range. It's a pretty tight range on NII performance on the Page 6. And we kind of talk about betas. So if our betas kind of follow what we had and As rates have gone up, we're at 39 today. We said we'd probably finish in the mid-40s. Speaker 400:17:06If we have that coming back down, then we'll be at the upper end of our range. If we're only at 25% beta as rates come down, knowing things won't match perfectly, then we'd be at the lower end of the range. So our midpoint is a 35% beta, which we think is very doable, in particular, relative to that half of that a little over half of that is related to index deposit on the commercial side. Speaker 600:17:32Perfect. Thanks for that color, David. And then maybe on the lending side, you noted soft client demand, which is very understandable. Just curious, how you expect demand to trend as the year unfolds? Speaker 300:17:46Yes. Scott, this is John. I would our current Projections are we believe economic activity picks up towards the second half of the year, and we believe we will experience some growth in core middle market banking and small business banking through our Sentient platform asset based lending, which would be typical of this period of time. And on the consumer side, mortgage and interbank continue to contribute to growth. Again, any growth we have will be modest and will occur likely towards the back half of the year. Speaker 700:18:20Yes, perfect. Speaker 600:18:21All right. Thank you all very much. Speaker 100:18:26Our next question comes from the line of Ebrahim Kounawala with Bank of America. Please proceed with your question. Speaker 400:18:33Good morning. Operator00:18:34Hey, good morning. Just maybe wanted to follow-up on the fee income guide. Maybe if you can delve into Where do you see growth across fee revenue, particularly what are you assuming in there For Capital Markets, was it weakish 4th quarter? So would love to hear outlook on Capital Markets income within fields? And then do you expect to do more purchases for mortgage servicing rights as you did in the quarter and should that boost mortgage income? Operator00:19:03Thank you. Speaker 400:19:05Yes. So your first point on Capital Markets, we had a pretty tough Capital Markets finish in the 4th quarter. A bit of that is timing. We think some deals in particular in the M and A world got pushed into the Q1. The rate environment has really hampered our Real Estate Corporate Banking income line a bit. Speaker 400:19:28We think those rebound both of those rebound. We think M and A has a Tennessee, a chance to pick up probably towards the back half of the year after we've seen a little bit of rate relief, If you will, so we have a pretty good feel about our capital markets rebound for 2024. Relative to mortgage servicing rights, as you know, we have good capital position. We look to support our business to grow our loan book. Think loan growth will be muted. Speaker 400:20:02So we look to other ways to put the capital to work. Mortgage servicing rights has been one of those. We feel good about that asset class because we're good at it. We have a low cost servicing group and We're looking to grow when packages make sense and the economics work to our advantage. There have been a number of those on the market. Speaker 400:20:27If we can hit the bid that we have to make sure we get appropriate risk adjusted return, we'll do that. We suspect there'll be a couple of opportunities during the year as there usually are. But we have room to grow that without adding a lot of fixed overhead, have to add people to do the servicing, but we don't have to add a lot of fixed overhead. Speaker 300:20:47Yes. I'd just add 2 things, Ebrahim. One is we continue to grow consumer checking accounts and consumer households. That contributes to growth. Secondly, we had the best year we probably ever had in treasury management as we see increases in the number of operating accounts that we are originating and services we're providing to customers. Speaker 300:21:10And finally, Wealth Management had maybe the best year it's had certainly in some time, and we expect Wealth Management fee revenue to continue to grow in 2024. Operator00:21:21That's helpful. And just one other one, David. I guess the one flex on deposit pricing is loan to deposit ratio at 77%. Just give us a sense of is this steady state in somewhere in the mid to high 70s where you see running the bank going forward? Or if rates get cut, you could see this ratio drift into the 80s and that probably provides you some pricing flexibility? Operator00:21:45Thank you. Speaker 400:21:46Yes. So we really don't run the bank trying to solve for our loan deposit ratio. It's just kind of result of all of our activities that we have. At 77%, we're a little bit lower than the peer median by 2, 3 points. It gives us some flexibility to not have to put A lot of pressure on the deposit base. Speaker 400:22:06Remember my opening comments where we want to be fair and balanced with regards to our customers making sure that We're competitive, but we don't have to push. We don't have to be at the upper end of pricing just to maintain those deposits. We have a good core deposit base And it gives us flexibility to not have to chase with rate. And that's why our deposit costs have a tendency to be a bit lower across the board. Operator00:22:35Thank you. Speaker 100:22:39Our next question comes from the line of Manav Gathalia with Morgan Stanley. Please proceed with your question. Good Speaker 800:22:46morning. Speaker 900:22:49I think you mentioned earlier on in the call that clients are deferring longer term investments if they can. Can you talk about what's driving that? Is it just rates and they're waiting for rates to come down? Is part of it the environment, they need more certainty there? So any light on your conversations there would be helpful. Speaker 300:23:09Yes. I think probably all of the above. Clearly, rising interest rates have had some impact. Rising cost, Cost of goods, cost of labor has had an impact. And then uncertainty related to the economy, geopolitical conditions, the political environment Here in the U. Speaker 300:23:27S, all have, I think, created some restraint. Borrowers are, I believe more optimistic today than they were 60 to 90 days ago, and that's in line with what appear to be improving economic conditions, but still reluctant to initiate long term investments currently just based upon the things that I described. Speaker 900:23:55So as we think about deposit betas when rates go down, I think You and a number of your peers have suggested that, okay, loan growth will accelerate as we get a resolution in some of these matters and as rates go down. But then on the flip side, does that mean that deposit competition picks back up? I'm just trying to assess The level of confidence on the high and low end of that range of that 25% to 45% down beta? Speaker 400:24:28Well, we still think loan growth for the year is going to be relatively muted. And, we've Competition for deposits has always been fairly intense. What you don't want to do is use rate. You want to have a relationship banking model, which is what we do. We leverage off of the checking account of the consumer and an operating account of a business. Speaker 400:24:52And with that comes all other type of funding. For us, we have no wholesale borrowings to speak of. Paid off all of our FHLB advances. So we have the ability to lever up there to cover incremental growth without having to reprice our deposit base. So, if there's incremental Pressure or competition on deposit, I don't think it'll be all that meaningful for us in particular. Speaker 900:25:25Thank Speaker 1000:25:27you. Speaker 100:25:29Our next question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question. Speaker 300:25:35Good morning, Ryan. Good morning. Speaker 800:25:36Hey, good morning, John. Good morning, David. Maybe a question on Capital, David, in the slides you talked about maintaining 10%. You're over 8% on an adjusted basis. Speaker 100:25:49Maybe just Speaker 800:25:50talk about how you think about uses of capital outside of loan growth. I know we had some buyback this quarter. I think in December, we were talking about the potential For securities portfolio restructuring, maybe just talk a little bit about how you're thinking about incremental uses of capital from here? Speaker 400:26:05Yes. So, obviously, let me just go through the kind of checkpoints as we think about it. So we want to use our capital to support loan growth. Going to be fairly muted as I mentioned. We want to pay a fair dividend 35% to 45% of our earnings. Speaker 400:26:18So we think that's covered. We didn't have excess capital that we look to put to work in growing our business. We've looked at, mortgage servicing rights as I mentioned just A couple of calls ago, and we'll continue to look for businesses that we think can help us grow. We have talked about the securities repositioning. We continue to evaluate that. Speaker 400:26:42We have not made any decisions to do that Just yet. And outside of that, we don't want our capital to get too far away from 10%. And the 10% is pegged on the fact that we think We're close enough with our ability to accrete capital every quarter to adapt to whatever the regulatory environment is going to be. There's a lot of uncertainty with regards to what that's going to look like and there's no need for us to continue To ramp up capital to an unnecessary level and hurt our return, we think we're in an optimal spot to be able to maneuver. And so we think the 10% number is the right thing to do, the right place to be. Speaker 800:27:26Got it. Maybe To come at net interest income and net interest margin from a little bit of a different perspective, you gave us guidance for the 1st quarter and NIM is expected to be around $350,000,000 for the full year. Maybe David, you or Darren talk about how you see it evolving over the course of the year. And When you look out as we think about the declining rate cycle, where do you foresee the net interest margin settling out over time? I know historically we've talked about A 3.6% to 4% range, maybe just a little bit of color on where you see it settling out over the course of the next couple of years? Speaker 800:28:02Thank you. Speaker 400:28:04Yes. So I think you're going to see that margin pressure in the a little bit in the Q1 and Slightly in the Q2. The Q1 has another call it $3,000,000,000 of received fixed swaps that will become effective that will have some negative carry that hurts us a bit in the Q1. And then things start to change a bit beginning in the Q2, so literally like after the 1st month. So I think you'll see a little bit more of a movement in the Q1 and a tiny movement second. Speaker 400:28:37And then we can start to rebound a bit where we'll finish, we think, for the year in the 3.50 range. I think as things settle down, we had talked about 3.60% to 4%. That 3.60% was predicated on rates really going back down to, at the very low levels. And that's the purpose of our whole hedging strategy is because we have lower deposit cost most everybody. If we're going to protect our margin, we have to do it synthetically. Speaker 400:29:08And so we have about $20,000,000,000 in any given year of received fixed swaps and some other derivatives to help us manage the net interest margin in the 3.60% to 4% range. So You're likely over time to be kind of in the middle of that. And we think that that's a possibility in time. Now things have to settle out. We've got to get deposit cost back to tie up with where rates are, but we can probably exit the year in the 3.60 range. Speaker 800:29:41Thanks for the color, David. Thanks. Speaker 100:29:45Our next question comes from the line of John Pancari with Evercore ISI. Please proceed with your question. Speaker 600:29:53Good morning. Speaker 1000:29:55Good morning. On the operating leverage side, I mean, your guidance implies negative operating leverage unsurprisingly for 2024. But as you look at your trajectory on the revenue front, your assumptions there combined with your expense expectations, how do you view the likelihood of achieving positive operating leverage in 2025? And when do you expect that you could break into a more positive trajectory on a quarterly basis? Thanks. Speaker 400:30:28Yes, John. I saw I have a tendency to look at it on an annual basis. And you're right, we can't generate positive operating leverage in 'twenty four primarily because of our outperformance in the 1st two quarters of 'twenty three where we were having above 4% margin, which is way above most everybody. And so I think that's been acknowledged in the marketplace. I do think we can get back in 2025 to generate positive operating leverage and we'll start trending there towards the back half of the year as we see us bottoming out in terms of and net interest income and margin in the second quarter and then we can start to grow from there. Speaker 400:31:09We'll see what the economy looks like. We'll see what loan growth looks like. That picks up a bit. And we think the pressure on deposit betas start to go the other way. And as I just mentioned, we can exit with a little stronger margin. Speaker 400:31:24So I think positive operating leverage towards the back half is a possibility. Speaker 300:31:29And definitely for 2020. Speaker 400:31:31And we're going to get there for 2025. Speaker 1000:31:34Right. Okay, great. That's helpful. And then secondly around credit, Regarding the NPA increase, I know you flagged the downgrade, the risk rating downgrade in some of the higher risk sectors. Operator00:31:49Maybe can Speaker 1000:31:50you give us a little bit more color? Was it concentrated in any one sector? Was there A broader scrub of the loan book that you completed that led you to the multiple of The multiple downgrades or is it just episodic? And then I guess just separately, can you just talk about the reserve? I know you build it Speaker 300:32:11a bit here. What's the outlook there? Is it Speaker 1000:32:13continue to add from here? Thanks. Speaker 300:32:17I'd just say, John, with respect to the increase in NPLs, we've called out portfolios that have been under some stress for A number of quarters now, what we saw in the quarter was some migration from criticized classified to nonperforming, specifically in senior housing, in transportation and warehousing, transportation specifically and office, and then Additionally, manufacturing of consumer discretionary items. So, that is and that was our expectation. We have one large technology credit that moved in the 3rd quarter. That is episodic, we believe, and something that we And believe we will manage through. So when you look at the migration, as we pointed out, We are moving back to more traditional sort of historical levels of non performing loans, which is somewhere between 80 basis points to 100 basis points. Speaker 300:33:16Points. I think maybe David said the average was 102 or 106, 107 from 2014 and 2019. And we've guided to 40 to 50 basis points of charge offs, which we think is in line with our expectations for potential loss in the portfolio over time. So I think we feel we have good insight into the credits that we're managing. As to why, I would say the burden of increasing interest rates, increasing cost, cost of labor, operating costs, all those things have had an impact, Specifically, on the industries that we've historically now called out, transportation, senior housing, office, consumer discretionary. Speaker 300:33:59And with respect to the allowance, we have a process we follow and go through every quarter. And I think we believe that we currently believe, obviously, that we've provided for potential losses in the portfolio over time unless we experience growth in the portfolio, Pay downs in the portfolio, some changes in outstandings in the portfolio or in economic conditions. You can assume that our Allowance is appropriate and likely won't change. The trajectory of it will not change unless the economy changes. Speaker 400:34:30And the only other thing, John, on that would be if the risk ratings change, then that up or down, that also impacts your provisioning or release of reserves. So I had that point with the 2 or 3 that John mentioned. Speaker 1000:34:47And David, I'm sorry, if I could just add on. Regarding that last point, isn't risk rating migration negatively assume is it now assumed as part of your outlook just given where we are in this downturn? Speaker 400:35:01Yes, that's right. You look at your reasonable and forecast period and think about where the credits are going. If that changes, so to go the other way, that can Cause you not have to provide any more. So we've provided what we think we need to have. If things get better, Then you don't need the reserves that you put up and you can release those reserves. Speaker 400:35:24If things get worse, then you have to provide more. Generally loan growth is also a driver of having to add to the provision. If your loans are going the other way then you don't need the reserves that you had set up for them. So you can have a release related to that. Economic conditions got a little better in the 4th quarter than 3rd. Speaker 400:35:43So That was a positive. But net net, we're continuing to look at the life of the loan and where that's going to go and we think we have appropriate reserves for losses that are there. Speaker 1000:36:00Okay, great. Makes sense. Thank you, David. Speaker 100:36:05Our next question comes from the line of Dave Rochester with Compass Point. Speaker 1100:36:13On the NII guide, I was just wondering how Slide 6 might change If we don't get those cuts you're factoring in for the year, I know you mentioned you're neutral to those and maybe this range wouldn't change much. Just figured that might Maybe change some of the deposit flow and beta assumptions in here and maybe some other stuff. Speaker 400:36:30Yes. So we tried to Put that in. If you look at the lower box, on the lower end of that, we say stable. That was trying to address exactly what your question is. So To the extent that we're kind of where we are, Speaker 1100:36:44That would fall within this range. Speaker 400:36:46That's right. That's right. Speaker 600:36:48But at Speaker 400:36:48the lower end. Speaker 1100:36:49Yes, got you. And then for the $12,000,000,000 to $14,000,000,000 in the fixed rate loan production and securities investment you mentioned per year, I was just curious what the breakdown of that was for securities and loans and what yields you're putting on today and on both the securities investment and loan production just on average? I know you've got many different categories of loans you're producing. Speaker 400:37:10Yes. So I think just in total, kind of the front book, back book between those two is about 200 basis points, 2 50 basis points of pickup. If you look at That 12% to 15%, about a quarter of that's related to securities. That going on is front book, back book pieces of call it 300 basis points in loans, front book, back book are probably in the 150 basis points to 200 basis points range. Speaker 1100:37:40Okay, great. And then just on capital, given your comments on 10% CET1 targeting that unadjusted, What does that mean for the pace of buybacks here? Is the 4th quarter pace a good one going forward for the next few quarters maybe? And then as it relates to your adjusted CET1 ratio, which is just over 8% you've got here, how are you thinking about where you want that to be over time as the new regs kick in? Speaker 400:38:04Well, 1, we don't know what the new rules are going to be. So we fully loaded it with 82 to say To show you that that doesn't impact our stress capital buffer or our absolute minimum, we're in good shape there. We just need to see where the rules come out. And by the time all that happens, AOCI is going to be in a different spot than it is today, Assuming rates continue to come down a bit, we saw a pretty big move in all of the peers with AOCI This quarter. From a capital standpoint, we think 10% is the right number. Speaker 400:38:44What was the Buyback pace. The buyback pace. So, again, we use the buyback as our last mechanism to help us keep our common equity Tier 1 in that 10% range. And so the pace is do your favorite earnings expectation, take out the dividend, use a bit of that with low single digit loan growth And then the rest is either going to be buying mortgage servicing rights or things of that nature. And then we toggle with share repurchases. Speaker 400:39:20So I don't want to comment on whether we stay on the page because then I'm getting your earnings Got Speaker 600:39:29it. That's a trick. Understood. Speaker 1200:39:33All right. Speaker 300:39:33Thanks, guys. Speaker 600:39:34Appreciate Thank you. Speaker 1000:39:35All right. Thanks. Speaker 100:39:38Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question. Speaker 400:39:44Good morning, Gerard. Hey, Gerard. Speaker 1200:39:46Hi, John. Hi, David. David, can you Speaker 1300:39:49share with us, you guys have given us good detail on credit quality and John you pointed out that the non performing loan increase was to this sectors of your portfolio that you've already identified as being weak. Could we look at it another way? And you give us good details on slides 2728 on the leverage portfolio and the shared national credit portfolio. How are those portfolios holding up credit wise? And when you think back to where we were a year ago, I remember many of the calls, the word recession was used quite often in those calls. Speaker 1300:40:28We're not hearing that on this Q4 earnings call for most nearly all the banks. So have these portfolios held up better than what you would have thought it from a year ago? Speaker 300:40:39I would say yes, Gerard. The leverage portfolio is largely relationship based credit business. Those are banking relationships that we enjoy. We're close to those customers and we've been close to them throughout This period of elevated rates, there was some risk as rates rose that we had that there may be some softness in the portfolio, but I think it's performed well. The same is true of our Shared National Credit book. Speaker 300:41:06As we began to build the Capital Markets business to help us grow and diversify revenue and to meet more needs. We naturally then began to expand the size of our shared national credit book so that we could serve those customers that had need for those products and services. And with that, as you can imagine, comes some toll free risk, single name risk. And While I mentioned earlier, we have a technology credit that's fairly substantial, that's an NPL. That is an example of a Shared National Credit exposure that we have good visibility into. Speaker 300:41:43We think has very limited risk of loss, but still is a nonperforming loan. But overall, I would say just based upon Reflection on the performance of that book, it's been good. We've enjoyed expanding relationships, growing revenue from capital markets and or deposits, treasury management that we enjoy with those customers. And so, I think we've been pleased with the performance of both the leverage book and the Shared National Credit book. Speaker 1300:42:13Very good. And then coming back to loans, I think David in your comments you talked about loan demand remains soft and you're looking for low single digit growth for average loans in 2024. I know during our careers, the shadow banking industry has continued its competition against the banks, but it seems today There's more coverage of the private equity side getting into lending maybe greater than we've seen in years. How are you guys competing against the private credit markets? And at the same time, are any of those private credit lenders customers of yours that you have to balance that relationship of a customer competing against you? Speaker 300:42:59We have a very modest exposure to private equity who then is we're not lending to private equity to in turn lend into our customer base. So, if we have any exposure, it would be very modest there. Separately, we don't See private equity as a competitor necessarily within our core middle market customer base. I asked Ronnie Smith, the question the other day, if he could name a customer that we lost to private credit, and we can't Think of 1. Now it doesn't mean it's not occurring in some of the markets that we're in. Speaker 300:43:40But by and large, given our focus on the core middle market business And investment grade type shared national credit exposure, we're just not we're not seeing private credit as a competitor today On the wholesale side now, there are lots of competitors on the consumer side that we're seeing in a variety of different ways, including mortgage and home improvement that we compete with. Speaker 1300:44:07Which are non traditional depository? Speaker 300:44:12That's right. Speaker 1300:44:13Okay, great. Thank you, John. Speaker 100:44:18Our next question comes from the line of Christopher Spar with Wells Fargo. Please proceed with your question. Speaker 400:44:24Good morning. Good morning. Hello? Speaker 100:44:31Christopher Spahr, your line is live. Speaker 200:44:37Let's go ahead and move to the next caller. Speaker 100:44:39Our next question comes from the line of Brandon King with Truist. Please proceed with your question. Speaker 400:44:45Good morning. Speaker 1200:44:46Hey, good morning. So appreciate the guidance on expenses and expense control there. So I did have a question on just an update on the technology modernization project And kind of what you're baking in for expenses in 2024? And if part of that, all the expense savings is related to maybe delaying some of that project into further use? Speaker 400:45:15Yes, Brandon. So, we've given you our overall Expense guide to be essentially flat after you carve out operational losses from the past year. We continue to make investments in our business. We call it ARC2, which is our transformation project in cyber and Risk Management, consumer compliance, a lot of investment in areas of the bank that we're looking to offset elsewhere. Our R2 project is coming along very well. Speaker 400:45:50We spend anywhere depending on the year 9% to 11% of our revenue in terms of technology cost. We don't expect that to change materially in the short term. We continue to evaluate how we can better leverage technology. And I think we have a lot of upside potential to leverage that in our business to continue to improve and to continue to take out manual steps and manual processes and have a technology solution to. So We think our investment in technology is the right thing to do. Speaker 400:46:28And we're going to have a modern core deposit platform in the not too distant future, which we think will be a competitive advantage for us as well. So anyway, that's kind of the spending range, if you will, 9 to 11 for revenue. Speaker 1200:46:45Okay. And just to clarify, no delays in the timing Speaker 300:46:48Yes. No, to answer your question specifically, that project is on time and on budget, no delays. Speaker 1200:46:55Okay. And then just had a follow-up on credit and particularly in senior housing. Just wanted to get more details as far as your exposure there What are you thinking as far as ultimate loss content in any protections from a credit loss? Speaker 300:47:14We're seeing improvement in the senior housing space, notwithstanding the fact that we have a couple of credits we're carrying as nonperforming. We generally occupancy rates are improving over time. Today, we've got about $63,000,000 in I'm sorry, dollars 57,000,000 in $118,000,000 in nonperforming loans and reserves against those credits of about 3.7%. So I think we've maybe provided information on Slide 20 In your deck, but we are seeing improvement in senior housing as occupancy rates pick up and people become a little more comfortable Communal living again amongst that age group. Speaker 1200:48:04Okay. Thanks for all the color. Speaker 100:48:10Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question. Hi. Good morning. Speaker 500:48:17Good morning. Good morning. One follow-up question, Dave. I think Very notable what you said to Ryan's line of questioning, the 3.6 exit rate for the net interest margin in the 4th quarter. A lot of investors are now focused on that exit rate. Speaker 500:48:35So I'm just wondering if I could ask you sort of what the component pieces is Or rather. So unless you would change anything on the in terms of adding swaps, it seems like you do have 1,600,000,000 Of notional rolling off in the Q4, so I guess that's a good guy. You also mentioned a terminated swap gain in your 10 Q, but you had like a forward look for 4 quarters, wondering what that could be for 4Q 'twenty four. And then more notably, obviously, you guys have said unequivocally that it's the deposit assumption that's really going to make a difference. I'm wondering sort of what the speed is that you're assuming on that 35% down beta, especially if you think that the first Great cut. Speaker 500:49:27I think you said it was in May. Yes. Speaker 400:49:30So, I think all in, the big drivers there are controlling the Deposit costs, we do have a headwind of the $3,000,000,000 notional forward starting swap in the Q1. And then we're kind of in the run rate. The terminated Swaps are in the amortization already. Those aren't the huge drivers. I think after we get our headwind and if rates start to come down, then like I said, almost 60% of our beta is associated with index deposits on the commercial side. Speaker 400:50:03So they'll start to come down. And you start then having, the loan and security repricing, fixed maturity repricing adding 200 basis points, 2 50 basis points that overwhelms that headwind towards the back end of the year you get a little bit of loan growth in the back end. All that helps you propel you to a much stronger 4th quarter finish than you have at the beginning of the year. So I think if you really looked at what is the one big thing that you have to get done and it's controlling the deposit cost And we do that through managing the beta as rates change. Like I said, 55%, 60% of an index. Speaker 400:50:42The other is decisioning we have to make. And that gets to be a little herky jerky because as I mentioned, some of that's money market that we can change pretty quickly. The other CDs that were locked in Today, it's 7 months. And as things renew this month, next month and going forward, we're looking to be shorter rather than longer so that we are prepared to take advantage to reduce our deposit costs as rates come down. Speaker 500:51:11And a follow-up to that, you mentioned 55% to 60% of that down rate of coming from these index commercial deposits. One of your peers made a differentiation between index and contractual yesterday. And I guess just give us some sense of How much of that is contract versus index? And but really it sounds like you're confident that either way you can control that to the downside, especially if as you said loan growth remains soft this year? Speaker 400:51:44Yes. So when we say index, we're talking about it's tied to Fed funds. When Fed funds changes through the contract, it changes automatically. There's no it's not a contractual number locked in like Effectively a CD. It's the day just like a loan that's based on SOFR. Speaker 400:52:02I mean SOFR changes, so there's a loan rate that day. And so that's what we're talking about when we say index deposits. Speaker 500:52:12Okay. Got it. Thank Speaker 300:52:14you. Thank you. Speaker 100:52:17Thank you. Our final question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Speaker 1200:52:23Good morning, Matt. Good morning. Speaker 700:52:25Any updated thoughts on potential regulatory changes to the debit card interchange rate or overdraft fees And thinking about potential offsets to that? Speaker 400:52:37Well, the so Debit interchange going through discussion to adjust that down. This was written in the original law. They had to revisit Costs associated with debit interchange, to the extent that does get put into place that will have a negative impact to us Starting, I think that was going to be kicking in June. So it's about a half a year and based on our numbers that's about a $45,000,000 risk item to us in our NIR. Relative to the overdrafts, we're a long way from Knowing where that comes out, if there are any changes and I think that's a 2025 date that was mentioned. Speaker 400:53:24That just hit the wire. I think there's going to be a lot of discussion on that because we're disappointed in that. We think provision of liquidity to our customer base is really, really important. We do charge a fee for that. We're paying an item For somebody and charging a fee and to the extent we return that item to wherever it was written or used that entity is going to charge a fee. Speaker 400:53:51And so it doesn't it's not helpful to not be able to provide liquidity to our customer base. And, so we're hoping there's going to be further discussion on that point. And I think it'd be premature to really talk about the impact to OD until we get further down the road. Speaker 700:54:09Okay. And then just separately, good to see the Elevate check fraud came down as you And the outlook kind of implies Speaker 400:54:17that you're Speaker 700:54:18confident that you're past this issue. I guess Just want to reconfirm that. And then also just any meaningful changes that you made to address it and whether it showed up in expenses or well? Speaker 300:54:33I would just say that the countermeasures that we've put in place, which include talent technology, process changes, All have been effective. And we believe going forward, the run rate will be $20,000,000 to $25,000,000 a quarter in operating losses. And the expenses associated with those countermeasures are embedded in our run rate and in our projection for expenses for 2024. Speaker 400:54:58Yes. We got to continue to be vigilant with regards to this just like we are with cyber. So we have bad people attacking us as does every financial institution and we have to continue to stay ahead of it. We feel good about What we put in place, but we are not sitting idle. We're continuing to push and challenge ourselves to get even better than we are today. Speaker 600:55:21Okay, perfect. That's helpful. Thank you. Speaker 300:55:24Thank you. Okay. Operator, is that the end of the calls? Speaker 100:55:29Yes. I would now like to turn the floor back over to you for closing comments. Speaker 300:55:33Okay. Well, thank you very much. Appreciate everybody's participation today and interest in our company. Have a good weekend. Speaker 100:55:41This concludes today's teleconference. You may disconnect your lines at this time.Read morePowered by