Q1 2021 Truist Financial Corp Earnings Call

Talked I talked about that if we have questions decrease of 6.3% which we were very happy about we completely five hundred six million of the Chevy. So we had a total payout for the quarter of about 83% We did redeems 950 million dollars of preferred stock during the quarter. I don't have to pay $26 a month for sure which is not excluded in terms of our adjustment to income. So overall if you look at slide eight, you'll see how the adjustments work, which emerge related charges were having a diluted impact of eight cents incremental operating expenses related to the merger that amount in our ongoing recurring charges going forward was ten cents an acceleration cash flow hedge unwind expense of two pennies. So overall it was a very strong quarter of also wide array of performance areas important that we continue to execute on a T3, Thursday.

Which is a concept of integrating technology and and touch so that we yield a high level of trust. And they're very high value proposition, which is providing excellent client Focus, which is the most important factor in terms of judging are crying on a future performance. Now, let me turn it through my bills with some additional detail bill.

Right Kelly. Thank you and good morning everyone. You can see from my page nine our clients continue to adopt digital at a rapid Pace since last March the population of active mobile users has increased 11% or more than four million users networks an important Milestone along our digital journey of the company were absolutely committed to meeting our class where they are dead and increasingly these interactions are happening in the digital space. Our digital Commerce data bear this out as digital client needs have met digital plant needs met have improved 44% of the first quarter of 2020 and represent more than one third of total Bank production of four bags bucks. This percentage is even higher when you include lightstream and mortgage.

the company clients

Ernie we open interact with them across multiple digital products and services mobile check deposits and zelle or two examples both of which were up significantly from a year ago and just just creates additional opportunities to deepen those relationships importantly the increase in digital transaction activity allows our teammates to spend less time on manual execution and more time assessing and meeting a client needs enabled by our integrated relationship management.

We're open side about the new truest digital experience is rolling out to our clients later this year in order to complete the digital migration ahead of the core Bank conversion. We're utilizing an Innovative proprietary wage. It's known as a digital straddle. The digital straddle allows us to migrate clients to the new digital experience in waves reducing reducing migration risk of Kelly discussed earlier and avoiding a one-time migration early next year. We recently launched a successful internal pilot of our new digital experience and expect to migrate our clients at a series of waves during the third and fourth quarters.

Turn to slide ten talk about loans.

First quarter balance sheet Dynamics reflected a combination of mild loan demand ongoing government stimulus and elevated liquidity average loans decreased 8.2 billion bumper the fourth quarter primarily due to a five point four point five billion dollar reduction in commercial balances and 3 billion of Residential Mortgage run off. The decrease in commercial loan balance was primarily for them to lower revolver utilization. It could say you pay down a PPP loans which outpaced move on commitments approximately 3.3 billion of PPP loans will repay during the month and packing average commercial balances by 1.8 billion revolving utilization remain low as clients continue to hold elevated liquidity and access the capital markets month in addition the dealer floorplan portfolio continues to experience headwinds related to supply chain disruptions.

Average consumer loan is 3.6 billion as ongoing refinance activity impacted Residential Mortgage home-equity and direct loan balances these declines though off-set by higher indirect Auto balances, which benefited from strong production, especially in the prime segment.

We made a conscious decision in support of our process too lenient on and we've been the largest lender in many of our markets was also utilization. Is it all time low wage? Our commitments are setting also acknowledge that our Prime Mortgage portfolio is more susceptible to hire prepayment. We recognize these are headwinds, but we're also optimistic that given vaccinations right government stimulus in our own view of productivity and pipelines all support an economic recovery and corresponding poor low-growth.

Average closets increase 7.9 billion sequentially in a million for the first quarter of 2020 reflecting government stimulus and pandemic for landing page average balance has increased across all deposit categories, except I'm deposit while the largest increases were an interest checking and money market and savings the deposit Mickey Mouse favorable Is Not An interest-bearing accounts represent one-third of total deposits truth continues to experience strong deposit growth while maximizing our value proposition to clients home outside of repaid as we continue to experience net new household Road.

During the first quarter average total deposits cause decreased two basis points to five basis points an average interest-bearing deposit cost to climb four basis points to 7 basis points off do the new stimulus. We're up double-digits in total deposit since the quarter is with that. Let me turn it over to Google and just the overall financial performance. Thank you and good morning, everybody continuing on slide twelve net interest income decreased 81 million one-quarter due to fewer days lower purchase accounting accretion and lower wage earning a reported net interest margin was down 7 basis points reflecting a 4 basis-point impact from lower purchase accounting accretion for managers and decreased three basis points as deposit inflows resulted in higher combined fed balances and securities.

Let me speak to the next page to talk about deposits.

Interest sensitivity decreased slightly as the Investment Portfolio grew in response to the elevated liquidity turning to slide 13.

Jon interest income decreased t d 8 million despite record income from insurance and Investment Banking and trading Insurance income increased eighty 1 million lyncourt, reflecting seasonality twenty-eight million from recent acquisitions and 19 million due to a timing chain related a certain employee Benefit Accounts organic revenues to 6.4% due to strong new business cable retention and higher Property and Casualty rates.

Investment Banking and trading Rose thirty two million benefiting from strength and high-yield investment grade and Equity origination as well as a recovery e t a

mortgage income decreased 93 million do to lower production margins and volumes.

Expanse dissipate remain strong in the first quarter non-interest expense was down 223 million link order reflecting $167 million decrease wage merger-related and restructuring charges adjusted nine interest expense decreased fifty-seven million primarily due to lower professional fees and non-service related pension costs offset by Personnel expense.

Personnel expense increased $34 million reflecting higher equity-based compensation higher incentive compensation and payroll tax resets off partially offset by lower salaries and wages turning to slide fifteen.

We are taking full advantage of our unique opportunity to build the best of both franchise. The best of Bill is harder to execute and a typical acquisition, but we are convinced that life science benefits and internal efficiencies justify the effort and expense as we said in January, we continue to expect total combined merger cost for approximately four billion dollars just consists of merger-related and restructuring charges of approximately 2.1 billion and incremental operating expenses related to the merger. We're practically 1.8 million. These costs are not in the future run rate and we'll come out in 2022 after we complete the core Bank conversion and decommission redundant systems.

Since the merger was announced we have incurred 1.3 billion of merger-related and restructuring charges and nine hundred million incremental operating expenses related to the merger continuing on a 16 strong asset quality Matrix remained relatively stable reflecting diversification benefits from the merger and effective problem after resolution. Non-performing assets were down eighty eight million or two basis points as a percentage of total loans largely driven by decreases in the commercial and Industrial Court phone number.

Commercial real estate income decreased eighty million due to seasonality and strong fourth-quarter transaction activity.

Other income was down eighteen million as lower partnership income was partially offset by gains from A divestiture continuing on slide 14.

That's her drops came in three three basis points, which was at the lower end of the guidance range link quarter increased was mostly driven by seasonality and indirect auto loan provision for credit losses was $48 million including a reserve release of 190 million due to lower loan balances and improve economic Outlook off. The allowance for credit losses was relatively stable at 2.06% of loans and leases are exposure of sensitive Industries was essentially flat earthers billion turning to slide seventeen.

Truth has strong capital and end of the first quarter with the one ratio of 10.1%

With respect to Capital return we pay the common dividend of $0.45 per share and had $506 billion of share BuyBacks. We also redeem $950 million of preferred stock resulting in an after-tax charge of $26 million or two cents per share that was not excluded from the adjusted results.

We have 1 and 1/2 billion and repurchase authorization remaining under the share repurchase program the board approved and December.

We intend to maintain approximate 10% one ratio after taking into account strategic actions stock repurchases and changes in risk-weighted assets wage as a result. We anticipate second-quarter repurchases of about six hundred million. We continue to have strong liquidity and are ready to meet the needs of our clients and communities continuing on 518.

If I chose excellent progress towards the net box change the 1.6 billion.

Were there first quarter to reduce source of those fan 9.3% and our closing in on our 10% Target in terms of retail banking we closed 226,000 is in the first quarter bringing the cumulative exposures to 374. We are on track to close approximately eight hundred branches by the first quarter of 22.

We reduced our nonbranch facilities by approximately 3 and 1/2 million square feet that are making progress towards the overall Target of approximately 5 million square feet.

FTE are down 9% since the merger announcement.

Technology Savings of $425 Million by the end of 2022 compared to 2019.

We continue to look at these expense buckets and or broadening to look at other across the board. We are highly committed to our 1.6 billion cost savings Target wage continuing just like nineteen the waterfall on the left shows that we measure Court expenses and cost-savings beginning with adjusted non-interest expensive and then adjusting for the non-qualified plan and the insurance acquisition expenses. We arrive at a core expensive 3065000000.

If you adjust for seasonality of high payroll taxes Equity compensation and variable commissions Court senses would approach fourth-quarter Target of 2094000000.

Or adjusted return on tangible common Equity was 19.36% for the first quarter.

We maintained our medium-term performance and cost-saving targets for 20 21 and 20 22 in moderation of the merger and economic risk mayonnaise to revisit or Target CT one ratio.

Now I will provide guidance for the second quarter expressed in link quarter changes. We expect taxable-equivalent Revenue excluding security gains to be relatively flat.

Gerard Cassidy with RBC

Good image as a follow-up your franchise obviously is located in some of the stronger economies in the US particularly economies that are more open than some of the coastal economies in the new age. Can you share with us the outlook for if you you know, look beyond the current quarter and look out into the second half of the Year about loan growth and Loan demand. I know this accessory that you touched on the Kelly. What are you guys seeing, you know, the turning points where you could see an acceleration of loan growth possibly in the third or fourth quarters of this year.

See those targets we will continue to make good investments in the company to continue to compete and win in the industry.

Is working it's been embraced fully by our teammates. It's in support of our clients and indistinguishable benefit for our shareholders. Keep in mind. This is a long game but you see the beginning of this incremental opportunity in the overall insurance and Investment Banking was old even in this quarter. So, it's Kelly. Let me turn that back over to you. Thank you. I appreciate that. So I don't fly but twenty two. I just want to point out and rim size of our value proposition you believe it is a very strong value proposition driven by our purpose to inspire and build battle life and communities. You have an exceptional franchise with diverse product services and markets from the best in the world. We are uniquely positioned to deliver best-in-class efficiency and returns while investing a future you're saying that happening already for very strong capital and liquidity position with very strong resilience in terms of risk profile enhanced by the emergence. So we have a game

Good morning, Kelly Bill. How are you?

Gerard

Okay, before I use up my second question. So the 649 annualized have you updated that for the first quarter or no?

can you guys share with us? If you look at the credit outlook for your company in the industry we've seen an incredible reduction in the credit cycle because of the policies pursued by the Federal Reserve in the US government last year. Can you guys give us your thoughts on how you see credit Cycles going forward they permanently potentially Fountain because of what we saw last year or is this just such an aberration that we shouldn't read into what we're seeing with this lower, you know flatter credit cycle.

We expect reported net interest margin to be down. I think we'll digits driven by a mid-single-digit decrease in poor margin and three to four basis points of purchase Accounting Office dentist income should be relatively flat due to the growth of the balance sheet.

And say updated it. It's you know, we really just gave targets for the fourth quarter. It's going to be lumpy but you know, it's it's hard to project a trajectory down every quarter just because you have a real business that Dynamic and moving but we make good progress in fourth quarter to the first quarter and we will get our Target by the fourth quarter of this year. Okay, and the second question since insurance is such a standout and I had firms insurance sales at least Greenspan to ask the follow-up. Yeah. Thanks Mike. So I was hoping to get a $1 with an insurance on the organic growth on it keeps up to 6.4% in the quarter on the left quarter to call you guys had pointed to 5% for the first half of the year. So I guess what's coming in life than you had expected and how do you see the rest of the year progressing from here?

Non-interest expense adjusted for merger cost and amortization expected to be relatively flat.

Yeah, I'll take that. I think first of all what you know, that is exactly right about our franchise. I mean, I think whatever happens and whenever it happens I think will be disproportionately possibly benefit. So I think we'll sort of be the first and that and that cycle and we see that not only you know in case of markets being more open, but just the migration I mean the migrations of companies that migration of individuals. I don't think that's quite showing up in the data yet, but that's going to show up cuz we absolutely absolutely feel that that being said, you know, if we start so say the same order of starting. For you know for low growth. I think it's reasonable to think that sort of core low-growth. Let's exclude PPP format because you know, we're a little overweight and I got paid arms related to to that we look at Coral own Road, you know, I think we have reason to be positive for the you know for the latter part of the year in and virtually all our businesses. Yep.

Anticipating that charge off of a range of thirty to forty five basis points and a tax rate between 19 to 20%

If you look out and the 20 21 improving economic conditions may allow for further Reserve releases overall. We had a strong quarter including excellent expense management and strong asset quality now, let me hand it back to bill for an update on Earth.

I would say in some details on that. I don't believe this eliminates ongoing long-term credit Cycles. I mean I think to to believe that you would have to bring that we have somehow takes the economy and fix the nature of humans making decisions and humans getting greedy and and and humans off and indulging any excessive how does not believe that has gone away nor will it go away, you know, once we flush through this massive amounts of stimulus into the economy, but we will undoubtedly see some accessories. It'll likely lead to some corrections down the road that nobody projecting now and I don't project and every two or three years but there will be something else. It out all this excessive money in into the system. So so we have had a heading into the pandemic we had about a ten year kind of steady economy, you know, most people would say

Earnings streams with less volatility relative to many of our Peters over the long term but you think about the quarter and all in overall and and wrapping up. I just say again. I think it's a very strong court is a very interesting and challenging times but look things are getting better. It is getting better. It's too soon to declare that it's over but you know hospitalization rates are down and infection breaks down and it seems to getting out really really fast. So we're encouraged by that the economy is clearly improving we said before and I would re-emphasize we believe as we head into the second half. We will have a Samsung Galaxy conomy. This economy was not wounded before we headed into this. We simply shut it down for appropriate reasons. Now, we're beginning to see the opportunities that we believe Could Happen which is turning it back on as easy as it might have been other other types of economic crisis that we've seen. So true that position really really, well. You have a great culture. You have great markets. We have a great team.

Thanks, Darryl. I'm going to take us to page twenty. I'm going to take this opportunity to share our progress on integrating relationship management and share two examples of what we call a natural fit business is working together to benefit our clients. When truth was formed. We said we create value by combining our distinctive client-focused banking experiences with greater invest in technology in a stronger mix of financial services offerings as Kelly noted earlier. We called us approached III touch integrated with technology equals trust off.

Christmas we did have a very exciting growth number, you know, the elements that would be pricing was in the news business. I would like pricing was uh, you know, not what I'd call it the TV surprise increase around seven per-cent. I think great thoughts generally anticipated continue increasing throughout 21 retention. We did let along in retail that were just under 91% We were having them down and you know, we're on the time of the market where a lot of that risk is shifted to the wholesale segment wholesale is actually up to 84.6% So retention actually continue to perform just maybe a touch better, but we do continue to see that shift to the wholesale new business would be an area of a point to that page.

Bank loan, you know stand example on the opposite side, but poor cni and then the rope and mortgage and then businesses like lightstream and indirect off others that are more positive. I think your general premise is right and I think we're well-positioned and I think that's, you know latter half of the Year phenom.

Business strategy cuz it really Builds on the strengths those drugs include industry-leading client service and loyalty and advice based business model A differentiated offerings included trust Securities truest Insurance Holdings and the truest Leadership Institute and leading technology like our mobile banking app integrated relationship. That's a framework for putting into practice across to us. We'll all of our lines of businesses and most importantly for all of our clients. We start with a client understand their needs a gauge our business partners through a, and technology-based referral and accountability process as mentioned. We have natural Synergy such as the relationship between commercial Community Bank and Trust Securities. This business is by nature a little lumpy and episodic driven by client needs, but were very pleased with our momentum referrals around by a factor of 3 and one year and have more than doubled birth.

Including myself. We were probably heading into a collection. Now we've had what will be two or three years of experience. We haven't had a question called to the excessive data flow in two or three years and that was about a fifteen or sixteen year protracted period of relatively stable decks out to grip from but then we'll go back to fairly normal sound of economic. What do you think about normally around a long time credit will come and go leaving involved in here. This is going to have a credit cycle in the future. So that's why you always have to log into your long-term underlying principles and you can't ever forget there will be another credit cycle. So I agree.

We have a great purpose to inspire and do a better live in communities and it's creating really engaged teammates. We have real benefits from the merger that are being realized single day. You heard some of those have very strong performance and T3 and ERM as Bill described and that's really powerful. The merger integration is on track. We are reducing every single day. It's all going really really well. We believe we have the opportunity to accelerate into what I consider to be a very positive Snapback economy. We fully believe our best days are ahead. Okay. Thank you Kelly Katie at this time. If you would come back on the line and explain how I was going to come participated in Q&A session.

Thank you.

Thank you. I'll take our next question from Mike Mayo with Wells Fargo Securities high specific questions. Can you give me an update on the annualized costs money at the percentage of the of the target? It was 640 million annualized fourth-quarter was a targeted 1.6 billion and I you know and along with that, you know, you're still sticking to $29 billion dollars of expenses by the fourth quarter that's down despite an increase in buying based expenses off his car insurance and capital markets. And why is that and if that's the case, why wouldn't you be upping your ultimate merger expensive and Target?

I've been a brighter spot and and we would have seen a quarter ago in business production was about 12.8% which is very solid and what we saw in the corridor was every month of February was January March was better than than February etcetera. And that's kind of what drugs the 6.4 organic and I would also take it back on the off. My bill later earlier arm is actually in real estate of an impact. And you know, when when we say that there was a link where you have only to the Carson Community Bank and see that gee well the retail Community Bank, we're actually spending time talking about that and making sure we have alignment expectations in place and that's that's having a marginal impact as well.

The last quarter we continue to train bankers and are increasing both the number and quality of referrals as we share client wins. He may have gained confidence and motivation to fully leverage off that we have for the benefit of their light clients moving to slide Twenty-One to discuss the effort at true Securities and curious Insurance Holdings and the relationship with SunTrust clients in particular or false Insurance have increased more than 2.3 times compared to the first quarter of 2020 and more than 50% sequentially leave a game systems trained around a similar practice groups, which allows us to double down on industry expertise for our clients. I can really speak from experience that this was a real area of excitement from us and this is really just in the early stages of growth.

And thank you and go ahead bill. I am not going to lose that discipline and you know because of this cycle everyone anticipate a highly Diversified business in the stone Capital base to fulfill our value proposition.

Thank you. If you would like to ask the question, you may signal by pressing star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment should limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. Once again star one if you'd like to ask a question.

Yeah like that. That's a great question. If you take our on the side that we had in the deck and look at what our core expenses are the 3065000000. And if you back out to Sea Shack already that we had in the first quarter do that to the payroll tax resets and the equity, you know, it's about fifty million dollars. They're we're probably at 3 billion, you know, 15. Give or take a little bit there. We did have higher incentives higher incentives this quarter. We're really driven by our performance and revenues and just overall, you know, great performance throughout the company so long. I I I I I kind of carve that out but you know from a court perspective. I think we can you make good progress. We are totally committed to get getting to the two billion 9:40 that we talked about last quarter wage. We're on track to get there you notice in our comments, you know, we said we're looking at these five buckets, but we're also broadening out and looking at other areas as well and there we are going to get a dog.

in terms of

Outlook the second quarter we display commissions to be about 3% We're moving out of work order which is our second highest court of the year in during our signal is strong and certainly while I was still in a certain age of impact it's going to have on the economy and said we we think that would just still very positive in this business because we should continue the same for each price and we haven't seen a lot of failures in business or we think we've been continuously stable as far as our units e n s values are still strong. So yep and and given that we are Diversified in both wholesale and Retail really helps us in this in this type of Market.

So integrate your relationship manager.

So we we think pricing momentum will be already talked about a week out losses. Is this quarter price of being up a 77 range of those, you know flat with you before we didn't see an umbrella in excess of 14% d i a for example professional liability of 11:00, but another area wage benefit disproportionately is commercial property first apartment was up eight and a half you had a lot of that that's very helpful to us and coaches all the coverage classes about half of the month and all account sizes were up in the you know, the six and half and half percent kind of range. So

targets for sure and if we

I would I would say for next quarter Outlook would be you know, mid single-digit organic Road even giving the the uncertainties are there. We feel very solid about that walk you through everything, you know, there's outside of the terms of the economy that unions benefits of driving even stronger new business and I think we continue to mature as Bill pointed out of the states are on process and that that that gives us as well. We do close one small acquisition in the quarter and we certainly expect to be open to do more of those than. You will Zone balance will really good about prospects balance of 21.

Thank you. We'll take our next question from Betsy. Graseck with Morgan Stanley. Hi, good morning.

Maybe that's just the first question. I just wanted to make sure I understood the expanse guide were two Q because I think you mentioned Daryl relatively slack you on to you and I wanted to understand if that was right and and maybe some of the things that you're thinking about. They keep it flat instead of maybe coming down a little bit.

Yeah, that's the and and my prepared remarks. We did say when we thought expenses and the adjusted basis backing out the merger and restructuring. The incremental Emily would come in relatively flat and Thursday. We continue to make good progress in the buckets that were showing and we are starting to broaden out. In other areas. We will have higher revenue and fees in certain areas just because of seasonal strength in the second quarter of that. We feel pretty good on how the orders going to come in and I'm an expense perspective. I think we're on a good trajectory and we're going to hit our targets.

From what I'm hearing from the prior.

Conversation to is that the fence improve an acceleration is picking up as you move through the year?

That would be the anticipation.

And then just separately on the revenue side. I know you haven't baked in the you know, Revenue synergies, but I just wanted to get a sense to whether or not you could speak to what you're seeing. So far in terms of you know, picking up new new accounts or expanding the productivity of the account that you're with relative to what maybe you're you know budgets. Our goals have been you know so far. I know I know COVID-19 kind of put a wrench in that but maybe you can speak to how your life my training at this stage.

Yeah, that's it's Bill. I thought you know, as I said the penetration that were experiencing the referral volume that we're experiencing probably see it most acutely and in the results and Investment Banking and insurance, but it's really sort of look at some of the overall Revenue line. It's really everywhere. I mean, so we've been careful about you know, one specific Revenue Synergy against one specific thing because that's not the goal. The goal is to expand all of our relationship goal is to listen to our clients integrated system together have it the highly technology supported one platforms with really good accountability and strong and that's the that's the value proposition. So, you know, I think a real answer is just see it in the in the overall results again. I pointed out to that were more efficiently off.

In all of our businesses, you see the advantages of what we're what we're implementing is part of the truest Irish Pub proposition.

Best contact on just in the commercial Community Bank, for example, we saw activity up 15% this past quarter, which is a really good number and household name and all that. And so I think it's a function of what Bill what Bill saying we just begin to see movement sort of across-the-board.

Okay. Yeah, that was that was kind of a question in particular post, you know as as we've been reopening do you feel like that has been picking up and then you're in your answer seems like the answer is yes. Yeah. Absolutely. Yeah, that's the other part of your question. Yeah, that's I think we're experiencing that a little bit of proportionately. We're probably leading the country in terms of reopening and reactivity and we feel that in virtually all of our business, you know, we came into the fourth quarter of last year was a lot of excitement and then second quarter was covered. We took the wall but the excitement for the perseverance in the balance of the end. We just saying I think it ranges consistently improvements for the month by month.

Okay. All right. Thank you.

Hi, can you guys talk a bit about your strategy of deploying liquidity in the Securities, you know one of your personal off the charity little bit less than a quarter what's kind of just a philosophy and and and capacity as we look forward.

Right now Matt, you know, what we were doing is we are investing or accessibility that we've gotten in from our deposits. We're we're averaging about twenty billion dollars at the FED which I think is a comfortable cushion that basically handle any volatility. We might get there the Investments we're making is a combination of mortgage-backed Securities and treasuries wage, you know, we are averaging up a little bit on the that we have on the portfolio that we have out there today from that perspective. You know, I think the way we think about it is we're going to have liquidity wage fair amount of time, you know, when we're going to have cash flows and you know kind of does fail in into what Bill said earlier, you know that the best thing that could happen to us is loan growth starts to pick up the second quarter into the second half of the year, you know, when we basically basically run off some Securities that are you know in the mid 1% ranges and we reinvest them into loans in New Jersey.

Four or five or six percent range and basically keep the balance sheets about the same size and just improve our revenue and earnings over. Also. I think that would be the strategy for us to do that. If for whatever reason that the pet starts to shrink their balance sheet and liquidity comes out you gotta remember we have eight to ten billion dollars of cash flows coming off with a folio every quarter that we can absorb anything. So I think we're taking good balance wrists in our Target right now is to keep, you know, net interest income even with the run off of purchase accounting why you know for the next several quarters and hopefully that will pick up towards the end of the year as we get meaningful longer.

Okay, thanks. I just want to follow up on the last question series of questions regarding Revenue synergies, you know understand kind of pushing it all the businesses and not trying not necessarily definitely but you know as we think longer-term and the opportunity to become a little more paranoid, like if I'm thinking, you know loan growth takes up and there's some loans that Legacy BT offered that's on trusted it and vice versa. It would seem like the numbers can start being a little more material and I did want to see if over time you might provide more details on the magnitude of of the synergies, you know, so far as you talk about kind of copper Market sizing some of that in the fourth quarter, but bring it all together over time. Is that something is considered?

That I think we will definitely do that, you know.

Provide, you know timely information on the list marginal important issues that is billing Chris Illustrated, you know, we really have a broad-based opportunities. I just loaned deposits all types of fee income but we are really just scratching the surface reason we keep emphasizing this concept is because that is the most powerful concept and we think we have an edge on that because it focuses on all of the client's needs all of the time we build a culture where everybody works together. We got systems to exchange information to be integrated across organizational boundaries. And so yes, you're right. I think you can be positive in terms of expected Revenue enhancing visitor forward as we begin to penetrate more of a game.

Thank you. We'll take our next question from Matt O'Connor. What do I do you make?

Okay. Thank you.

Thank you. We'll take our next question from Erika najarian with Bank of America.

Good morning.

My question as we think about the prospects are willing balancing back for the rest of the year, you know, could you remind us how many of your clients are either non-investment grade or you know don't have a debt rating. I guess it's a big struggle investors have is you know, the capital markets are wide open, you know private Equity firms because he needs to be aggressive and private credit off, you know, instead of wondering. You know, what what that universe is of your clients or potentially would mean, you know a bank balance sheet in order to expand.

Erika this is Bill. You know the key has to have a really balanced portfolio. So yeah, we have a good number of clients who you know access to Capital markets, you know, that's sort of that core strength of that middle-market Community banking model and you know, they'll they'll use bank loans at their their Prime Avenue Avenue for growth, you know, then you see the other side of that though. That's the only equation, you know, we have four rating scale up certainly on the log and you can see the large corporates going back. There are the most efficient way of borrowing we've got a lot of revolvers out, you know, just a little bit of rollerball more utilization increase is a pretty, you know, significant loan tracker for us. So I don't think we necessarily think about it as the non investment-grade investment-grade in terms of a separation. We think about it in terms of the balanced portfolio and drive it from the client needs birth.

The client wants Capital markets and that's the most efficient way. We have great access and great capabilities great products for those that want to have a bank product. We've got a great portfolio of those type middle-market plants and and are able to serve them. So I think our optimism is really predicated on just this concept of a balanced portfolio versus one one versus the other subjects.

Yes, mm.

I think build up a great point on Long rates rising and revolvers becoming more attractive. I think that has that point hasn't been made as locally. So thank you for that and the follow-up question if she clearly, you know consumer spending corporates are Awash with cash. Do you expect that that with cash balances have to be drawn before, you know corporate office, especially we love her or you know, are your clients telling you that they're going to keep a little bit more cash on hand given what they went through during the pandemic month.

I think everybody's trying to figure out the answer to that question. You got to Consumer and business. I'll come in on business and Chris and coming on consumer. I think what you're going to see is that businesses are going to end up maintaining more liquidity than you would expect as they begin to weigh in on new credit facilities weapons Capital markets awful. It's bank balance sheets. And the reason is because I think you going to see leaders of businesses that you know, very unnerved with a Great Recession and then just years later got very unnerved with the private experience. The end result of that is going to be psychologically a very reserved view that argues for maintaining the quiddity even as you age and so I personally expect that you're going to see borrowing increase faster than most people expect as we head into the latter part of this year and still maintain liquidity.

Thank you.

Erika consumer what we're seeing right now is checking balances are about 30% higher and savings balances or you know, 140% Obviously a lot of that's driven off or Landing to a curve, you know, they've got to be we've got to be demand and I think we we are seeing spending now on non-discretionary type of things with em, I mean as discretionary type of things do you think I think when cash depletes there will be there will be more money, but it is tough today for home equity type products as a result of old statements.

Got it. Thank you all.

We'll take our next question from Houston with Jeffries.

Thanks. Good morning. Everyone. Just wanted to follow up on the the income side. I think embedded within your kind of flat revenues and Flatbush and I I kind of flattish fees and Chris had talked about the month plus 3 is percent outlook for insurance. So just wanted to understand that given that there was a gain in there to this quarter. Just what are some of the other moving parts of fees as you look out worked out you it sounded very optimistic at the beginning of the month about the outlook for fees and just wondering what you think continues to be the the other positives and then some things that might be settling back out off of recent strength. Thank you.

I can either from a perspective, you know, I think you know Insurance, you know, as Chris said will have its largest quarter of the year in the second quarter. So that will be strong. You know, the second quarter activity is usually dead wrong in the payment Area Activity. So I think all those will be a relatively strong. I think we're calling for tighter margins in a mortgage area so that I think even though we'll have higher volumes. It might have lower revenues they're potentially and then if you look into the induction Banking and trading areas, we did have a CVA adjustment this past quarter, you know, we're glad to continue to have rates continue growing up. We don't really have a good prediction for rates are going to go up or not export or not. So we're just kind of saying that's relatively flat they do have strong pipeline so and the m&a area and other boxes, so I think they're still be strong but today was a benefit for us this past quarter, but I think overall and we feel pretty good about these and they're right now there will be dead.

Relatively flat and we'll just see how the quarter unveils and you know, hopefully we can beat that performance.

Got it. Great. And secondly, you've used up before this potential to really look at that 10% ct1 and obviously getting through the rest of the pandemic would probably be Priority One, but what about factors that you need to continue to evaluate that and it could could it be a big Delta or you talking about just mail modest changes as you continue to, you know, tighten up on what this company looks like over the long-term. Thanks.

Yes, I can you've heard of say that the the relationship between capital and risk is what drives our Capital decisions, you know going into the merger and up to the current moment. We've tried that they risked externally were substantial. We judge the risk of making sure we do the motor right or material and I look forward what we see is that the risk externally are mitigating factors mitigating economic risks are mitigating. So it's certainly not it's not some huge existential avenge don't anticipate the external factors or mitigating meaningfully internally that it's got earlier the risks are reducing daily. And so it does set forward job opportunity for us to have some Capital actions that they can be attracted to our shareholders. It's hard to judge right now than T reality of that because you literally have to take it off.

One thing we should have all learned is the projecting out in this kind of environment six months of nine months now is just not rational and so you have to kind of take it more carefully, but as we do as we bought a dress began to continue to material materially mitigate, we do have meaningful opportunity in terms of capital deployment.

Got it. Thank you Charlie.

Thank you.

take our next question from John pancari with evercore is I

Morning on the margin front. I mean you got it to some incremental compression in the second quarter and then then the fourth quarter, so I'm not a big creative pressure than expected to think. How should we think about a bottoming of the margin? When do you think that could materialize you expect that to the third quarter and and maybe give us something to drive that? Thank you.

Yeah, John Sophia. If you look at the margin, you know, I'll start off with our core Marjan Marjan was 269, you know, we're guiding that to be down mid-single digits. So I think we'll stay in the in the 260s, you know, given what we know. It's really a function. This is like as hard as it's ever been and trying to forecast actually Morgan number because of all this excess liquidity going on and what's happening with the loan portfolio and all that that's sad, you know, we expect to get more deposit growth, you know as they sing this plays out that's going to continue to put pressure on a margin no matter what we do with those funds right now until loan volume picks up. We're either going to put it at the fed or going to invest the dollars. So our margin for margins coming down, we believe that would probably say in a to sixties for out most of this year. Hopefully, you know, and if as loans pick up in the second half of the year, we might you know be in the higher range of tu soja

Please like right now it will just say, you know, mid-to-lower to sixty s you know, and then you know, if you just look at the the gap or reported margin, you know, we are running off of purchase accounting and Thursday. It's about three or four basis points at quarter is what it's been in time doing the last couple of quarters that will continue. So we're at 3:01, you know and the adjust for coming down and then you take three or four down, you know, that will come down, you know probably end up in the two eighties give or take by the end of the year depending on what happens with the increasing runoff, but that's life. And I think the important thing there is that we we are focused on managing nii and we're guiding for at least flat if not better than nii as the year plays out.

Got it. Okay. Thanks. That's helpful and and then separately on the loan growth front mention a couple of times now the likely inflection in quotes and ideally in the back half of the month or two, like maybe you can help us think about that the pace of growth that could be true realizing the back half and and more importantly what type of one group is fair to assume as we look into What's going at the 2022 or we talking about the low single-digit days of being reasonable.

Yeah, I think you know it's it's hard to project out to a lot of punk a lot of events that are going on. But you know, we just look at things like pipelines and look at them Productions. We look at things like the you know, the impacts of those so I do think you can look at overall and think about poor and think about Sunday. We're talking about single-digit kind of growth. There's a lot of part of the year the things that can influence that more would be as I mentioned earlier revolvers Equalization changing things like that, but I need to look at some of the Korg part I would think some of averaging single digits and then of course pressure just have to remember we have a little bit of that headwind and the and the total number but we really think about our core pack and a half of the year, you know, some type of single-digit, uh opportunity.

Thanks to all the trouble.

Thank you will take our final question from bill carcache with wolf research.

To follow up on your DSG commentary and the release how long have your discussions evolved with different stakeholders investment. You're making the source of differentiation or are they stable snakes? And how about the financial impact of the SG?

Yeah, so we we feel very good about the the long-term Financial impacts of Jesus. Clearly. The right thing to do for our communities wage for the economy at large to be honest. It's bumpy right now for all of us to figure out you know, what the near-term economic impacts are because we're off we're all fairly new at this but there's no doubt with the long-term economic impacts will be very positive not to mention the quality of life and the future for our kids and our grandkids and so, we're really committed to a very aggressive and broad-based ESC program. You just seen a lot of things we do and like our page. I'm sorry to a bond there has been a lot of things already in terms of training environment. We have lots more plans as we go we go down the road. So it's something that we all dead.

Community need to be highly invested in truth is I think long-term and short-term. It could be a little bump off as an opportunity versus a requirement. That's how we want to think about it. I think our teammates have embraced that and I think it just they're things that will just make us a better company than a society.

That helpful. Thank you. And if I may as a follow-up separate question for a Darryl, could you give some additional thoughts around the variability on either side of around the 2.4. So I continued with several quarters to go through 2022. How do you think about the potential for these to come in either? They're better or worse any perspective? They're great.

You know, I would tell you, you know, we're on track of getting about four billion dollars. You know last year we did about one point three billion, you know, if you had the two numbers together, you know, this year will probably be you know, one point to 1.3 billion as well this year as the numbers come through and then we'll finish out and get the rest in twenty-two. So I think we're just on track right now, you know willing our main focus to be honest with you is to really do a great job on the conversions to make sure everybody has a really positive client experience. I mean, that would be the best outcome of all, you know, and you know what the cost we should that we have in there should be able to enable that to happen.

Very helpful. Thank you.

That will conclude our question-and-answer session. I'd like to turn it back over to our speakers for any additional or closing remarks.

Okay. Thank you for all for joining our call. It says complete our earnings call. We apologize to those in the queue that we didn't have time to get to your questions. We will reach out to you later today. Thank you, and we hope you have a great day.

That concludes today's call. We appreciate your participation.

home

Thanks. Good morning. Kelly in bill. I wanted.