Q4 2020 First Hawaiian Inc Earnings Call
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Michelle.
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Ladies and gentlemen, thank you for standing by and welcome for the first Hawaiian Inc. Q4, 2020 earnings Conference call.
At this time, all participants on a listen only mode.
After the Speakers' presentation there'll be a question answer session.
To ask a question during this session.
Paul.
Please be advised for today.
If you require additional assistance you May press Star then zero as we can operator.
On to hand, the call over to Kevin Husky on please go ahead.
Thank you Michelle and thank you everyone for joining us as we review our financial results for the fourth quarter of 2020.
With me today are Bob Harrison, Chairman, President and CEO, Ravi <unk>, CFO, and Ralph Mesick Chief risk Officer.
We have prepared a slide presentation that we'll refer to in our remarks today. The presentation is available for downloading and viewing on our website at average be dot com in the Investor Relations section.
During today's call, we will be making forward looking statements. So please refer to slide one for our safe Harbor statement.
We will also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations for these non-GAAP financial measurements to the most directly comparable GAAP measurements and now I'll turn the call over to Bob.
Good morning, Thank you for joining us today I'll start by giving a quick update on the current situation Hawaii.
We have seen an increase in Covid cases, following the holidays, but the magnitude of the increase is nowhere near what is being experienced on the mainland and appears to be tapering off as we get farther from the holidays.
As of yesterday, the statewide seven day average of new cases was.
111.
And the corresponding positivity rate was two 5%.
And thanks for the hospital capacity on all of the islands remains good.
Vaccine distribution is starting to state wide and this week. The first mass vaccination site was opened on Oahu.
Regarding the visitor industry the pre travel testing program for Trans Pacific passengers is still in place.
We saw an increase in vacation arrivals in the second half of December and since then vacation arrivals are followed back to pre holiday levels.
About 4000 people per day.
It's likely that arrivals from the west coast, our largest market are being negatively impacted by the recent surge in cases there.
The economy is showing signs of gradual improvement as the November state employment rate improved to 10, 1% and the housing market remains strong.
The housing market on Oahu ended 2020 on a strong note.
On the median single family home price in December was 870.
6% higher than the prior year and there were about 36% more transactions than the previous December.
For the full year of 2020, while I was single family median home price was 830000.
5% and the number of sales was up two 3%.
Turning to slide two we finished the year with a solid quarter.
Diluted earnings per share was <unk> 47.
And the board maintained the dividend at <unk> 26 per share.
55% dividend payout ratio.
Fourth quarter pre tax pre provision net revenue increased 10, 3% over the third quarter to $107 million.
Net interest income and noninterest income increased while expenses fell.
Deposits grew by $330 million.
Driven by growth in consumer and commercial deposits, partially offset by a reduction in public deposits.
The improved deposit mix helped to reduce our total cost of deposits by two basis points to 11 basis points.
That contributed to a one basis point increase in our net interest margin.
Now I'll turn it over to Ralph to go over asset quality.
Bob if I could turn your attention to slide three I'll make a few comments on credit.
Asset quality continues to hold on and we entered the year well positioned.
In Q4 realized credit costs remain low, but we made an incremental provision of $20 million at yearend to build our reserve for future loan losses.
The provision address some near term uncertainties, we see ahead of the rebound expected in the last half of the year.
Net charge offs for the quarter for $1 $42 million.
Compared to a slight recovery in the prior quarter the net.
Charge off ratio was for the year was 23 basis points to total loans up 19 basis points from 2019.
Adjusting for the gain on the held for sale loans liquidated at the start of the quarter day rate would have been just 18 basis points in 2020.
NPA is a 90 day loans were down again in the fourth quarter as a percentage of total loans the rate decreased six basis points from the prior quarter.
15 basis points at December 31.
On a year over year basis, the ratio increased by one basis point Chris.
Criticized assets continued to decline.
As well dropping from five 458% of total loans at September 30.
<unk> 2022 for two 3% at year end.
The anticipated increase in past due loans has not yet materialized loans.
30 to 89 days past due to total loans rose four basis points to 30 basis points at the end of Q4. This is five basis points lower than the number of reported at December 31 2019.
Okay.
Moving to slide four.
You see a roll forward of the allowance for the quarter by disclosure segments.
The reserve increased by about $12 6 million.
For $208 $5 million, which is 157% of total loans and $1, 67% net of PPP loans.
The build this quarter was judgment based on our outlook for the recovery in the second half of the year is unchanged, but we added loan loss reserves this quarter to cover potential near term uncertainties.
At year end, we saw we saw increasing infection rates across the country, most notably on the West Coast, which is a major tourism market for the state at.
At the same time, we noted a slow rollout on the vaccinations and possible delays in fiscal support with the transition to a new administration and Congress. We believe these factors could result in incremental stress within the commercial book.
Our qualitative overlays supports default expectations not embedded in our loss models with the AD.
It's about 28% of the reserve at quarter end, the bulk of the overlay is attributed to Covid.
Turning to slide five we see the composition of our commercial portfolio by risk rating as of the quarter and we.
We remain focused on strategies to manage at risk credits to support specific retention rehabilitation and exited objectives as.
As mentioned earlier the level of criticized assets continued to decline in the fourth quarter.
Since the peak reported at the end of Q2, we have seen a decrease of about $181 million on criticized loans were about 117 basis points of total commercial loans. The reduction has come on a combination of loan sales repayments refinancings and upgrades.
On slide six you see an update on outstanding loans that have received deferrals at the start of the pandemic.
We performance continues to be strong and the delinquency rates low.
About 83% of the loans by balance have completed their deferral period.
Around 91% of the borrowers have returned to payment and a small portion has been offered a second deferral based on additional considerations.
Commercial loans seeking additional modifications increased from $56 million to $79 million.
Consumer loans seeking additional modifications increased from $25 million to a $121 million for the bulk of the increase related to residential mortgages.
Are the loans still on first day for all our residential mortgages as we have mentioned before these loans that went on to for over well collateralized with about 97% of the balance is showing an LTV under 80%.
With that let me turn the presentation over to Ravi <unk>, who will provide more details on our financial results this quarter.
Ralph.
Turning to slide seven period end loans and leases were $13 3 billion.
Down 221 million for one 6% versus the prior quarter.
Residential mortgage loan balances grew $21 million due to strong refinancing and purchase activity.
Growth in residential balances was offset by loan sales in the fourth quarter.
Consumer loans continue to pay down and demand for new consumer loans remained low.
Construction projects continue to draw on their lines and balances grew $73 million.
C&I balances declined driven by a $73 million decrease in shared national credits.
$119 million of PPP loans that were forgiven or paid down in the quarter.
And was offset by a $77 million increase in dealer flooring balances.
Excluding the impact of PPP loan forgiveness, C&I loans declined by about $32 million.
This week, we started taking applications for the second round of PPP loans.
As of the end of January 20th we have received 1781 applications.
Excluding the impact of PPP loans, we expect loan growth in 2021 to be in the low single digit range and we expect demand to pickup in the second half of the year.
Turning to slide eight total deposit balances ended the quarter at $19 $2 billion, a $300 million increase versus the prior quarter.
This increase was driven by a $442 million increase in consumer and commercial deposit balances, partially offset by $112 million decrease in public deposits.
Public time deposits declined by about $204 million.
Our cost of deposits fell two basis points to 11 basis points in the quarter.
Turning to slide nine net interest income was $135 2 million or $1 $2 million increase versus the prior quarter.
The increase was primarily due to $1 $5 million and lower interest expense net.
Net interest margin was $2, 107%, a one basis point increase from the profit from the previous quarter.
The margin was helped by PPP loan fees.
Lower deposit costs.
Higher investment yields partially offset by lower loan yields.
The amortization of PPP fees contributed about two basis points to the margin in the quarter.
The investment portfolio book value adjustment in the quarter was not material and didn't impact the margin.
We expect the margin excluding PPP loan forgiveness to decline in the first quarter by 5% to eight basis points.
Given by lower loan yields lower security yields and partially offset by lower funding costs.
Turning to slide 10, noninterest income was $53 6 million.
A $4 7 million for $7 million higher than the prior quarter.
The increase in noninterest income in the fourth quarter was driven by higher levels of customer activity and onetime items in the other income line.
The significant onetime items include the sale of our commercial loans, which generated a four to seven.
$7 $2 million recovery.
The settlement of tax returns related to the separation from BNP.
Which increased other income by $1 2 million.
And a $4 $8 million charge on the funding swap for the visa B shares sold in 2016.
Excluding these items non interest income would have been $50 million.
Noninterest expenses for $88 $1 million.
$3 $5 million lower than the previous quarter and the efficiency ratio was 46, 6%.
Turning to slide 11.
In 2020 expenses came in well below our original outlook for about 6% growth over core 2019 expenses.
This was driven by a combination of pandemic related factors.
Compensation expenses were lower than expected as head count was held relatively flat throughout the year.
Production related compensation expenses were also lower and higher than projected residential mortgage originations led to higher deferred loan origination costs.
Transactional activity related expenses, such as card rewards were well below normal levels in 2020 due to declines in customer activity.
In 2021, we will continue to diligently manage our costs.
But we anticipate that expenses will be about 7% higher.
And then the unusually low 2020 levels as activity begins to normalize and we continue our technology investments.
First inflation related increases such as health care costs and other embedded contractual increases for Labatt will add about 1% to 2%.
We also expect to return to higher levels of customer activity in 2021.
For example, we will see production level compensation production, driven compensation levels and card rewards expenses increase this year.
Relative to 2020 this normalization of activity levels is expected to add about 2% to expenses.
Finally, we remain committed to our investment in technology, we are in the middle of our core system conversion and continued to respond to accelerated digital adoption within our customer base. These.
These investments in technology and the core replacement project will add another 3% to 4% to expenses.
2021, we're committed to investing in the business and at the same time, we're looking for opportunities to gain efficiencies in other areas and reduce expenses.
Now I will turn the call back over to Bob Thank.
Thank you Ravi.
Wrapping up 2020, it was a challenging year for Hawaiian our bank.
And I'm very proud of the way everyone on the organization came together and responded.
2021 will be another challenging year as we continue to navigate the pandemic.
Economic and social impacts.
We're very optimistic that things will improve especially on the back half for the year.
The Covid situation Hawaiian has stabilized at a controllable level.
<unk> rollout is underway and we've seen the unemployment rate dropped by over 50% from its peak.
As Robert mentioned, we also have a number of technology initiatives going on in 2021.
On the middle of our core conversion, which we expect to go live in the second half for the year and we also have several other technology projects underway that are set to go live during the year.
We have a lot ahead of us, but our ability to be agile and innovative.
Continue to enable us to serve our customers on the community.
Now we'd be happy to take your questions.
As a reminder to ask a question. Please press Star then one on your telephone.
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Again to ask a question. Please press Star then one.
Our first question comes from Steven Alexopoulos from Jpmorgan. Your line is open.
Hi, everyone.
Thanks, Steve.
I wanted to start so Bob on the mainland U S. Many banks for talking about optimism levels building amongst business customers. What are you seeing in Hawaii is that translating into stronger pipelines at all.
I think we might be a little bit behind the mainland on that.
We're seeing people talking about it but as.
As we've talked about on the return to tourism wallet popped up over the holidays as it typically does.
It has settled back down at about 4000 people a day.
So we really haven't seen the build yet when we expect to see that really this quarter next quarter hopefully is.
The other virus gets more under control on the West coast and people get more comfortable here, we have seen a strong return to employment, though on that has certainly helped our activity numbers that Robert mentioned whether that.
Credit and debit card spend or merchant processing to service charges for all of those have increased relative to earlier in 2020, but they are back to 2019 levels yet.
Okay. Okay. That's helpful color.
And then on the allowance given our strong credit quality was in the quarter, particularly risk rating migration.
Price by the $20 million provision rate most of which went to bolster the reserve.
Could you give more color be for Ralph on why you needed to increase the reserve this quarter.
Yes, Steve.
At the end of the year as we were looking at what was what's happening we've kind of looked at what.
On the infection rates were on the U S mainland in particular, California.
We had some concern there.
We did note that.
Explanations were coming up but we were unsure of how quickly.
That rollout will occur.
And then I guess the last last thing is this really trying to understand.
How the administration.
Successful they would be in terms of getting some other programs up PPP ramped up and what what would come out of Washington in terms of support for people on unemployment. So I think all of those things we sort of said, what we thought there'd be some near term stress, perhaps in the portfolio and we put really basically just a judgmental add against a.
Actual book, not a large AD, but I think where.
Where we stand now with Bob Inc.
Over the course of the year about $138 million in reserve Bill.
We're in a pretty good spot right now.
Okay. That's good color and then final question on PPP to point out.
And when you look at the pipeline there do you think it could be enough to offset the runoff of round one or do you think net PPP balances fall through the year. Thanks.
Yes, Thats excellent question, that's really hard to predict.
As we saw with PPP won a lot of activity at the beginning is its running about again the only two days so not a whole lot of information.
Information is running about.
One to three and three beam.
For the people that already out of PPP loans applying for a second one and then the one being the new borrowers so about 25% 75%.
It's really hard to predict if that's going to continue and at what level.
Okay fair enough. Thanks for thanks for all the color.
Okay.
Our next question comes from Ebrahim on the Waller of Bank of America. Your line is open.
Good morning, guys.
Good morning, Good morning, I guess.
Let's start with the margin one Robert.
Just remind us.
I guess your guidance for five to eight basis points compression excludes any PPP fees, just remind us in terms of whats remaining in PPP fees than you would expect the majority of the first zone, our loans to get forgiven in the first quarter.
And if you could add to that in terms of just two other outlook for the core margin beyond the first quarter.
Incoming new PPP loans.
What are the valuable at all from into the margin stabilize as it moves up or down to be on one kit.
Yes.
Sure I can take that <unk>, just maybe a clarification on in Q4.
The margin in Q4 was $2 seven 1% and I think as we look forward with respect to the margin the big drivers for Q1 and as you know.
Ebrahim, we only give guidance one quarter in advance and.
In particular, we see the drivers ex PPP is.
In Q4, we saw the loan yields fall about four basis points I think we expect a similar impact in Q1 from.
Securities yield standpoint, we see that being relatively flat to down I think in cash levels. I think is sort of an unknown and certainly.
We've seen average cash levels go down quarter over quarter, but.
End of period balances were up.
And that's going to put some pressure on margin, maybe one or two basis points on deposits.
In particular I think.
We're down two basis points on down to 11 basis points, but just.
There is less room to go down over time.
Maybe moving to PPP loans, and just talking a little bit about that in particular.
We had about.
I think we mentioned.
On.
About $119 million of PPP loans paying down that contributed about two basis points to margin and it's about.
$1 5 million in in.
Fees collected I think about four.
<unk> $400 million in.
PPP loans are in the process of being forgiven and so we should see that roll through over the course of a quarter or two and you can extrapolate a one 5 million on $120 million of balances to the to about roughly half rolling off in the next quarter or two and a corresponding.
Fees and impact too.
To the margin over time.
Got it thanks for that and then.
Just in terms of going back to on the provisioning outlook.
My sense is you're not going to see a significant change in ER visit data on all of those.
By the time he pseudo ended the first quarter if not into.
The middle part of the Oh Wow can you just talk to us in Dumbo should we expect continued modest flow, though based on till you get to.
Better visibility on those are just take on.
I'm just wondering from the outside of Covid.
Better.
Stakes on the vaccine distribution in this COVID-19 cases coming down that's going to be on Bob for you did not book those anymore.
We continue to see the buildup on India can be seen on the ground activity pick up and on the visitor arrivals et cetera.
It's really hard to predict what we're going to do with reserves I mean, I think we do look at it every quarter in terms of actually month to month in terms of what's happening.
We haven't really changed our outlook for.
On recovery, we think we're going to see one on the second half of the year. So if that were to change I think that would be a factor.
We anticipate hopefully holding our local loans criticized assets.
Around where they're at today and if that holds as well and that's a good sign on.
And we do anticipate that we will see some.
Deterioration in terms of payment rates. So we'll have to see sort of see how all of those things flow in.
Before we actually.
Make a call on that but it's really hard to say right now.
And the only thing I would add to that <unk> is Bob.
After quarter end seeing that.
The other way the politics moved and the administration has both the house on the Senate the prospect of additional stimulus money to support the economy and hopefully.
More organized rollout on the vaccine.
We'll just have to see how that plays out but if it plays out well those could be a nice positive.
Got it and if I could just sneak one more then.
The 7% expense guide on Ravi that you gave.
I'm, assuming that already reflect any cost savings.
Action that you plan for the year and then any component that's tied to sort of non growth towards revenue growth fell short of expectations you have some leverage to bring down that 7% Jade.
I would just say we are.
We're always looking at opportunities to manage expenses I think we've got a pretty long and consistent history of doing a good job there.
Think if we see.
Activity levels pick up as we mentioned.
Hopefully demand will pick up by the second half of the year, we will see you will see economic.
Economic activity and corresponding growth in noninterest income, which will drive expenses on the other side either compensation related expenses or in the case of cards card rewards expenses and so.
We see those expenses rise, we're going to see revenue also rise as a result.
Thanks for taking my questions.
Our next.
Question comes from Jared Shaw of Wells Fargo. Your line is open.
Hi, everybody. Good morning, Thanks for taking my question on it.
And maybe just sticking with the with the theme of return speaking too for some people I think that you know.
Really feel that.
Visitor arrivals are going to really return back to where we were in 2019 by the end of the year, but when I look at the zero data it still looks like.
Still looking at 2024 to get back to that peak level of about 30% to 40000 visitors.
When you were talking about a recovery in the second half of the year for.
Are you talking about recovery back to in 2019 level of visitors or are you talking about more like.
Call. It 18 to 20000 visitor arrival and not being enough to share.
Take most of the strain on photos of the system in the near term.
Hey, Jerry this is Bob maybe I'll start on hand, it off to Ralph we really are looking at the same euro projections that I believe you are in.
Certainly no expectation that will return to the 30000 visitors a day by the end of 2021.
So we see in the back half of the year much more of a build as the virus is under control.
Activity starts to return.
Anecdotally is just I think all the surveys HPA is doing there is a lot of pent up demand for a wide, but thats going to be much more on the back half of the year, but I don't see a return to 2021 levels I mean 2019 levels this year Ralph yes.
Our outlook has been for the last I would say.
Three quarters vary.
Very consistent with you here on and it's going to be on a slow recovery.
As I said, we're anticipating with the vaccinations that we'll start to see that recovery happening in the second half of the year.
Okay. Thanks, and then you know as we as you look at that I guess sort of the level of recovery how dependent upon additional stimulus.
Is this day to sort of bridge that gap and then.
You've done a great job of actually not having any or any real losses should we expect to see actual loss content materialize in 2021.
And as I said, we've put away on the last year about $138 million.
And we're prepared for losses right now as we look at the portfolio and look at our larger exposures, our customers seem to be very well positioned to deal with.
Stress.
Where its less less visible is really I would say on the smaller businesses and and maybe some of the landlords for those smaller businesses holiday sort of share through this so I think we're well positioned where we're at right now I think we've tried to be very realistic about what could happen.
But a lot of this is sort of outside of our ability to really forecast.
And more specifically to your point on stimulus money, that's certainly helps individuals and consumers and I think we're seeing that nationally that.
The delinquencies.
Net charge off rates for consumers is lower than expected and thats certainly been on our experience to date, so it's definitely making a difference.
Okay, and then just maybe if I can squeeze on more on just finally on like how do you look at your capital levels here, you've clearly been so growing capital capital is strong.
Any any desire to do anything more meaningfully in terms of capital management here, just until we until we get out from from or get to the subtle where you.
You're happy to continue to build capital.
It's something we're very focused on the ordinary.
Ordinary dividend that we announced but also at some point returning to our share repurchase program. That's a key component of our long term capital return strategy.
Sure.
Our goals haven't changed so as we've talked about a 12% common equity tier one we ended the quarter at $12 47, so clearly well in excess of that and as we see the economy start to recover maybe some improvement in the west coast as we talked about earlier some of our markets more stimulus money. Those are all things that we're going to look to.
As we decide when to consider restarting the share repurchase program, but it's something we're very focused on and we hope to be able to return to that soon to supplement the ordinary dividends.
Great I appreciate the time thank you.
Our next question comes from Jackie Bohlen of <unk>. Your line is open.
Hi, good morning, everyone.
Hey, Jack one zone.
Net start up on fees and our non interest income Ravi you touched on this a little bit with some of the.
The offset that we could see COVID-19 expenses.
And particularly at the 2% that.
You guided to in terms of higher production comes from activity in all of that.
If I wrote it down correctly, you reported roughly around 50 million, excluding one time costs the run rates for the current quarter.
Just wondering is that a good starting base heading into 'twenty, one and as activity picks up where you might see that go from there.
Yeah.
Jackie I think I think the $50 million number I think has been.
Within a $1 million or two every quarter has been a pretty pretty steady place, where we've been I think.
I think that comes from a diversity of sources of fee revenue that we have on the noninterest income line certainly if.
If we start to see activity levels pick up youll see some of those lines also benefit from them starting with service charges.
Pretty good stabilization in Q4, that's driven really by activity levels.
Credit card and debit card was up quarter over quarter about $1 6 million and we saw.
Certainly good growth on interchange fees and also in merchant services in the quarter and so as activity picks up we could see some good growth there.
And that will obviously also have a have.
<unk> have an impact on card rewards expenses, but certainly those those lines are poised to two to grow over time as we start to see more activity locally.
I think as Bob has mentioned in the past our trust and investment services income has been extremely solid.
With.
Pretty good growth and diversification of revenue primarily from our recurring revenue which for.
Revised the stability during periods of low economic activity and I would just say there is.
Plenty of opportunity in this diversity of sources of income where I would say if you look back at 2020 and a period of very low economic activity. Our branches were closed and we took some actions to support the community like waiving ATM fees that.
Overall noninterest income has been very solid and stable and we expect it to be there and actually grow a little bit as economic activity returns in 2021.
Yes, Jackie just add their obvious comments for especially proud of our.
Wealth management area, they really well.
Went out of their way to connect with customers and talk to them and actually did better than last year. Our assets under administration is now just under $16 billion 15.9 billion and they actually.
On a fee basis did better than 2019, which is terrific.
It really was by taking care of their customers.
Okay. Thank you both that's wonderful color and in terms of mortgage and swap activity.
In the quarter, how much of a contributor where each of those.
Yes, the swap activity was.
Relatively good it sort of picked up at the end of the quarter as we saw rates start to pick up in particular, the 10 year rate picking up we saw our customers.
Looking to manage interest rate risk and so we saw growth of about.
900000 in the quarter and and certainly.
As rates move around that tends to cause our customers to think about future rate profile and it tends to drive activity in the in the swap line and so to the extent that our customers are interested in hedging interest rate risk certainly we have the products and services to be able to serve them and I think on the mortgage.
Certainly we had a we had some sales in the quarter and that contributed about.
About half a million tier $1 million in.
Noninterest income fee fees and so right now.
We see that as an opportunity when we when we think about the mortgage book and we think about sources of funding and loan growth, we look at that in totality.
It is a lever we can pull whenever we have the opportunity to.
Okay, so somewhat of a balance sheet management tool as well.
That's correct.
Okay, great. Thank you.
Yeah.
Again to ask a question. Please press Star then one.
Our next question comes from Andrew Liesch of.
Piper Sandler your line is open.
Good morning, Thanks for taking my questions.
Just wanted to circle back on the dealer flooring book increased this quarter.
Yes.
How is the optimism there, especially on the mainland I mean, the car manufacturers, obviously had been shut down for a while and.
They revamped their production.
My thinking is that could be a pretty good source of loan growth maybe sooner than the second half for the year. So what's the tone out of this.
These borrowers.
Andrew This is Bob.
Youre on the right track there that clearly the dealer suffered by not having enough supply in Q4, and we've talked about that.
Early well actually Q3, leading into Q4, and we've talked about that as production was coming back online, we expect balances to increase which is exactly what happened.
Production continues to improve so there's still an opportunity for some growth we ended.
The third quarter $300 million less than the year prior I cant remember Ravi for fourth quarter was relative to the year prior but we're still well under the 2019 levels.
Essentially the same.
Customer base. So there is a potential for improvement in loan balances as production continues to ramp up.
Got it.
<unk> actually already covered all my other questions. So thanks, and I'll step back.
Thank you.
Our next question comes from Laurie Hunsicker of Compass point Your line is open.
Hi, Thanks, good morning.
Morning.
If we could circle back here.
Remaining net.
Fees on the P. P. P book as of right now without obviously, adding any new loans what is the dollar amount.
Don't have that right in front of us.
Yes.
It's about $14 5 million.
Okay.
Okay.
And then I just wanted to make sure I heard you wait on Inc.
Expenses, so so for looking at it today your run rate going forward from that today is $88 million, it's going to be somewhere in the $90 million to $99 million per quarter.
That's about right yeah.
Ramping up over the period of the year on.
And.
I mean can you just can you just help clarify.
Adjusting for all you're doing on the expense side that we're going to see that direction on go higher.
Yes, I mean, I guess, we've kind of talked a little bit about that we mentioned the inflation related drivers.
And it probably do an increased buyback increase our expenses by about 1% to 2% we talked about the activity based item either production compensation levels are things like card rewards as activity starts to pick up I think there is probably about 1% to 2% there and then our commitments to technology, we've kind of talked about this for a number of cash.
<unk> in particular, our core conversion, which were in the middle of and we feel thats going to enable us to be more digital both from a customer and an internal perspective.
And you know thats going to add to cost from our very very low 2020 levels you get another 2% to 4% there and Thats, how we got to the 7% and that's going to ramp up over the course of the year.
And so and once that core conversion is complete does that cost on Carlyle.
Paul.
In other words, if we look to 2022.
What would you expect on the expense side on a relative basis and I realize that's further out I'm just trying to I'm just trying to reconcile from Marci.
Core costs being cut across the board at regional banks and.
And you've got a ramp.
Maybe a pause from fall back.
No I mean, I think the way we think about it is that we're going to be amortizing those costs as we as the system goes into production, but things are going to stay relatively flat, we might see some benefits by putting on a new core from that.
On an efficiency standpoint, and we will start to realize that over time as those efficiencies get built into the business processes that we have in our organization, but we expect those cost tied to core to stay relatively flat looking into 2022.
And Laurie this is Bob just to add to that so there is certain things you can capitalize on amortized on so that goes into the 2021 number but on a run rate basis, we're not expecting a huge difference.
From the current core technology on the new one even though we're going to get a dramatically improved product.
Really the investment is coming into other areas of technology and that's what we're speaking to.
Okay, Okay, great and then tax rate, how should we think about that going forward.
So the tax rate.
For the quarter was 23, 5%.
I think.
It might tick up or down a little bit depending on where we see frankly.
Frankly, our projections for net income for 2021.
A lot of our benefits on the tax line come from our investments in low income housing tax credits. So if you think of that as an absolute benefit to the tax line or the tax expense line as as income goes up obviously.
Our overall tax benefit.
From a dollar perspective stays about the same and grows a little bit so.
Our tax line could increasing net income increases.
And Lori of course, all of that is assuming no change in corporate taxes coming out of the current administration.
We would obviously have to wait and see what comes.
And that in that area before we were able to really dial in on that number.
Right right. Okay, and then just last question here on deferrals for your commercial deferrals continue to drop nicely.
On your down CAD $89 million or one 4% do you have a breakdown of what your deferrals are in terms of hotels retail auto.
Being in sort of the biggest component and maybe also transportation credit and leverage.
Yes, if you look at the slide Youll see that Theres, not really a big amount that is in the commercial book.
So nothing significant there are none of our larger customers with.
Would be in that.
That number.
So they are holding up pretty well.
So just I mean, just even in terms of the hotelier Hotel book right around $470 million, how much is on gift for all there.
Yes.
We have I believe maybe one small credit.
And that's it.
Okay, great. Thank you I'll leave it there.
Our next question is a follow up from Jackie Bohlen with <unk>. Your line is open.
Hi, Thanks for taking my follow up.
I just wanted to make sure that I'm very clear on on that expense guidance. That's on a full year 2020 expenses as the base not an annualized fourth quarter number is that correct.
Thats correct Jackie.
Our 2020 expenses for the year were.
A little bit below a $368 million and thats the base.
We're running from.
Okay, great. Thank you for the clarification.
There are no further questions I'd like to turn the call back over to Kevin Husky AMA for any closing remarks.
Thank you Michelle we appreciate your interest there first Hawaiian please feel free to contact me. If you have any additional questions. Thank you.
Again for joining us and have a good weekend.
Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.
Yes.
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Okay.
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Okay.