Q4 2021 BankUnited Inc Earnings Call
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[music].
Good day and thank you for standing by welcome to the Bankunited 2021 fourth quarter and fiscal year earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during that session you will need to press.
One on your telephone.
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I'd now like to hand, the conference over to your Speaker today, Ms. Susan Greenfield corporate Secretary of Bankunited is greenfield the floor is yours.
Thank you Craig good morning, and thank you for joining us today on our fourth quarter and fiscal year 2021 results conference call on the call. This morning are Raj Singh, our chairman President and CEO , Leslie <unk>, our Chief Financial Officer, and Tom Cornish, Our Chief operating officer before we start I'd like to remind everyone that this call may contain forward.
Looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.
Reflect the company's current views with respect to among other things future events and financial performance.
Any forward looking statements made during this call are based on the historical performance of the company.
The city areas are on the Companys current plans estimates and expectations.
The inclusion of this forward looking information should not be regarded as a representation by the company that the future plans estimates or expectations contemplated by the company will be achieved such forward looking statements are subject to various risks and uncertainties and assumptions, including without limitation those relating to.
The company's operations financial results financial condition.
Prospects growth strategy and liquidity, including that impacted by the COVID-19 pandemic. The company does not undertake any obligation to publicly update or review any forward looking statements, whether as a result of new information future developments or otherwise a number of important factors could cause actual results.
To differ materially from those indicated by the forward looking statements information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2020, and any subsequent quarterly reports on Form 10-Q , our current report on form 8-K, which are available at the SEC's.
Web site Www, SEC Gov with that I'd like to turn the call over to Raj.
Thank you Susan welcome everyone. Thanks for giving us your time to listen to our earnings.
Yes, we have somebody asked me how would you summarize in 30 seconds or less and less sharply with doing that.
Summarized labs.
Last quarter's results I would say $1 billion of loans through the round numbers will get into the exact numbers $1 billion of loan growth.
Deposit growth 11 basis point expansion in margin and improving credit trends pretty much across the board.
Earnings per share of $1 41, so good increase in book value as well.
So this was obviously a very good quarter for us.
Been waiting for for some time, we told you at the beginning of last year that we expect loan growth to come back in the second half of the year.
A little bit longer, but it seems to be here now that you have.
What we've done on the left side of the balance sheet.
There are a number of notable items this quarter so.
I'm not going to go through them I wouldn't have Leslie go through them.
In her comments, but what I'd ask is for Tom and Leslie and myself will go a little bit faster than we usually do because there's a lot to cover today, so quickly jumping into it we had $1 billion.
Loan growth, excluding PPP of course.
And.
Think about when we were first quarter, we had a reduction of $500 million loans second quarter, we were down just a little bit second to the third quarter, we were up a little bit and now fourth quarter were up very nicely 1 billion. So the momentum is right loan demand, we're seeing that come back across industries and across geography.
So it's a broad base and Tom will get into the details of that income came in at <unk>, given at a 125 million or $1 41 a share.
As compared to $87 million or <unk> 94 last quarter ROE for the year given at 13, 3% ROA was $1 16.
Net interest income increased by $11 million compared with last quarter. So very happy about that margin expanded from 33 through 44.
Cost of deposits is going down it didn't go down as much and Leslie will get into that but we expect it to go down again more this quarter than the first quarter.
The pause was 19 basis points for the quarter previous quarter was 20.
We ended the year on December 31 spot was subsequently was 16 basis points over January one with starting at 2016 and hopefully a different take on more.
I think at some point the cost of deposits will eventually inflect im not sure. If it's the first quarter in the second quarter, but we're getting close to bottom.
The rate environment is unchanged.
Deposits grew 1 billion three for the quarter average noninterest DDA grew 419, though period end decline of 183.
Which was a lot of movement that we saw in the last quarter some of that in the <unk>.
Last week of the quarter some of that has reversed itself in the first two weeks, but thats just usual.
Activity that we see.
Credit metrics continue to improve like I said criticized classifieds came down again nicely by $367 million as did.
Loans that are in deferral or modified under the cares Act that we are going to look really small now NPL ratio was down to 87 basis points from 121 last quarter.
If you exclude the guarantee portion of SBA loans. It was at 68 basis points NPL ratio was down to 58 from 80.
The charge offs for Florida last year came in at 29 basis points compared to the prior year, which were a 26 basis points.
On the buyback.
I'll give that to me would be.
Opportunistic.
And when we see weakness in the stock price, which is exactly what you did last quarter.
We bought back $182 million of stock.
It still leaves about $27 million authorization, but when that is completed we expect to go back to the board.
More because we are sitting on a lot of excess capital book.
Book value per share is now $35 47.
Tangible is a $34 56.
<unk> come a long way in the last few years.
The macro environment in our markets lithium.
I really cant ask for anything better.
One last thing that I was asking for as loan demand to come back and Thats also back.
Line usage is up.
Our people are this year that they have been since before the pandemic.
Which is a really good sign also rate environment is going to change.
And that should also marginally held banks.
And as rates normalize.
The.
Overall the economy.
Measured through unemployment, whether you measure it through collateral values.
There is.
A lot of good news around.
Challenges there are still some challenges obviously.
Going through another wave omicron I'm not sure how many letters that are left in the Greek alphabet, but.
That's something we still have to pay attention to.
I don't think its really had much of an economic impact.
But.
But we just need to be aware that we are still in the middle of a pandemic. Additionally, snack our plans for getting employees back into the office yet again.
So.
That's number one.
Black and issues are still.
Real inflation headwinds are still there and labor market is tight things that everyone knows I'm not saying anything.
Chattering and competition is still intense but overall were feeling very optimistic.
Where we stand at the beginning of this year strategy for us looking forward into 2022 and even beyond.
Our emphasis is to build a commercial bank and keep building a commercial bank last couple of years.
Had been a bit of a curve ball and I see us basically returning to what were doing before the pandemic, which has continued to grow our commercial.
But.
We have in the last three years, you could look at our balance sheet and say it has gotten.
Much laser in terms of the spreads of assets that are on I think that's true for every bank.
If you see what has happened.
Securities buildup in jumbo residential buildup.
Going forward this year and into next year.
The strategy is to basically go back and invest and grow higher spread business, which is the commercial business and to bleed down the lower spread business late in the securities portfolio.
So we have.
Talk to you a little bit.
Cryptically about expansion into markets I will tell you what those markets are one will not surprise anyone which is Atlanta.
Had attempted to do that just before the pandemic and had really bad timing.
We are convinced that is a good market for us and we are really doubling of efforts and instead of doing it.
On a piecemeal basis, we're going to do it.
Holistically, but C&I CRE Treasury management the whole.
Suite of sales team in Atlanta.
So that is in the works.
Should be operational hopefully in the next quarter or so the other location is.
We'll need a little bit of explanation, so bear with me, it's actually Dallas.
And.
And why Dallas not contiguous it's far away its a competitive market while the reason is.
As you know, we already do a lot of business nationally, especially on the deposit side.
We've had a lot of success over the last three or four years in Texas and we have round.
Around numbers about half a billion dollars of deposits from clients in Texas.
We're reaching that place, where we cannot grow that business without presence on the ground. So we have to invest with some people in the branch I don't expect it to be more than a branch at least not in the medium term for committed firm just one branch and few people will do but.
But we can then serve not only the existing clients that we could grow that book easily double that business in a very short period of time. So we're very bullish on that because we already know the pipeline is there and just converting that it's getting harder from far away. So those are the two markets, Texas at least initially not going to be so much about lending other than that.
I think we already do in Texas to our national businesses, but overtime I think that will open up other opportunities on the asset side as well, but we're going to start with the deposit side.
The.
There is another.
Short announcement.
Coming weeks, you will also see an announcement from us on overdrive.
Policy, we look at our overdraft.
Policies are already very very customer friendly.
We really don't.
That's it.
Somehow we make a living.
And we're basically walking towards eliminating consumer overdrive.
It's a rounding error for us we already are a very customer friendly bank. So why not just do this and it's not going to have any material impact to the bottom line.
Quickly guidance for next year.
We expect basically loan growth to come in single mid to high single digits more coming out of the commercial side and less or maybe not even any from the residential side.
Certainly nothing from.
No growth in securities probably shrinking that now.
The idea is not to drive this by just growing the balance sheet, but by improving the mix of the balance sheet.
And keeping capital free for you.
Buybacks, we've done quite a bit last quarter.
Last year.
There is no reason why we would do at least as much this year if not more.
Deposit growth.
That's always a focus it's not the number one priority that's not going to drive earnings.
And we will continue to stay focused on growing demand deposits, but really our attention is on the asset side.
NIM is expected to we don't make bets on interest rates, we said that hundreds of times, we try to stay neutral on assets, we are mildly asset.
Sensitive at this point in time, so as rates rise.
Middle of the year and.
Onward, we expect some help from that.
To our margin expense.
Expenses.
It is a tough.
And Barton.
Given the what we're seeing in the labor market, we expect expenses to be also mid to high single digits.
And <unk> is expected to grow next year.
So with that.
Leslie I don't know if I'm missing anything if I did I will come.
Come back to it but Tom I will pass the microphone to you.
Alright, Thanks, Raj So as Raj said for the quarter exclude.
Excluding PPP loans, we grow by over $1 billion, it's the largest.
Loan growth we've had in several years. So we were very excited about that we see a lot of positive trends.
Break it down in total commercial loans grew by $500 million.
While the residential segment grew by $541 million $110 million.
41 versus within the <unk> segment.
On the commercial side, the largest increase was in our C&I businesses, which grew by $566 million for the quarter.
66 56, sorry.
I think the thing.
Asked about that was not only was it a significant amount of growth obviously, but it was very broad if you. If you look at the supplemental information.
In the deck you can see it's across a number of industry segments. So we had been talking about strong pipeline in the last earnings.
Earnings call that we did and we really saw it come to fruition.
In this particular quarter. So that was extremely encouraging mortgage warehouse balances grew by $215 million and utilization was up to 56% in that area commitments were up over $200 million for the quarter to approximately $2 billion continued growth in commitments is expected for 2022.
CRA CRE area declined this quarter by $181 million.
I would point out that two thirds of that decline was.
And some of the weaker asset classes that we see which was.
Retail and hospitality and even within retail and hospitality the two glasses that.
Declined the most were.
On anchored non anchored retail and independent hotel change. So those are those are parts of that asset class that we're not.
Putting any emphasis on and we'd like to see a decrease in exposure to so generally we were happy to see that most of the other asset classes within Cree were down slightly but relatively flat we do expect.
Mid to high single digit growth in both to create both accretive in the C&I segments for the year franchise portfolio declined in the fourth quarter as did the equipment finance and clinical portfolios.
'twenty two we expect franchise.
To continue to decline a bit although we will lend into selected concepts growth is expected to resume in the equipment finance, we've critical portfolios in 2022.
Utilization, we've continued to see positive trends in that area. So as Raj mentioned, we're seeing growth in the economic scenarios in the markets that we do business in.
Actually from a C&I perspective.
All segments grew all markets grew we had a particularly good quarter in New York and the.
C&I segments, So I think all of that.
It's very encouraging the operating lease portfolio was down $19 million this quarter and is expected to be flat to down slightly in 2022, as we continue to deemphasize our exposure in the equipment finance area, especially in the energy area and shift more to equipment leasing product within our <unk>.
Market clients, just a quick update on deferrals and care Act modifications on commercial a total of $172 million and commercial loans were made on modified terms under the cares act compared to $244 million at September 30.
All of the commercial loans that have rolled off modification to date have either been paid off or resumed regular payments on the residential side, excluding the Ginnie Mae early buyout portfolio.
$33 million of loans, where many don't short term deferral or have been modified under longer term cares Act repayment plan as of December 31.
96% of the residential loans have rolled off 96% of the residential loans that rolled off deferral or modification have resumed regular payments at this time.
Closer to comment on.
DDA as Raj said, we did have some fluctuation in larger accounts at the at the end of the quarter, but we still see.
Strong core DDA growth.
Across all of our kind of core banking teams and if you look at the total year, we grew <unk> by 28%.
For the year and if you look at the shift in composition, we ended the previous year at 25, 4%.
Ended this year at 35% so very substantial.
Shift in composition and increase in Ni DDA overall for the total year, so with that I'll turn it over to Leslie for some more detail on quarter.
Thanks, Tom.
Start with the margin the margin increased 644 this quarter from $2 33 for the third quarter.
The yield on loans increased to $3 50 from $3 45 last quarter. It really wasn't one one thing that drove that.
A lot of different factors contributed to that increase the yield on securities increased to $1 54 from 149 last quarter.
The main factor leading to that increase with slower prepayment speeds on the securities purchased at a premium and you might recall, we've been kind of on the.
Securities yields has been kind of getting beat up by year.
Accelerating prepayments lately.
So that still move.
Duration of the portfolio is still short at about one five.
Total cost of deposits declined by one basis point quarter over quarter and the cost of interest bearing deposits declined by two basis points. One point I want to make here is that we have.
In anticipation of a rising rate environment extended some duration within the deposit portfolio by issuing some callable Cds.
It's kind of moving that number in the opposite direction.
We terminated some outstanding cash flow hedges this quarter with a notional amount of $401 million on a weighted average rate of $3 24 and.
And this along with the maturity of some of the other higher rate hedged advances reduced the average cost of equity <unk> borrowings from $2 35 to one eight we.
We took a loss of <unk> 44.
On the discontinuance of those hedges.
We were able to terminate all of the hedges that had pay rates over 3%.
Yes.
A tailwind to the NIM going forward.
For next year as Raj said, we do expect the NIM to increase that increase will be more backend loaded because obviously in rising rates are one of the things that's going to drive that increase in volume.
With respect to the provision and the reserve the provision was $246000. So pretty much zero. This quarter slides 10 through 13 of our deck provide you with some further details on the reserve the reserve decline from 70 basis points of loans.
On September 30 to 53 basis points at December 31 main reason for the decrease in the reserve frankly with charge offs that we took during the quarter, we had net charge offs of $34 2 million.
$24 million, a big chunk of that was related to this one commercial loan that we've been talking to you guys about for several quarters now so that should have been something you are expecting to see.
The vast majority of those charge offs were reserved for at the beginning of the quarter I think 33% to $34 million. So that led to the decline in the reserve this quarter other things.
Offsetting factors that impacted the provision for the fourth quarter for the fourth quarter was $13 million decrease related to improvement in the economy.
Our model for telling US really we should have had another $13 million decline in the reserve we were quite comfortable with that with the <unk> variant floating around out there and some uncertainty remaining around fiscal and monetary policy. So we pulled out a qualitative overlay to the reserve.
Offset that in terms of the qualitative overlay went up by $15 $6 million this quarter.
The risk rating migration and charge offs and again detailed during the dotcom slides 25 through 27 total criticized and classified commercial loans declined by $367 million. This quarter for a total decline of $1 2 billion for the year 2021.
Total nonperforming loans decreased by 71 million to $206 million this quarter from $2 77 at September 30th $34 million of that reduction with the charge offs that I referenced previously.
Looking at looking at other income and expense for the quarter and I know Theres a lot of noise in there and I'll try to walk you through some of that.
In the fourth quarter, we recognized the gain of $18 $2 million on the sale of a portfolio of formerly covered loans.
That sale was related to a tax planning strategy that was the reason when we sold those loans.
Yes.
Otherwise with respect to noninterest income we continue to see a steady increase in deposit service charges and we do expect noninterest income to be up.
Mid to high single digits for 2022.
In the expense on the expense side I, just talked about a $44 $8 million charge related to the discontinuance of some cash flow hedges.
Also in December we paid a special bonus to our employees at $6 8 million Ross did you want to elaborate on that a little bit yes, yes, there's one item I do want to talk about it.
We saw all of this happening in the quarter, we saw the big tax.
Refund from the state, which we had for many many years for sort of.
<unk>.
Global type of thing.
I looked at.
The team has done over the last two years through Covid, we have not done anything that hazard or anything like that for anyone but at that time I thought that sharing a small portion of this.
It's a very wise long term investment in our people.
And we decided to do a $5000 bonus for every employee in the company.
It's usually bonuses are performance driven people, who make more money gets bigger bonuses and so on this is not that this is basically everyone got $5000.
Whether you are tailor, making entry level salary or you're running a big business you've got $5000.
I cannot tell you the amount of goodwill the company earned through the $7 million.
And I know this will.
This will provide a return which is hard to measure over the many many years to come people will remember this.
<unk> changed the.
Dialogue in the company.
And it just so happened it was in the fourth quarter. It was close to the holidays. So the timing worked out well.
And the feedback that I've gotten.
Just.
I'm glad we could do this and we have the.
The earnings of the one time earnings too.
To be able to fund this through so that's really what the thinking was everyone got $5000.
Okay.
So on that happy note that we have.
Are you also.
Recorded $4 $2 million in professional fees in the fourth quarter that related to the Florida tax settlement.
A $2 $8 million impairment charge on some of the older sand cars in our railcar fleet.
The future cash flows.
Come down some.
So all of those.
Notable expense items totaled $58 $7 million pre tax for the quarter.
Aside from that I am sure you know.
This is the compensation expense, even taking into account that $7 million special bonus was elevated this quarter. It was really due to adjustments that we made in the fourth quarter to our variable compensation accruals, we had a really strong growth quarter, which led to some increase in our incentive accruals and the strong year that we had we decided to up our discretionary.
On this call as well, we think that's something that we're in.
We're happy we're in a position to be able to do that for our employees and so those two things totaled another $4 $6 million.
Income taxes, I think we've talked enough about the Florida tax settlement net benefit of $43 $9 million Youre, all aware that unrelated to that we released some reserves for uncertain tax positions, resulting in additional tax benefit of $25 $2 million, that's really related to exploration as a federal statute of limitation.
<unk>.
Some states patchy for the well around some tax positions will be tough when the tax rate was reduced from 35% to 21%.
Even after considering those items the ETR for the quarter is a little bit low and Thats really the result of return to normal return to provision adjustment for next year.
The ETR, excluding discrete items, which always happens that are hard to predict to be about 25%.
And with that.
With that I will turn it over to Raj for any closing comments you want to me.
I know theres a lot in here.
<unk>.
Let's just get to the Q&A directly let's give as much time as we can.
Thank you Sir.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Standby as we compile the Q&A roster.
And our first quarter.
Daily Cape VW Your line is open.
Hey, great. Thanks. This is will Jones on for Brady Gailey, how are you guys.
Ed will allow us to hear from you.
Okay, great. So I just wanted to start on credit net.
Net charge offs were up.
A little bit this morning, you guys alluded to it.
It had been related to that one particular equipment distributor alone where all the charge offs this quarter, specifically to that one credit.
No.
It was about $24 million of the 34.
But aside from that I think.
Particularly unusual level of charge offs at 24% to 34 with that model.
Yes that makes sense.
You guys still have a pretty decent slug of that credit remaining as NPL.
Yes.
<unk>.
About 27 left on the balance sheet, well and there was an $8 million reserve sitting against that and we feel very comfortable that that $8 million reserve is adequate.
And that charge off the rest of that $8 million in charge offs will come over the next couple of quarters at some point I would imagine.
Okay great.
Me too.
Very helpful. Thanks, and then.
And just thinking about the reserve.
I have a reserve you exclude PPP loans and the mortgage warehouse.
We have at about 56 basis points.
Does screen on the lower end of your peer range.
I am just curious your thoughts on how comfortable you are with the reserve at these levels.
And then taking a step further how you would think about for provisioning.
We continue to see this really nice loan growth.
Yes, so how comfortable I am with the reserve I'm very comfortable with reserve well otherwise it would be a different number.
Yes, I'm very comfortable with the reserve. It's a good question and I expected. It to be asked we spent a lot of time looking at reserve levels, particularly compared back to our seasonal day, one adoption levels. This is a little lower but there are some good reasons for that on the residential side more of the portfolio is the Ginnie Mae Eto segment, which carries a zero reserve.
They want adoption that only 11% of the resi portfolio with the Etfs, It's now 23%.
Also on the residential side, we've seen an 18% plus increase in crop HDI in 2021 alone.
And that is forecasted to continue to improve so that's really brought the lgd's down on the residential side and we also have a better unemployment forecast when we had on day one in.
And the Korean C&I space, one of the Big drivers is frankly that the weighted average life of the portfolio is a lot shorter now than it was 10 years ago there hasn't been.
As much commercial production. Unfortunately over the last two years as we would've hoped but that's brought the weighted average life of those portfolios down in the weighted average life is a big factor under Cecil in determining the amount of the reserve. We also have a better commercial property forecast impacting liquidity reserve and on the C&I side.
Our financial statements spreads have actually in the past portfolio have actually improved considerably since day, one adoption and by the way the reduction in the reserve. The specific reserves are about the same the reserve on criticized classified assets on a percentage basis is higher than day, one what's bringing down the reserve as the.
Loss rates on the patent portfolio and those are really the reasons that those past portfolio rates are coming down more <unk>.
Better borrower financial spreads better economic forecast better property values, so that kind of sums. It up you can tell from my answer we spent a lot of time digging into that.
Okay.
We also.
We did end up putting the qualitative.
Thanks for that yes, I spoke to that in my comments that we put a $13 million qualitative reserve on if our models would suggest that the reserve should be another $13 million lower than it is.
Got you Okay very helpful. I know you guys Youre, obviously preparing for that one.
Hello.
Lastly for me guys really really nice quarter on the buyback.
And honestly it really cheap cost the stock is still trading at a similar level today as it was where you guys bought back shares.
Any reason to think buybacks slope from here.
I will say, what I've been saying for the last year on buybacks. This is still a very volatile time in the stock market for no reason Socgen go up and down 10%.
And we will continue to use evolve alluded to our advantage. So we will be opportunistic to be aggressive, but we think the stock is unnecessarily beaten up and back off when we think it's.
In the opposite direction so.
We did not have that philosophy before the pandemic. We used to just basically is additive roll a little bit every day, but in the last year since we've been back in the buyback gain.
We've been more opportunistic.
So we'll continue to do that but I fully expect another.
Buyback authorization could come as soon as we get to the $26 million.
Our 2008 and I forgot what it was $3 $28 million left.
Okay, great very good for me I'll jump back in the queue.
Thank you.
Our next question comes from David Bishop of seed.
Search.
Line is open.
Yes, good morning, Raj Leslie Hopewell as well okay.
Just a quick.
Just a quick question on the Atlanta initiative, it sounds like Thats going to.
Come to fruition relatively full bore here.
Just curious.
In terms of the talent there are those people already bonded in place here.
Just curious where these.
Where the new staffing sort of came from.
The outlook there in terms of timing for this initiative to be up and running there.
Theyre not onboard yet, but we're close.
And then in terms of the Dallas.
Initiative it sounded like there was already.
Several hundred million dollars of deposits within the market there or is that going to be up a pure deposit play with the softness sort of encompass.
Loan growth potential as well.
In the short term like will be pure deposit place.
And.
Eventually it will open up an option for us on the asset side, but we're not going to jump into the asset side.
This year at least.
Got it and then Tom I appreciate the commentary in terms of commercial real estate.
One of your competitors earlier this week talked about seeing some.
Better better pricing better potential and camera.
Our Canadian multifamily commercial real estate, just maybe update us on what Youre seeing in terms of that market on the commercial real estate side.
Yes, I would.
Say that we would be in agreement with those comments, we're certainly seeing particularly in the free market space, We're seeing a substantial return to the city.
<unk>.
Over month rents compared to last year.
The 24% area.
Actually closed and committed to.
Significant.
A number of new transactions in the New York market in December and.
We expect to close another large one.
The first quarter of this year, so we're seeing good quality pipeline.
New York part of it it's in multifamily part of it's in suburban office and we're also seeing opportunities in the industrial market, but there is certainly a good growth.
The city in multifamily and we're actually seeing good growth in long island in New Jersey, and a bit in Westchester County.
Got it I appreciate that color and then.
Leslie maybe one final one here you noted the trigger in terms of the higher incentive comp in the fourth quarter. Just curious what triggered that was that related to loan growth credit quality.
Just curious sort of what triggered that $4 6 million and maybe what's.
Helpful.
Yeah, I would say at a high level, it's a combination of loan growth.
Prove it in the margin and just generally the level of our operating results for the year.
Discretionary bonus pool is not formulaic, we tied to earnings, but I would say loosely correlated with earnings.
Had a great earnings here inside with all of the combination of all of those things.
Got it any guidance in terms of maybe what the first quarter run rate good returns.
I mean.
In the first quarter is always elevated because of payroll taxes and whatnot, but I would still say probably be lower than this quarter was because of those.
Adjustments to the variable compensation accruals, so it'll come down some in the first quarter.
Got it and then maybe one final one for you Leslie you mentioned.
You guys took advantage of it to.
Do I think it was a afford the deposit hedge maybe some specifics there with the higher rate.
In the second.
Had this written down.
<unk>.
I think theres about $680 million debt that we put on.
Any callable Cds and the nice thing about them is if rates actually were to go down we have the option of calling nobody is expecting that right now, but it was a pretty cheap option and it's nice to have there at a weighted average rate of just over 70 basis points in our retirement just over three years.
Three years, great I appreciate the color.
Thank you.
And again to ask a question we ask that you. Please press star one on your telephone to withdraw your question. Please.
Pete.
Eddie standby to compile the Q&A roster.
We have a question from Ben drilling.
How deep group you're in.
Your line is open.
Hey, Good morning, guys. I was curious if you could kind of clarify a little bit I think you guys said.
Mid to high single digit loan growth.
Just kind of correlates to NII.
And then from there expenses should be up a similar rate I was curious how you guys are thinking about rate hikes and what you have in their curve.
We run our models based on the forward curve. So our expectation is three to four increases.
This year.
And we'll try to be smarter than the electric window opens the market. So we just saw with whatever the curve was I think we ran our numbers.
We go from January .
I'm sorry, what was your question.
Sure.
No.
That was kind of curious on how it would play into the mix obviously like there is a delayed effect so.
Hi, good morning.
It will help in the second half of the year more than in the first half of the year, because we're not expecting them to start right away.
And.
So like I said, we've never bet the ranch on rates, one way or the other we're trying to stay as neutral as possible defense and the philosophy of the company since it was founded.
So we are slightly asset sensitive so that will help modern fleet, but I know there are certain banks that are we.
<unk> more asset sensitive than just depending on rates.
That's not us.
Ben also to your question, we are expecting mid to high single digit growth.
Net interest income.
Alright.
Okay.
And then.
I was trying to read a little bit deeper you said on the previous question. The <unk> expenses are likely lower than four key talking specifically about comp because of the special employee bonus and that is in there in the.
The adjustments, we made in the fourth quarter to the variable compensation accrual.
Turning specifically to comp comment.
Got you Okay. Yeah, I was just more looking at the cadence because you typically have <unk> is the highest in that kind of work slower the rest of the year is that something we should have.
And 'twenty two as well.
Yes.
I don't.
Try to focus too much on whats going to happen quarter by quarter I think Raj gave some overall guidance for the year.
Yes, there is some hiring thats going to take place during 2022, and we really.
Really haven't hired anyone during the pandemic and so there are a lot of open positions out there that are going to get sales. So I just really don't have in front of me what I expect it to be on a quarter to quarter basis.
Great. That's helpful. Thank you.
Thank you.
Our next question comes from Steven.
Suppose Jpmorgan your line is open.
Hi, Good morning, this is Alex on for Steve.
Morning Al.
Good morning.
One question on the mid to high single digit expense growth can you clarify the base that you're growing off of maybe.
We're doing a lot of one time items. Thank you, yes, 2021 adjusted for that list does not.
Notable items that are in the press release for the fourth quarter of 2021.
Got it so adjusting for those <unk> items okay.
Yes, and then act.
B, Alex in the comp and tech lines, that's where we're going to see it in those two lines.
Thank you.
On your noninterest bearing deposits now at 30% of total deposit growth.
The fed likely to rate.
Hi, Great. Later this year do you think you can grow this concentration throughout the year. Thank you.
We think we have room to grow but also being realistic that in a rising rate environment.
This tailwind will become a headwind.
So it's very hard for me to say, where all of us will eventually evolve.
I can look at is pipeline you can see it.
New plus new customers signed up and in the process of transitioning over an index.
Okay.
We are happy about bringing in new clients, new accounts, new relationships, but at the same time.
Will it be the headwind coming from a different monetary policy. When it appears how quickly do customers react to it I think.
That is a second half of the year.
Headwind.
It's really hard to quantify so overall im optimistic we have room to grow but we will certainly not grow 28% like we did last year that's not.
Given everything I said, that's not the case, so little more realistic them there, but we do we are in setting our teams for net growth on DDA as this year.
We're very much still focused on pushing on that front.
We're not pushing so much on total deposit growth because like I said, I'd, rather run down some lower yielding assets and use that to fund higher yielding assets, the highest spread assets and optimize the left side of the balance sheet, while keeping capital available.
For other things that buyback.
So total deposit growth does not move the needle so much but DDA, we're still very much focused on it.
It will be a smaller number than last year over the last two years.
But it's all good.
It's a little hard to really predict what will happen.
Alright, Thanks Raj So when you look at the loan growth numbers and you look at an accelerated.
Expectation of loan growth in both the C&I and the Cree books.
While it moves from year to year I would say.
70% or so of the growth that we would anticipate would largely come from new relationships and the new relationships you tend to pick up new deposits as well. So we see new relationship generation on the loan side, we will also drive DDA growth in the year.
Thank you for taking my question.
Thank you.
And our next question comes from Samuel Barker of Stephens, Inc. Your line is open.
Good morning.
Good morning, good morning.
I want to ask a question about expenses.
Understand the guys who are providing in kind of the onetime items.
John will discuss.
Could you kind of give some color on.
Those onetime not onetime resource.
<unk> results are still.
That's above the last quarter, so kind of on the base baseline run rate.
Was there anything specific that bumped that up.
I'm not I think I understand your question and I'll try to answer it if I get it wrong. Please let me know.
The baseline would be taking that 2021 expenses and just subtracting out those 50 $859 million worth of.
Notable items that ran through the fourth quarter and that would be the base on which our guidance is.
Predicated.
Got it.
We've got all those listed in the table for you in the earnings release.
Yes, I guess, what I'm trying to look at here.
If I look at kind of the operating expenses.
Then.
We have a number of around 124 last fourth quarter and for this quarter, it's more like 130.
Okay.
I Trust your math I mean, I really don't think about this quarter by quarter I really think about it more on a year over year basis.
<unk> guided to mid to high single digit increases over the course of 2022 compared to that baseline number driven mainly by comp and technology investments in comp, we've got and the labor market is tight we've got open positions, we need to fill in.
I think that says.
Truth across not just the banking industry with corporate America.
And that's those are the two lines you will see those increases in the technology line because of the investments we've been making in the comp line, but I really don't think about it so much one quarter to the next really we're looking more year over year and a lot of the comp line as investments in future growth exactly like Atlanta, and Texas and other other major initiatives, we have on the revenue side.
Yes.
Understood. Thank you and can clarify.
Clarifying that.
And switching to the Securities book can you give me a couple of numbers I'm looking for the.
The percentage of floating rate securities of the total Securities book I can tell you the duration of the book is about one five.
And actually on that front could you is there a.
Breakdown between available for sale, specifically for deterioration all available per se virtually all available for sale and you can find all of that in our 10 Qs, we only have $10 million worth of HTM Securities.
Understood. Thank you that'll be all from me.
Okay great.
Thank you.
And I'm seeing no further questions in the queue I will now hand, it over to Mr Singh for Clos.
<unk> comment.
Listen this is a very very.
Solid quarter no matter, how you look at it we're feeling very excited about what 213.
We do want to get back into the office that's been my biggest complaint.
With this.
It is it's been a weird two years, but I see a lot of momentum in the economy I see a lot of momentum inside the company a lot of enthusiasm.
For what's coming.
As you can see from our expansion in Atlanta.
And Dallas.
I think where we are in the business cycle. This is the time to invest and invest aggressively and reap the benefits of that in the coming years. So.
I'll end with this note of optimism hope to see you in person and not on zoom.
And thank you so much for dialing in we'll talk to you again in three months.
Thanks, everyone.
Hi, everybody.
This concludes today's call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
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