Q4 2021 Western Alliance Bancorp Earnings Call

Okay.

Speaker 1: Welcome to Western Alliance Bancorp's Fourth Quarter 2021 Earnings Call.

Good day, everyone and welcome to Western Alliance Bank Corp, fourth quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise. If you would like to ask a question for today's call. You may do so by pressing star one on your telephone keypad.

Speaker 1: All lines have been placed on mute to prevent any background noise.

Speaker 1: If you would like to ask a question for today's call, you may do so by pressing star 1 on your telephone keypad.

Speaker 1: To withdraw your question, press the pound key. You may also view the presentation today via webcast through the companyís website at www.westernalliancebankcorporation.com.

Draw your question press the pound key you May also view the presentation today via webcast through the company's website at Www Dot Western Alliance Bank Corporation Dot Com I would now like to turn the call over to miles on delay director of Investor Relations and corporate development. Please go ahead.

Speaker 1: I would now like to turn the call over to Miles Pondelich, Director of Investor Relations and Corporate Development. Please go ahead.

Thank you and welcome to Western Alliance fourth quarter 2021 conference call. Our speakers today are Ken Vecchione, President and Chief Executive Officer, and Dale Gibbons, Chief Financial Officer before I hand, the call over to Ken. Please note that today's presentation contains forward looking statements, which are subject to risks.

Speaker 2: Thank you and welcome the Western Line. Thanks for the quarter 2021 conference call. Our speakers today are Ken Vecchione, President and Chief Executive Officer, and they'll give in the Chief Executive Officer.

Speaker 2: Before I hand the call over to Ken, please note that today's presentation contains forward looking statements which are subject to risks, uncertainties and assumptions. Except as required by law, the company does not undertake any obligation to update any forward looking statement.

<unk> is an assumption.

As required by law the company does not undertake any obligation to update any forward looking statements for a more complete discussion of risks and uncertainties that could cause actual results to differ materially from any forward looking statements. Please refer to the company's SEC filings, including the form 8-K filed yesterday, which are available on the company's website now for <unk>.

Speaker 2: for a more complete discussion of the risks and uncertainties that could cause actual results to differ materially. From any forward-looking statement, please refer to the...

Speaker 2: filing, included the four May K file yesterday, which are available on the company's website. Now for opening remarks, I'd like to turn...

Opening remarks, I'd like to turn the call over to Ken Vecchione.

Okay.

Speaker 2: Good afternoon everyone. 2021 was a watershed year for Western alliances who broke many of our own records for balance sheet growth, total net revenue and earnings, while thoughtfully expanding into new business lines and geographies that will make us an even stronger, more diversified bank.

Good afternoon, everyone 2021 was a watershed year for Western Alliance as we drove many of our own records for balance sheet growth.

Total net revenue and earnings while thoughtfully expanding into new business lines or geographies and will make us an even stronger more diversified bank.

Speaker 2: For the year, total assets ended just shy at $56 billion, with loans growing 44% over year to $39.1 billion, and deposits rising 49% to $47.6 billion. This strong balance sheet momentum propelled reprinted revenues of $2 billion, that income of $899 million, and ETFs of $8 in $60,000.

For the year total assets ended just shy of $56 billion with loans growing 44% over over year to $39 1 billion in deposits rising 49% to $47 6 billion involves the strong balance sheet momentum propelled record net revenues of $2 billion I think.

$899 million and EPS of $8 67.

Speaker 2: our 12th consecutive year of rising earnings.

Which is our 12 consecutive year of <unk>.

Rising earnings.

Speaker 2: Turning to the fourth quarter results, we'll earn total net revenues of $561 million that income of $246 million, and EPS of $2.32. Strong balance sheet expansion continue with quarterly loan growth of $4.3 billion, or 49% on a link quarter of annualized basis, and deposits rose by $2.3 billion for 20% at last. In 2009 he cheaper Auntie

Turning to the fourth quarter results.

<unk> earned total net revenues of $561 million.

Net income of $246 million and EPS of $2 32.

Strong balance sheet expansion continued with quarterly loan growth of four 3 billion.

Or 49% on a linked quarter annualized basis, and deposits rose by $2 $3 billion or 20%.

Loan demand continue to broaden across our business lines.

Speaker 2: E&I loans increasing by $1.8 billion, inclusive of $200 million of triple P runoff, along with a $1.8 billion growth in our residential portfolio, and $584 million in CRE. One of the all-mock to our national commercial business strategy is the ability to develop niche, especially banks.

Loans increased by $1 $8 billion inclusive.

Inclusive of $200 million of Triple T runoff, along with a one $8 billion growth in our residential portfolio and $584 million in CRE.

One of them will also on national commercial business strategy is the ability to develop niche specialty banking businesses and to attract qualified talent. Unfortunately scaled and business line with superior risk adjusted returns as an example, since joining in June our restaurants restaurant franchise finance team.

Speaker 2: to attract qualified talent. Of course we scaled them to...

Speaker 2: career risk adjusted returns. As an example, since joining in June our restaurant franchise finance team has 151 million dollars in outstanding and as a positive contributor to earnings. Similarly our Texas-based single-family owned construction CR-ET has 235 million dollars.

Has $151 million in outstanding and is a positive contributor to earnings Similarly, our Texas based single family home construction CRE team has $235 million and improved our loan pipeline and channel checks continue to show a broadening of loan growth in our traditional commercial loans.

Speaker 2: Our loan pipeline and channel check continues so abroiding a loan growth in our traditional commercial.

Speaker 2: tracking season, senior teams to wall provide the opposite.

Attracting seasoned senior teams to wall provides the opportunity to establish new business lines that ramp up quickly due to their existing client relationships.

Speaker 2: new business lines that ramp up quickly due to their existing client relationships. A $6.2 billion

$6 2 billion increase in average, earning assets drove net interest income growth of $48 million or 39% annualized to $450 million as excess liquidity deployment into loans and loans held for sale contributed significantly to earnings fee income was 110.

Speaker 2: for $40 million or 39% annualized to $450 million as excess liquidity to employment to loans and loans held for sale contributed significantly to earnings. B-Income was $110 million representing 20% of total net revenue.

Yeah.

Representing 20% total net revenue.

Speaker 2: of $28 million from the prior quarter. As mortgage banking related income was impacted by seasonal fourth quarter weakness and the mortgage sector's transition to a rising rate environment, which from press gain on sale, is dividends should? to a higher financial level.

Klein of $28 million from the prior quarter as mortgage banking related income was impacted by seasonal fourth quarter weakness in the mortgage sector has transitioned to a rising rate environment, which compressed gain on sale margins.

Speaker 2: I would like to reiterate that a narrow home is fully integrated into the strategic fabric of Western Alliance and is both managed to maximize value for the entire bank through loan, deposit and then interest income growth, not just gain on sale.

Like to reiterate that apparel was fully integrated into the strategic fabric.

Western Alliance and is thoughtfully managed to maximize value for the entire bank.

Loan deposits and net interest income growth.

Gain on sale margin.

The <unk> correspondent business inside of Western Alliance has several business levers, which can be repositioned to sustain earnings well right and.

Speaker 2: The B2B correspond to business inside of Western Alliance has several business levers which can be repositions to sustain earnings throughout rate and economic cycles. Given the flexibility of a Marimold's business model, ongoing mortgage operations can provide multiple revenue opportunities which served offset low-organization.

Economic cycles, given the flexibility of apparel home and business model ongoing mortgage operations can provide multiple revenue opportunities, we served to offset lower gain on sale recognition.

Western Alliance's branch light flexible business model provides us a competitive advantage to leverage operating efficiencies to enhance financial results, while investing in business initiatives to drive future growth quarterly adjusted noninterest expenses grew $4 billion to $235 million produced.

Speaker 2: Western Alliance's branch-like flexible business model provides us a competitive message to leverage operating efficiencies to enhance financial results while investing in business initiatives to drive future growth. Quarterly adjusted non-intro...

Speaker 2: $24 million, the $235 million, producing an efficiency ratio of 41.3%. To put this in perspective over the last five years, total loans of deposits have grown two and a half times the rate of operating.

And efficiency ratio of 41, 3% to put this in perspective over the last five years total loans and deposits have grown two five times the rate of operating expense.

Speaker 2: excluding a Marimole. Productivity improvements provide us with the capability to absorb higher labor costs while continuing to fund product and technology and best.

Excluding comparable productivity improvements provide us with the capability to absorb higher labor cost, while continuing to fund product and technology investments.

Speaker 2: Total adversely-graded assets were flat and quarterly net loan charge offs were just too big.

Total adversely graded assets were flat and quarterly net loan charge offs were just two basis points. Western Alliance is one of the most profitable banks in the industry with a return on average assets and return on average tangible common equity of 165% and 25, 8%, respectively, which will continue to.

Speaker 2: Westerlyance is one of the most profitable banks in the industry, with a return on average assets and return on average tangible common equity of 1.65% and 25.8% respectively, which will continue to support capital accumulation and strong capital levels. Finally, what excites me most of the differentiated technology in banks.

<unk> capital accumulation and strong capital levels. Finally, what excites me most of the differentiated technology and banking services that western alliance's increasingly delivering to our clients to solve unique pain points and facilitate transactions, we've recently announced a partnership with tasks.

Speaker 2: that Western Lions is increasingly delivering to our clients to solve unique pain points and to fill the page. Transact.

Speaker 2: We recently announced a partnership with Tacit Group to deliver blockchain-based payments to our clients using their TacitPay platform. The launch of this program, scheduled for early second quarter, will allow Western Alliance Bank clients to transfer funds instantaneously to our clients.

To deliver blockchain based payments to our clients using their passive paying platform.

The launch of this program is scheduled for early second quarter will allow Western Alliance bank clients to transfer funds instantaneously to one another 24 months out.

Speaker 2: Additionally, yesterday we announced the acquisition of digital disbursements, a leading digital payment platform for the class action legal industry that integrates legal settlement claim process with a multi-product payment portal.

Additionally, yesterday, we announced the acquisition of digital disbursements, a leading digital payments platform for the class action legal industry that integrate legal settlement claim process with a multi product payment portal.

Speaker 2: This differentiated technology solution enhances the capabilities of Worsan Alliance settlement service

This differentiated technology solution enhances the capabilities of Western Alliance settlement services team and solidifies the bank at an industry leader in the 15 billion legal class action law.

Speaker 2: the bank as an industry leader in the 15 billion dollar legal class action market. Our National Settlement Service.

Our national settlement services business developed in 2019 and launched in 2020 has been described on previous earnings call.

Speaker 2: launched in 2020 has been described on previous earnings calls as Deposit Initiative One. This business has successfully generated $2.3 billion in deposits as of year-end, and we are thrilled to welcome the new team from Digital Disbursements to help the bank continue to produce unique value-added solutions to the legal service sector. Dale will now take you through our final slide.

This initiative one.

This business has successfully generated $2 3 billion in deposits as of year end and we are thrilled to welcome the new team from digital disbursements to help the bank continue to produce unique value added solutions to the legal service sector Dale.

Dale will now take you through our financial performance. Thank.

Speaker 3: Thank you again for the port of Western Alliance generated adjusted net income to common shareholders of 242.5 million and earnings per share of 232 pre-provision net revenue was triggered.

Thank you again for the quarter Western Alliance generated adjusted net income to common shareholders of $242 5 million and earnings per share of $2 32 pre provision net revenue was 302006.

Speaker 3: Total revenue grew 12 million during the quarter to 561 million, and net interest rates have grew 40 million during the quarter to 450, and increase of 10%. Primarily as a result of significant balance sheet growth and deployment of liquidity into higher yielding assets. Average interest rate has increased to increased to 6.2 billion, while the lower yielding cash position held at the Fed held to 2.3% and 3.9% of interest rate.

Total revenue grew 12 million during the quarter to $561 million net interest income grew $40 million during the quarter to $4 50, an increase of 10% primarily as a result of significant balance sheet growth and deployment of liquidity into higher yielding assets.

Average interest, earning assets increased $6 2 billion, while the lower yielding cash position held at the fed it fell to two 3% to three 9% intra.

Interest earning assets.

Speaker 3: Although not annotated on this page, I want to address the characterization of two items in non-interesting.

Although not indicated on this page I want to address the characterization of two items in noninterest income.

Speaker 3: Regarding the $8 million of securities gains we reported, in the second quarter of 2020, we purchased over $100 million of term municipal bonds that were in sectors hard hit by the pandemic, most notably airports.

Regarding the $8 million of Securities gains, we reported in the second quarter of 2020, we purchased over $100 million ish of term municipal bonds that were in sectors hard hit by the pandemic, most notably airports.

Speaker 3: In the fourth quarter, we sold those bonds as they had recovered in value and the velocity of rate expectations changed.

In the fourth quarter, we sold those bonds as they have recovery in value and the velocity of rate expectations changed.

Speaker 3: I know securities gains are often excluded from core analysis, but this seems more like a trading gain to us.

No securities gains or off and excluded from core analysis, but this seems more like a trading gain to us.

Speaker 3: Regarding the $7 million credit guarantee revenue, during the quarter we sold a credit link note in which the buyer of the note assumes the first loss position of the $4.5 billion residential portfolio.

Regarding the 7 million credit guarantee revenue during the quarter, we sold a credit linked note and which the buyer of the node assumes a first loss position, but the $4 5 billion in residential portfolio.

Speaker 3: This $7 million in revenue is the currently expected credit losses avoided by selling these bonds.

This $7 million in revenue is currently expected credit losses avoided by selling these bonds.

I had Cecil antipathy since before I was born I don't think it's remotely helpful to investors in understanding based financials.

Speaker 3: I had Cecil Antipathy since before I was born. I don't think it's remotely helpful to investors in understanding bank financials, and it certainly doesn't improve profitability.

Certainly it doesn't improve comparability, but I don't know anyone who was taking seasonal based credit provisions and excluding them from core which is the same principle here it doesn't make sense to us that if we increase residential loans and book a day one Julie.

Speaker 3: But I don't know anyone who is taking Cecil Bay's credit provisions in excluding them from court, which is the same principle here. It doesn't make sense to us that if we increase residential loans and book a day one, cumulative loss expectation charge, and the next day we sell a credit link note to put that exact same loss expectation to another party.

The loss expectation charge and the next day, we showed a credit linked note to put that exact same loss expectation to another party that we should be stuck with a debit in Korea, but forfeit the insurance credit for determining earning power.

Speaker 3: that we should be stuck with a debit in core income but forfeit the insurance credit for determining earning power.

Overall, noninterest income decreased $28 million to $110 million from the prior quarter, driven primarily by interest rewired gain on sale margin compression.

Speaker 3: Overall, non-interest income decreased $28 million to $110 million from the prior quarter, driven primarily by interest-free wide gain-on-sale margin compression.

Speaker 3: As Ken noted, in anticipation of margin compression, we are implementing several initiatives to bridge the gain-on-sale earnings slowdown with predictable and stable net interest income revenue streams.

As Ken noted in anticipation of margin compression, we are implementing several initiatives to bridge the gain on sale earnings slowdown with predictable and stable net interest income revenue streams.

Noninterest expense, excluding merger and restructure recoveries and loss on extinguishment of debt increased a modest one 6% for $4 million.

Speaker 3: Non-interest expense, excluding merger and restructure recoveries and loss on extinguishment of debt, increased to modest 1.6% or $4 million, resulting in an efficiency ratio of 41.3.

Resulting in an efficiency ratio of $41 three.

Speaker 3: For the year, Western Alliance recorded net income of $899 million or $867 million per share, a 72% increase over EPS for 2020.

For the year Western Alliance recorded net income of $899 million or $8 67 per share a 72% increase over EPS for 2020.

Speaker 3: Debtor's income grew $382 million during the year to $1.5 billion, an increase of 33% year-over-year, mainly attributable to increased loan balances and Triple P loan fees.

Net interest income grew $382 million during the year to $1 5 billion, an increase of 33% year over year, mainly attributable to increased loan balances interest would be little piece.

Speaker 3: Non-interest income increased $333 million to $404 million in the prior year as the Marihona transaction closed early in the second quarter and contributed significantly to FIRAB.

Noninterest income increased $333 million a quarter for the prior year as the neuro transaction closed early in the second quarter.

Significantly he Brad.

Finally, noninterest expense increased 360 million or 73% year over year is 950, <unk> home employees joined wall in the second quarter.

Speaker 3: Finally, non-interest expense increased $360 million, or 73% year-over-year, as 950 AmeriHome employees joined Wall in the second quarter.

Speaker 3: Turning now to our net interest drivers, investment yield increased 5 basis points from the prior quarter to 2.51%, while on a linked quarter basis, loan yields declined 25 basis points following continued strong growth in low-to-no-loss assets, such as residential loans and capital call lines, and modest yield compression across other sectors.

Turning now to our net interest drivers investment yield increased five basis points from the prior quarter to $2 five 1% while on a linked quarter basis loan yields declined 25 basis points. Following the continued strong growth and low to no loss assets, such as residential loads of capital call lines and modest yield compression.

Other loan categories.

Speaker 3: We continue to optimize the deployment of excess liquidity into higher-yielding assets and allocated cash yielding 10 basis points of the Fed to loans held for sale yielding 3.04%.

We continue to optimize the deployment of excess liquidity into higher yielding assets and allocated cash yielding 10 basis points of deferred loans held for sale using three 4%.

Speaker 3: Funding costs were slightly lower from the prior quarter due to the redemption of $175 million in subordinated debt with increase in interest-bearing deposit costs of 20 basis points and total cost of funds of $20.

Funding costs were slightly lower from the prior quarter drove the redemption of 175 million subordinated debt with increased interest bearing deposit costs of 20 basis points and total cost of funds of 25.

The spot rate for total deposits, which includes non interest bearing was 11 basis points.

Speaker 3: spot rate for total deposits, which includes non-interest bearing, was 11 basis.

Speaker 3: We expect funding costs to bottom at these levels as rate hikes are.

We expect funding costs it bottomed at these levels as rate hikes are forthcoming.

Speaker 3: Overall, net interest income grew $40 million to $450 million during the quarter, or 43% year-over-year, as average interest-earning assets increased $6.2 billion, or 13% during the quarter.

Overall net interest income grew $40 million or $450 million during the quarter were 43% year over year as average interest, earning assets increased $6 2 billion or 13% during the quarter.

Liquidity deployment continued and cash balances were optimized with cash as a portion of average earning assets of two 3% decline from three 9% the prior quarter.

Speaker 3: Deployment continued and cash balances were optimized with cash as a portion of average earning assets of 2.3% and declined from 3.9% the prior quarter, resulting in a loan-to-deposit ratio of 82% and improvement from 77% prior quarter.

<unk> and our loan to deposit ratio of 82% an improvement from 77% prior.

Speaker 3: The net interest mark should increase 10 basis points to 3.33 percent, mainly driven by lower yields on the commercial real estate portfolio and strong growth in low-to-low loss, but lower-yielding residential loans and capital.

The net interest margin increased 10 basis points to 333% mainly.

Mainly driven by lower yields on the commercial real estate portfolio and strong growth in low to low low loss, but lower yielding residential loans and capital call lines.

With regards to our asset sensitivity our rate risk profile has been reduced over the last two years as we've added fixed rate residential mortgages.

Speaker 3: With regards to our asset sensitivity, our rate risk profile has been reduced over the last two years as we've added fixed rate residential mortgages.

Speaker 3: and the yield on the majority of our railroad rate commercial loans have bottomed out at their contractual.

And the yields on the majority of our variable rate commercial loans have bottomed out at their contractual floors.

Speaker 3: We are poised to recognize significant increases in that interest income.

We are poised to recognize significant increases in net interest income.

In a rising rate environment. Once these floors are no longer inhibiting loan yields escalation.

Speaker 3: in a rising rate environment once these spores are no longer inhibiting low-yield escalation and with ongoing...

And with ongoing balance sheet growth.

Speaker 3: Consequently, this asset sensitivity is more muted initially, but accelerates as interest rates normalize.

Consequently, this asset sensitivity is more muted initially, but accelerates as interest rates normalize.

Currently 16 billion or 94% of our variable rate loans.

Speaker 3: Currently, $16 billion, or 94% of our variable rate loans with FORS are active.

With floors are at their contractual floors 25 basis point rise in rates, 25% of these loans will rise off the floors. It was 100 basis point rise in rates, 75% cumulatively will return to variable rate.

Speaker 3: The 25 basis point rising rates, 25% of these loans will rise off the floors. And with 100 basis point rising rates, 75% cumulatively will return to variable.

And our rate shock scenario opened up plus 100 basis points on a static balance sheet net interest income would rise $73 million or four 6%.

Speaker 3: In a rate shock scenario of plus 100 basis points on a static balance sheet, net interest income will rise $73 million or $4.6 billion.

Using a ramp scenario on a dynamic balance sheet. We expect net interest income increased $62 million in the next 12 months after quarterly rate increases are initiated.

Speaker 3: Using a ramp scenario on a dynamic balance sheet, we expect an interest income to increase $62 million in the next 12 months after quarterly rate increases are initiated. And given the pandemic, the dynamic of our loan floors, a $257 million increase over a two-year time frame if only four rate hikes are accomplished through 2020.

And given the pandemic the dynamics of our loan floors at $257 million increase over a two year timeframe. If only four rate hikes are accomplished through 2023.

Speaker 3: in the rising rate environment, other areas of Western Alliance, the income statement may also be in.

In a rising rate environment other areas of Western Alliance income statement may also be inflows.

Speaker 3: Mortgage sector volumes and profitability are expected to be reduced with lower refinance volumes partially offset by increased servicing revenue as the life of mortgage servicing rates are extended.

Mortgage sector volumes and profitability are expected to be reduced with lower refinance volumes, partially offset by increased servicing revenue as the life of the mortgage servicing rights are extended.

Speaker 3: These factors may be partially mitigated as we expect deposit basis and earnings credits on 10.8 billion of deposits to be lower than in the previous rising rate periods and to have longer lag.

These factors may be partially mitigated as we expect deposit betas in earnings credits and $10 8 billion of deposits to be lower than in the previous rising rate periods tend to have longer lifetimes.

Speaker 3: but could give back collectively about half of the potential net interest income, not net interest income improvement for our interest rates.

Give back collectively about half of the potential net interest income not net interest income improvement of our interest rate sensitivity.

Speaker 3: AmeriHome is now fully integrated into Wall and gain on sale volume and margin contraction can be minimized by accelerating loan, deposit, EBO and product channel diversification, none of which are available to stand-alone mortgage operators but are available within a bank

And their home is now fully integrated into wall and gain on sale volume and margin contraction can be minimized by accelerating loan deposit.

And product channel diversification, none of which are available as a standalone mortgage operators, but are available within a bank holding company.

Speaker 3: We expect net interest income sourced through AmeriHome relationships to rise throughout the year, countering reductions in traditional mortgage banking income and growing total revenue and net.

We expect net interest income sourced through <unk> relationships to rise throughout the year countering reductions in traditional mortgage banking income and growing total revenue and net.

Speaker 3: Our efficiency ratio improved modestly to 41.3% from 41.5.

Our efficiency ratio improved modestly to 41, 3% from 41 five in Q3 as our net revenue growth exceeded that of our expense growth.

Speaker 3: as our net revenue growth exceeded that of our expense.

Speaker 3: One of the key characteristics of our national business line approach is high operating leverage.

What are the key characteristics of our National business line approach has high operating leverage as mentioned in our prior calls we expect the efficiency ratio to remain in the lower <unk> for the year inclusive inclusive of planned technology investments new product development expenses and the absorption of higher compensation costs supporting rising.

Speaker 3: As mentioned in our prior calls, we've split the efficiency ratio to remain in the lower 40s for the year, inclusive of planned technology investments, new product development expenses, and the absorption of higher compensation costs supporting rising rate and deposit account relief.

Right and deposit account relationships.

Pre provision net revenue increased $9 million or two 8% from the prior quarter and 58% from the same period last year.

Speaker 3: Preprovision that revenue increased 9 million or 2.8% from the prior quarter and 58% from the same period last

Speaker 3: This resulted in TPNR our way of 224 for the quarter, the decrease of 21 basis points.

This resulted in <unk> of $2 24 for the quarter, a decrease of 21 basis points compared to $2 45, primarily driven by balance sheet growth outpacing PPA.

Speaker 3: primarily driven by balance sheet growth outbates.

This continued strong performance in leading capital generation provides us with significant flexibility to fund ongoing balance sheet growth.

Speaker 3: This continued strong performance in leading capital generations provides us with significant flexibility to fund ongoing balance sheet growth, manage capital actions, and meet credit

There's capital actions in the credit matters.

Robust balance sheet momentum continued during the quarter as loans held for investment increased $4 3 billion or 12% to $39 billion deposit growth of two 3 billion.

Speaker 3: Rebus balance sheet momentum continued during the quarter as loans held for investment increased 4.3 billion or 12 percent to 39 billion deposit growth of 2.3 billion balance is to 47.6 billion at year end.

Ounces to $47 6 billion at year end.

Speaker 3: On a quarterly average basis, loans held for investment grew 16% and deposits grew 8%.

On a quarterly average basis loans held for investment grew 16%.

<unk> grew eight.

In all total assets grew 53% year over year.

Yeah.

Speaker 3: Total borrowings increased $330 million over the prior quarter to $2.4 billion, primarily due to an increase in overnight borrowings of $270 million.

Total borrowings increased $330 million over the prior quarter to $2 4 billion, primarily due to the increase in overnight borrowings of 275.

Speaker 3: and the issuance of $228 million in credit link notes to be partially offset by the redemption of $175 million in sub-debt.

And the issuance of $248 million in credit linked notes, partially offset by the redemption of $175 million in sub debt.

Speaker 3: Finally, a TvV per share increased $3.17 over the fire quarter to 3784 and is up 20%.

Finally, <unk> <unk> per share increased $3.17 over the prior quarter to 3700, 84 is up 22% year over year.

We continue to generate consistent organic loan growth from our flexible national business Bank.

Speaker 3: We continue to generate consistent organic loan growth from our flexible national business banking strategy and are seeing broad-based demand. Loan sold for investment grew $4.3 billion in the quarter. Quarterly loan growth was split almost evenly by an increase in residential real estate loans of $1.8 billion. For more information visit www.fema.gov

Banking strategy and are seeing broad based demand loans held for investment grew $4 3 billion in the quarter quarterly loan growth was split almost evenly by an increase in residential real estate loans with $1 eight.

Speaker 3: Now, comprised 24% of loans and 1.8 billion also and CNI loans is demand for capital coal lines and more of the warehouse lines remain strong and we signed a acceleration of demand for broader business lending.

Which now comprise 24% of loans and $1 8 billion also in C&I loans as demand for capital call lines and mortgage warehouse lines remained strong and we saw an acceleration of demand for broader business lending nationwide, including early success in our new restaurant franchise finance team CRE and CRE loans grew.

Speaker 3: including early success in our new restaurant franchise finance team, CR-E loans through $5.34 million, predominantly.

$584 million predominantly.

Speaker 3: This resulted in a hotel franchise finance that found back as we expanded relationships with proven clients and sponsors while also obtaining tighter underwriting. Additionally, construction and land.

As a result of the demand in our hotel franchise finance that bounce back as we expanded relationships with proven clients and sponsors while also obtaining tighter underwriting.

Additionally, construction and land loans at $79 million.

Speaker 3: For the two deposits, we continue to see broad-based core deposit growth across our business channels, deposits through 2.3 billion or 20% annualized in the fourth quarter driven by increases in interest-growing DDA of 2 billion, non-interest-growing DDA of 295 million, and CD's in turn 12.

Turning to deposits, we continue to see broad based core deposit growth across our business channels deposits grew $2 3 billion or 20% annualized in the fourth quarter driven by increases in interest bearing DDA of $2 billion noninterest bearing DDA of $295 million and seed.

Visa territory six.

Speaker 3: partially offset by a reduction in savings in money market funds letters.

Partially offset by a reduction in savings and money market funds of $162 million.

Speaker 3: For bus fundraising activity and tech and innovation, coupled with market share expansion of HOA banking relationships contributed significantly to Corley deposit growth. We also saw strong performance in regional commerce.

Robust fundraising activity in tech and innovation, coupled with market share expansion of HOA banking relationships contributed significantly to quarterly deposit growth. We also saw strong performance of regional commercial clients.

Speaker 3: to highlight one of our growing national deposit businesses, business estero service.

To highlight one of our growing national deposit businesses business escrow services.

Speaker 3: previously called deposit initiative two provides escrow payments and administrative services for M&A transactions.

Previously called deposit initiative, two provides escrow payments and administrative services for M&A transactions.

Speaker 3: It's the first initiative launched in 2021 with a new senior leader and is recruited to highly effective team and has established offices in New York City and Minneapolis. The team was...

This initiative launched in 2021 with a new senior leader and has recruited a highly effective team.

Established offices in New York City and Minneapolis.

<unk> has formed strong relationships with serial acquirers and successfully facilitated over 100 acquisitions, which quadrupled our deposit balances in the fourth quarter in this business line to $600 million.

Speaker 3: serial acquires and successfully facilitated over 100 acquisitions, which quadrupled up our deposit balances in the fourth quarter in this business line to 600.

Speaker 3: We now have established ourselves as a formidable market component.

We have established ourselves as a formidable market competitor in this space.

Speaker 3: Our asset quantity remains stable after the significant improvement seen in the prior quarter. Total classified assets rose to $36 million, giving you $2.40, $3101 million or 54 basis points of total assets.

Our asset quality remained stable after the significant improvement seen in the prior quarter total classified assets rose $36 million in Q4, 1 million or 54 basis points of total assets.

Speaker 3: Special lengths and loans to find 33 million during the quarter to 0.85% of funded loans The greater than 30% reduction from the prior level scenes of term

Special mention loans declined $33 million during the quarter to eight 5% of funded loans greater than 30% reduction from the prior levels seen in September 2020.

Speaker 3: Total classified assets and the threshold mention loans is percentage of total assets and funded loans are now lower than in 2008.

Total classified assets and special mentioned loans as a percentage of total assets and funded loans.

Now lower than in 2019.

Quarterly credit.

Speaker 3: Quarterly credit net credit losses were 1.4 million or two basis points of average loans can bring the 3 million and Q3

Net credit losses were $1 4 million or two basis points of average loans compared to $3 million in Q3.

Speaker 3: total Lone ACL increased 11 million from the prior quarter to 90 million due to significant low growth and low loss.

Our total loan ACL increased 11 million from the prior quarter to $290 million due to significant loan growth low last segments.

Speaker 3: And I'll total loan ACL for funded loans to find six basis points for 74.

All total loan ACL to funded loans declined six basis points to 74 basis points.

Speaker 3: Justing for the 1.8 billion of mortgage warehouse lines and 4.6 billion of residential loans covered by the credibly notes were ample for first-loss coverage as assumed by a third party. The ACL ratio is 89 days.

Adjusting for the $1 8 billion of mortgage warehouse lines in the $4 6 billion of residential loans covered by the credit linked notes were ample for first loss coverage is assumed by third party.

The ACL ratio is 89 basis points.

Finally, given our industry, leading return on equity and assets, we continue to generate significant capital to fund organic growth and maintain healthy regulatory capital ratios.

Speaker 3: Finally, given our industry leading return on equity and assets, we continue to generate significant capital for fund organic growth and maintain healthy regulatory.

Speaker 3: tangible common equity total assets of 7.3% and common equity tier 1 of 9.1%. We're both both certain.

Our tangible common equity to total assets of seven 3%.

On equity tier 191%.

We're both bolstered.

Speaker 3: By net income and the comments top offering them to be 8-10, but we're in fact at this quarter by higher risk and growth. Inclusive of our quarterly cash dividend payment of 35 cents.

Net income in the common stock offering under the ATM, but were impacted this quarter by higher asset growth inclusive of our quarterly cash dividend payment of 35.

<unk> per share increased $3 17 to $3 74.

Speaker 3: I'm not heading to solve it back over to Ken's if you include with closing

I'll now hand, the call back over to Ken deferred to conclude with closing comments.

Speaker 2: Thanks, Dale. 2021 really was an exceptionally year from an earnings and low growth perspective as our distinctive national business strategy model continues to hit on all cylinders and our new initiatives are already paying for themselves. We're very excited about the diverse set of growth opportunities in front of us as we enter 2022. Looking forward for the full year 2020.

Thanks, Dale 2021, it really was an exceptional year from an earnings and loan growth perspective, as our distinctive national business strategy model continues to hit on all cylinders and our new initiatives are already paying for themselves. We are very excited about the diverse set of growth opportunities in front of us as we enter 2022 looking for.

For the full year 2022, we expect loans held for investments to grow in excess of $2 billion per quarter from prior guidance of one and a half to $2 billion.

Speaker 2: We've met loans held for investment to grow an excess of $2 billion per quarter from prior guidance of 1.5 to $2 billion, or, although the mid 20% growth rate for the year was flexible, origination-baked, designed to maximize net interest.

Or a low to mid 20% growth rate for the year with flexible origination mix designed to maximize net interest income residential loan purchases will remains strong on a relative contribution to growth will be driven by liquidity, so as not to crowd out core commercial lending opportunities.

Speaker 2: Residential loan purchases will remain strong, but the relative contribution to growth will be driven by liquidity so as not to crowd out core commercial lending opportunities.

Speaker 2: The positives will grow in line with loans as we continue normalizing the loan to the positive ratio, which today stands at 82%.

Deposits will grow in line with loans as we continue normalizing the loan to deposit ratio, which today stands at 82%.

The efficiency ratio for the year will remain in the lower 40% range as we continue to invest in risk management and technology as well as build out our teams to respond to growth opportunities. We see in front of US. We believe that net interest margin declines have abated and expect net interest margin to rise in concert.

Speaker 2: The efficiency ratio for the year will remain in the lower 40 percent range as we continue to invest in risk management and technology as well as build out our teams to respond to growth opportunities we see in front of us.

Speaker 2: We believe that netacres margin declines out of baited and expect netacres margin to rise in concert with the FOMC action.

With the <unk> stable and rising NIM, coupled with strong balance sheet growth will drive net interest income higher.

Speaker 2: Stable and rising them coupled with strong balance she broke will drive that it should

Speaker 2: Regarding capital, a strong organic capital generation continues to support found she broke. However, quarter to quarter of her ability around this growth may require incremental capital actions to maintain a baseline TET-1 ratio of 9%, including sales of credit-linked notes and comms stock issuances from time to time. To facilitate this, we expect to add two million shares to our ATM.

<unk> capital our strong organic capital generation continues to support balance sheet growth, however quarter to quarter variability around this growth may require increments incremental capital actions to maintain a baseline.

One ratio of 9%, including sales of credit linked notes and common stock issuances from time to time to facilitate this we expect to add 2 million shares to our ATM capacity.

Speaker 2: In conclusion, we continue to see strong pipeline and have the operating flexibility to both execute on near-term opportunities while investing in below long-term growth. We believe the current, fully-eared consensus guide is the floor for 20 years.

In conclusion, we continue to see strong pipeline and have the operating flexibility to both execute on near term opportunities while investing for long term growth. We believe the current full year consensus guide is before for 2022.

Speaker 2: but should help more to quarter three and four to reflect the seasonal and cyclical nature of our business lines. And AMH is

More two quarters, three and four to reflect the seasonal and cyclical nature of our business lines and a M h's repositioning.

Speaker 2: Finally, one last note. Regarding Robin Salver, our executive chairman.

Finally, one last note.

Regarding Robert Solver, our executive Chairman, our independent directors are actively engaged in monitoring the allegations being investigated by the MBA. The independent directors have hired an independent outside law firm Mumbere told in Olson to revise the independent directors on this matter and assist in conducting an investigation.

Speaker 2: Our independent directors are actively engaged in monitoring the allegations being investigated by the NBA. The independent directors have hired an independent outside law firm, Munger Tolls and Olsen, to abide the independent directors on this matter and assist them in conducting an investigation to evaluate Roberts' continued leadership role at the company. The investigation is being directed and overseen by the independent directors and to be clear, is not the result of any...

To evaluate Robert continued leadership role at the company. The investigation is being directed and overseen by the directors and to be clear is not the result of any.

Speaker 2: Alligations related to the company discovered by the board or the MBA. In addition, what some lines have and will continue to assist the MBA in its ongoing investigation as requested.

Allegations related to the company discovered by the board or the MBA. In addition, Western Alliance has and will continue to assist the MBA and an ongoing investigation as requested.

Speaker 2: that is fine, Dale and Tim Bruckler who is in the room on Chief Kredel, sir and I are happy to take your questions.

At this time, Dale and Tim Bruckner, who was in the role of Chief Credit Officer, and I are happy to take your questions.

Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. Again, to ask a question on the phone line, you may do so by pressing star in the number one on your telephone keypad. And via the webcast, you may do so by www.westernaliancebankcorporation.com. Our first question comes from a lot of Casey Hair with Jeffrey.

Question on the phone lines you may do so by pressing Star then the number one on your telephone keypad.

Webcast you may do so by devilish Tww's at Western Alliance Bancorporation Dot com.

First question comes from the line of Casey Haire with Jefferies.

Speaker 4: Yeah, thanks. Good morning, guys. Question on the Balanscheet Growth Guide, specifically the deposits. I mean, I think we all appreciate that, you know, the loan generation is pretty strong and you guys are capable of doing more than that, two billion. And to the extent that you guys do, you know, it sounds like you wanted to keep the loan to deposit ratio in the low 80s. Can you match that loan growth on the deposit side, which will obviously be a little bit harder in a rising rate environment.

Yeah. Thanks, good morning, guys.

Question on the on the balance sheet growth guide specifically.

Specifically the deposits I mean, I think we all appreciate that.

The loan generation is pretty strong and you guys are capable of doing more than that $2 billion.

And to the extent that you guys do.

It sounds like you wanted to keep the loan to deposit ratio in the low eighties.

Can you match that that loan growth on the deposit side, which will obviously be a little bit harder in a rising rate environment.

Yes.

Speaker 2: The answer is yes, okay. That's why we made the loan and deposits, just dollars growing the same amount. But, you know, our pipelines look very strong and I just want to reinforce.

The answer is yes, okay.

That's why we made the loan and deposits just dollars growing the same amount.

But our pipelines look very strong and I just want to reinforce the $2 billion.

Loan guidance.

Sure on the $2 billion.

That guidance floor are really at the low end that's before our pipelines are very strong.

Speaker 2: are really at the low end, it's the floor. Our pipelines are very strong, and our deposit of pipelines are looking at the moment for the first quarter closer to double the floor.

Our deposit pipelines are looking at the moment for the first quarter closer to double.

Floor amount.

So we think we're off to a very good start we think deposits will be strong throughout the year and we're very excited about what we're seeing in the marketplace.

Speaker 2: So we think we're off to a very good start. We think deposit will be strong throughout the year. And we're very excited about what we're seeing in the market.

Speaker 3: In case you were writing your comment about keeping our loaded deposit ratio in the low 80s. So we look at health for sale loans as not really an alternative to the loan group. That's an alternative to cash for us. It's just a much better yielding one. And for the most part, they're already, they have a great risk adjusting capital ratio on them because you're putting those loans to a GSE.

Chase you regarding your comment about keeping our loan to deposit ratio in the <unk>.

Low eighty's.

So we look at held for sale loans is not really an alternative to the loan growth. That's an alternative to cash for us. It's just a much better yielding one and for the most part they're they're already have a great risk adjusted capital ratio on them, because youre, putting those those loans to a GSE and so and so instead of <unk>.

Speaker 3: And so instead of keeping money at the Fed or some other, you know, do-from bank, putting it into, you know, these short-term, you know, basically puts that we have to the GSEs on these mortgages is a much better deal. But that's where the substitution is. So I would look for our loan-to-deposit ratio to continue to climb through the 80s, get back into more like the low 80s.

Money at the fed or some other due from bank putting it into these short term basically push that we have to the gse's on these mortgages is a much better yield, but thats, where the substitution is so I would look for our loan to deposit ratio to continue to climb through the eighties get back into more like the lower nineties.

Yes.

Speaker 2: Yeah, and just that I always keep reminding people that help for sale. We're generating 3% yield on that for what is basically a three week money market asset guaranteed by the government. So.

I would keep reminding people that held for sale were generating 3% yield on that or what it's basically a three week money market assets are guaranteed by the government. So we like that strategy.

Speaker 4: Okay, very good. I understood. On the deposit growth, you know, pipelines, how much of it do you expect from the recently announced Passive partnership? I'm just trying to get a gauge on you know, obviously we've seen that at other banks be very, you know, explosive deposit generator. What kind of forecast are you guys baking in looking ahead in 22? Fair question. Right now.

Okay, very good and understood.

On the deposit growth.

Pipeline, how much of it.

Do you expect from this from the recently announced Paas.

Asset partnership I'm, just trying to get a gauge.

We've seen that in other banks be very explosive deposit generator, what kind of forecast are you guys baking in looking ahead and pointing to.

Fair question right now we haven't baked in anything so when we discuss where I said that the Florida 2 billion, but I think we'll be more likely double that for Q1.

Speaker 2: So when we discussed where I said that the floor is 2 billion but I think we'll be more likely to double that for Q1. Much of that incremental growth is coming from our efforts at a Marihom to drive a higher deposit growth into the company.

Much of that incremental growth is coming from our efforts at Amira home to drive a higher deposit growth into the company. So both the digital disbursements announcement today and the blockchain announcement.

Speaker 2: So both the digital disbursements announcement today and the blockchain announcement connected to TASCIT, we have not put any numbers, any deposit numbers, into our forecast.

Connected to tap it we have not put any numbers any deposit numbers into our forecast this year.

Speaker 2: We are very hopeful and we expect for those programs to generate greater deposits, but at this time our first goal is let's get that blockchain program with

We are very hopeful and we expect for those.

Programs to generate greater deposits, but at this time, our first goal is let's get that blockchain program with Paas It launched.

Speaker 2: in early second quarter and once we see the reception we can then determine how to give you some guide on the future of the policy.

In early second quarter and once we see the reception. We can then determine how to give you. Some guide on the future deposit growth I should say both of those programs. The national business line strategy settlement services and also business escrow services. They both report the Dell So you want to add anything to that Dale.

Speaker 3: I should say both of those programs, the National Business Line Strategy and Settlement Services and also Business Escrow Services, they both report to Dell. So you want to add anything to that, Dale? No, that's absolutely correct. I would tell you we have high hopes for what can be executed here and we've already started conversations with various parties, but nothing is baked into what we're talking about.

Thats absolutely correct.

I would tell you we have we have high.

High hopes for what can be executed here and we've already started conversations with.

Various parties.

But nothing nothing is baked into to what we're what we're talking about.

Speaker 4: Okay, very good. Just last one for me on the gain on sale line. Can you just give us some updated thoughts on, you know, where we can see the gain on sale margin trend from that 28 pips here in the fourth quarter? And, you know, can you, in the production volumes, obviously, can you outrun, you know, gain on sale pressure with stronger volumes? Thanks.

Okay very good and just last one from me on the gain.

Again on sale line.

Can you just give us some updated thoughts on where to where we can see the gain on sale margin trend from that 28 per share in the fourth quarter.

Can you.

And the production volumes, obviously can you run a gain on sale pressure was with stronger volumes.

Speaker 2: So one of the things that we're doing, what we call either repositioning or pivoting in Mara-Home, is to buy and sell non-QM and jumbo loans.

So.

One of the things that we're doing.

What we call either repositioning or pivoting and Merrell.

As to buy and sell.

<unk> and jumbo loans.

Speaker 2: We started this immediately when we bought the company, we set up the program. We have 850 clients at a Marahol. We have to go out, educate, train, and then approve them to make non-QM and jungle loans. Today, 250 clients are approved.

We started this immediately when we bought the company we set up the program. We have 850 clients at Amira Hall, we had to go out educate train and then approval to make non non QM and jumbo loans today 250 clients are approved and they are generating.

Speaker 2: and they're generating about $200 million a month.

About $200 million a month in mortgage loans I would tell you all this because as we go through the year, we're going to be leaving the conventional market, which is seeing more compression in spread.

Speaker 2: in mortgage loans. I tell you all this because as we go through the year, we're going to be leaving the conventional market, which is seeing more compression and spread, and to the extent that Western Alliance, or the commercial side of our balance sheet, doesn't want any of those mortgages, or it doesn't hit our risk-adjusted returns, we will then sell them off in the marketplace.

And to the extent that Western alliance or the commercial side of our balance sheet doesn't want any of those mortgages are it doesn't hit our risk adjusted returns. We will then sell them off in the marketplace and we think those margin spreads there are much higher somewhere 35% to 40 basis points today.

Speaker 2: And we think those margin spreads there are much higher, somewhere at 35 to 40 basis points today. So that was a long-winded answer to say, as we reshift the focus inside of AmeriHolm, the lower margin spreads today will grow throughout the year.

So that was a long winded answer to say as we as we re shift the focus inside of apparel home.

The lower margin spreads today will grow throughout the year.

Speaker 2: And that's why just bringing something back to my comments at the end. That's why I said, hey, you know, when you think about our earnings for 2022, I said, let's tilt them a little bit more to the back end as we roll out all those non-QM and jumbo programs to our 850 member clients.

And that's why just bringing something back to my comments at the end that's why I said, Hey, when you think about our earnings for 2022, I said, let's talk a little bit more to the backend as we roll rollout all of those non QM and.

Jumbo programs through our 850 member.

Remember client base.

Speaker 2: okay so the two hundred million is what you did in the fourth quarter how big can that number grow to you know what that's a very sizable number and uh...

Okay. So the $200 million is that's what you did in the fourth quarter, how big can that number grow too.

Yeah.

That's a very sizable number.

And.

Speaker 2: I'll just say it could be very sizable and let us get through another quarter and start building on it and then the numbers we give you will have more confidence in and it'll give us more credibility but we see that number building all throughout the year and especially into 2023. We're very optimistic about this. to Okay, very.

I'll, just say it could be very sizable and let us get through another quarter and start building on and then the numbers. We give you will have one we will have a lot more confidence in it.

Will give us more credibility, but we see that number building all throughout the year.

Especially into 2023, we're very optimistic about this.

Okay very good thank you.

Yeah.

Thanks.

Speaker 5: Your next question comes from the line of Brock Vander Lee with UBS. Hey, Brock. Hey, thanks. Hey, good morning.

Your next question comes from the line of Brock Vandervliet with UBS.

Hey, Brian Thanks.

Hey, good morning.

Yes.

We should go back to the rate sensitivity I think the most.

Speaker 5: unsettling, maybe complex slide with slide.

Unsettling and maybe complex slide with slide eight and.

Speaker 5: that last bullet and Dale maybe if you just go through that again in terms of I think everyone gets the basic rate sensitivity it's the offset

And that last bullet.

Maybe if you could just go through that again in terms of I think everyone gets to the basic rate sensitivity, it's the offset.

Speaker 5: may have because of the mortgage businesses that I think are throwing investors.

You may have because of the mortgage business is that I think are a thrilling investors.

Speaker 3: Yeah, I appreciate that, Brock. I mean, that's correct. I mean, we obviously saw, you know, a cyclical and seasonal pressure in Q4 in the mortgage

Yeah, I appreciate that Brock I mean, that's correct.

We obviously saw a cyclical and seasonal pressure in Q4.

In the mortgage space.

Speaker 3: and anticipation of kind of the rate increases. You know, if this rate trajectory were to continue, we think that on that baseline, giving to, you know, what Ken referred to in terms of, you know, the present business.

And in anticipation of kind of the rate increases.

If this rate trajectory were to continue we think that that baseline getting too what kind of referred to in terms of.

The present business mix will undertake undergo additional pressure.

Speaker 3: will undertake, undergo additional pressure, you know, as rates rise 100 or 200 basis points, which, which crimps.

As rates rise 100, or 200 basis points, which which crimps that did non interest revenue realm.

Speaker 3: that the non-interest revenue relative to that operation. Also noted there is that we have certain deposits with earnings credit rates. I think that's going to be much less significant than potentially the mortgage element. So, but what this doesn't include is what's referred to as the pivot, you know, more to the NQM, more to the jumbo mortgage origination product and these other initiatives that are being done there that will mitigate that.

Relative to relative to that operation also noted there is that we have but we have certain deposits with earnings credit rates, I think thats going to be much less significant than potentially the mortgage element so but what it does it with this doesn't include is what's kept referring to which I referred to as the pivot.

More to the MQM, where due to the jumbo mortgage origination product in these other initiatives that are being done down there that will mitigate that.

Speaker 3: It also doesn't have kind of factored in what they expect to do in terms of growth. So last year we mentioned we have 860 mortgage warehouse clients, but we have not mined for MSR lines, for warehouse lines, and for deposit.

It also doesn't.

It doesn't have kind of factored in what they expect to do in terms of growth. So.

Last year, we mentioned we have they.

They have 860 mortgage warehouse clients that we have not mined for MSR lines for warehouse lines and for deposits from that group that compares to just over 100 that we have on the bank ourselves.

Speaker 3: from that group. That compares to just over a hundred that we have on the bank ourselves. And so we now have staffed up for that, and we expect to mine that group already. And as we get into that, that will improve, I think, what their performance has been. And on the net interest income side, mitigate that. But you're still going to see pressure on the fee revenue side from mortgage operations.

And so we now have staffed up for that and we expect to mine that group alright.

Already and as we get into that that will improve I think what their performance has been and on the net interest income side mitigate that but youre still going to see pressure on the on the fee revenue side from mortgage operations.

Okay, I understand that I just.

Speaker 5: coming back to that last bullet point, but there's a last bullet point where interest rate sensitivity says it could be dampened by half.

Coming back to this that last bullet point, but does the last bullet point, where interest rates sensitivities as it could be dampened by half.

Do we therefore pro rate the NII impact show on the left side or <unk>.

Speaker 5: NII impact that you show on the left side or totally different?

Totally different.

Speaker 3: No, no, no. And maybe we should be more clear. It's not that the rate sensitivity is going to be cut by half. It's that the addition to PPR from a higher rate environment. So we're showing, so for example, 377 million over two years and an eight-quarter rising rate environment. We're saying that, OK, if I...

No no no no and maybe maybe we should be more clear here.

It's not just the rate sensitivity is going to be cut by half.

Addition to PPE at our from a higher rate environment. So we're showing so for example, $377 million over two years.

An eight quarter rising rate environment, we're saying that okay. If I.

Speaker 3: That number could be more like $180 million or $190 million flowing to PPR, $377 is what you're going to see in the energy sinkum, but you're going to see lower ramps or slower levels in fee revenue. So that's a PPR change, as opposed to just an energy sinkum when you get to the 50% per cut potentially.

That number could be more like $180 million or $190 million flow into PPE at our 377 is what you're going to see a net interest income, but youre going to see lower ramps are slower levels and fee revenue.

Between our changed as opposed to just net interest income when you get to the 50% haircut potentially.

Okay.

Speaker 5: and just in the Rezzi Loneel.

And just in the resi.

Loan yields.

Speaker 5: detail here. The loan yields continue to compress 309 to 289. I would have expected those, you know, went in the other direction and lifted.

State of detail here.

Loan yields continue to compress 309 to $2 89.

Would've expected those went in the other direction and lifted this quarter and maybe that's a mix issue in terms of what youre selling versus retaining just cover that.

Speaker 5: Maybe that's a mixed issue in terms of what you're selling versus retaining.

Speaker 3: Yeah, you're right, what we're, you know, our current, you know, on the run acquisitions now we're in the lower threes. And so I would think that that has that that has bottomed out.

Yeah.

You're right.

Our current on the run acquisitions now we are in the lower threes.

And so I would think that that has that that has bottomed out.

Okay, alright, thanks for the questions.

Speaker 1: Your next question comes from a lot of Abraham and Walla with Think of America.

Your next question comes from the line of DRAM and Waller with Bank of America.

Hey, good morning.

Speaker 6: Good morning. I guess just first I wanted to follow up on the legal investigation that you flagged 10. One is the expense related to the initiation of the investigation this quarter and should we expect the legal expense line going back to where it has been just from a number standpoint and then what drove.

Good morning.

I guess just first wanted to follow up on the legal investigation that you have.

Ken one is the expense.

And related to the initiation of the investigation this quarter and should we expect on the legal expense line going back to where it has been just from a.

Number standpoint, and then what.

Speaker 6: Management to or the board to initiate this because it felt like at least about 60 days ago You didn't see a need for having in stand-alone investigation versus what the ESPN was doing So would love to yours some color around that how quickly can this get wrapped up for that This no longer remains and overhang on

Management to the board to initiate does because it sounds like at least 60 days ago, you didn't see a need for having a standalone investigation versus what did the ESPN was doing so would love to hear some color around that how quickly can just get snapped up so that just node.

<unk> remains an overhang on the stock.

Yes, So let me take the expense question first really there's not been any major impact at all to the.

Speaker 2: Yeah, so let me take the expense question first. Really, does that have been any major impact at all to the legal line and I'm not expecting that to balloon up in any way shape or form? So we answer questions that come to us from the MBA. I don't expect this investigation or review to really add in any material way to the...

The legal line in.

I'm not expecting that to balloon up in any way shape or form.

So we answer questions that come to us.

From the MBA.

Don't expect this.

This investigational review to really add in any material way.

To the.

Speaker 2: to the legal expense line item. To your second point, I would probably correct your assumption up front. The independent board members have been very much engaged from the very beginning of this ESPN report and MBA investigation. And this is just the next step in their doing their appropriate due diligence and handling what they want and follow the. If I do share.

So the legal expense line item.

And to your.

Second point.

I would probably correct your assumption upfront.

The independent board members have been very much engaged from the very beginning of this.

ESPN report an MBA investigation and this is just the next step and Theyre doing theyre appropriate due diligence and.

Handling their fiduciary responsibilities to the company. So I just think as the.

Speaker 2: So I just think it's just the next step in the whole process.

Just the next step in the whole process.

Speaker 6: And is there a timeline by when we probably conclude all of this?

And is there a timeline by when we probably conclude all of this.

Speaker 2: So really, this is being handled by the independent directors and their counsel. And I'm really not in a position to comment on the scope or duration of the investigation.

So really this is being handled by the independent directors and their counsel and I'm really not in a position to comment on the scope and duration of the investigation.

Sorry.

Got it and I guess.

Speaker 6: Got it. And I guess a separate question just around rate sensitivity. I think you expect the margin to have bottomed out and move higher as the Fed moves. Dale, if you can give us a sense of understanding the rate floors, what should be the lift to the margin from Fed hikes if any, if you could quantify that, that would be a

A separate question just around.

Hey, good sensitivity.

Do you expect the margin to have bottomed out and move higher as the fed moves.

Dan if you can give us a sense of understanding their needs floors, what should we the lift to the.

Margin from fed hikes, if any if you could quantify that that would be helpful.

Well, yes, so out of the gate, it's going to be fairly muted.

Speaker 3: Well, yeah, so, you know, out of the gate, it's going to be fairly muted. You know, I mentioned that we have 94% of our rate over rate loans are at the floor. We're not going to see much there. You know, conversely, I think there's a lot of liquidity, you know, in the industry. And I don't see where pricing pressure would come from, you know, from other institutions or on a competitive basis to increase funding costs.

And that we have with 94% of our of our variable rate loans are at the floor, we're not going to see much there.

Firstly.

I think theres a lot of liquidity.

In the industry and I don't see where pricing pressure would come from from from other institutions, who are in a competitive or competitive basis to increase funding cost and so it does start out fairly modestly and then and then climbs so it's going to be.

Speaker 3: And so it does start out, you know, fairly modestly, and then climbs, so I mean, it's gonna be...

Speaker 3: You know, kind of single-vigit millions for the first increase. You know, and then the next number will be a multiple of that.

Kind of single digit millions for the first for the first increase.

And then the next number will be a multiple of that and then it will probably double again as.

Speaker 3: And then it'll probably double again as we get, say, 75 to 100 basis points off of the floor. And then it's going to be more rateable based upon.

As we get say 75 to 100 basis points off of the floor and then and then it's going to be more ratable based upon the.

Speaker 3: the overall mix of our loans that are very, which is...

The overall mix of our loans.

Loans that are variable rate, which is which is substantial.

Speaker 6: If I can sneak in one last one, I think Ken you mentioned that using the $9.80 DPS from ConsenSys should be a floor, you should do better than that. What are you assuming in terms of gain on sale income given what the forward curve is telling us about rates, do you see, how meaningful of a decline do you see in gain on sale relative to the fourth quarter level?

If I can sneak in one last one I think Ken you mentioned did you think the $9 87 bps from consensus should be a slow you should do better than that what are you assuming in terms of gain on sale income given.

What the forward curve is telling us about <unk> do you see how meaningful of a decline do you see in gain on sale and then they come to the fourth quarter levels.

Speaker 3: Well, so the first quarter, you know, the first quarter is also seasonally challenged, as is Q4. And so I wouldn't look for improvement in gain on sale in one Q. After that, you know, I think that sector starts picking up, I'm going to say, kind of early spring, late winter, you know, somewhere in March time frame. And so we're looking for improvement in Q3, Q2, and Q3 going forward. And and then.

Well, so the first quarter.

First quarter is also a seasonally challenged as is Q4.

So I wouldn't look for improvement.

Gain on sale in <unk>.

After that I think the.

That sector starts picking up I'm going to say kind of early spring late winter some remarks timeframe and so we're looking for improvement in Q3, Q2 and Q3.

Going forward.

And and then by the time, we get to the second half of the year, our mix will have changed it will be less dependent upon GSE paper and more on.

Speaker 3: By the time we get to the second half of the year, our mix will have changed and we'll be less dependent upon GSE paper and more on non-qualified mortgage paper, which again has fatter margins in it. So we're looking for things to be improving, really starting in the second quarter but carrying through 2022.

In Q Nonqualified mortgage paper, which again has isn't the highest fatter margins in it. So we're looking for things should be improving you're really starting in the second quarter, but carrying through 2022.

Thanks for taking my questions.

Your next question comes from the line of Jim here, Brazil, or with Wells Fargo.

Speaker 1: Your next question comes from the line of Tamir Braziler with Wells Fargo.

Hi, good morning.

Speaker 7: Good morning. Just to circle back in the last comment on residential production. I guess it's a good way to think about it kind of the next two quarters of the product out of the Marihoma Stoke primarily conforming. We're going to use that time to continue building the...

Good morning.

Just to circle back on the last comment.

Residential production I guess is a good way to think about it kind of the next two quarters as the product out of the Merit home is still primarily conforming youre going to use that time to continue building the.

Speaker 7: Rezzy book on balance sheet and then as a product switches to non-conforming or likely more so non-conforming in the back end of the year, all that production will be sold off. And I guess when that switch occurs, will that trigger a change in your appetite for production out of a mirror home or will that level still be the same just going through the dance airline?

On the resi book on balance sheet, and then as that product switches to nonconforming largely more so on performing in the back end of the year all of that production will be sold off and I guess when that switch occurs will that trigger a change in your appetite for production out of in their home or will that level still be the same just going through the dance online.

Speaker 2: Yeah, so I just want to correct one assumption first. What we're buying from a marijuana today, or what a marijuana is selling to the commercial side of our business, are the non-QM and Jumbo loans. All right, so we're not housing these conventional loans on our balance sheet that they buy in as part of their corresponded lending business and then they turn around and then they put them to the EG.

Yeah. So just wanted to correct one assumption first.

What we're buying from America.

Today, one in Maryland, and sell into the commercial side of our business or the non QM and jumbo loans. So we're not housing the conventional loans on our balance sheet that they buy and as part of their correspondent lending business and then they turn around and then they put him to the GSE. So for US today, we both have we have.

Speaker 2: So for us today, we both have, we have an AmeriHome Info for non-QM and a Jumbo Loans. And we had this program started before we purchased.

In America Merrill home inflow for non QM and jumbo loans and we had this program started before we purchased a mirror hall and so we have from our 100 or so clients.

Speaker 2: of Marahal. And so we have from our 100 or so clients, a group that continue to offer us forward flow.

Our group that continue to offer us forward flows so as a matter of homes volume picks up we will probably decrease the forward flows from our existing customer base, but always looking at what is the best return, we can get either from Meera hall or from our existing customer base.

Speaker 2: So as AmeriHolmes volume picks up, we'll probably decrease.

Speaker 2: The forward flow is from our existing customer base, but always looking at what is the best return we can get, either from a mirror home or from our existing customer base.

Speaker 7: Okay, that's helpful. Yeah, that's helpful. Thank you. And then just maybe looking at the average level of low and shelter sale versus the period and balance. Is that the typical trend that those balances kind of pick up throughout the quarter and then there's more selling towards quarter end? And I guess as we head into next year, are those average balances kind of what we should be using for our assumptions for low and shelter sale or is there gonna be a step down here in the first quarter? yep. So. S So.

Does that help you. Okay. That's helpful. Yeah. That's helpful. Thank you and then just maybe looking at the average levels.

Loans held for sale versus the period end balance is that the typical trend that those balances kind of pick up throughout the quarter, and then theres more selling towards quarter end and I guess as we head into next year.

Are those average balances kind of what we should be using for our assumptions for loans held for sale or is there going to be a step down here in the system.

Yeah. So you may have noticed this before we have a mere one tumor but backdrop.

Speaker 3: before we had AmeriHome Teamer, but our loans tend to peak at or near kind of month-end and especially quarter-end, and so our average balance tends to lag.

Our loans tend to peak at or near kind of month end, and especially quarter end and so our average balance tends to lag.

Speaker 3: that of our ending periods. I call it the telephone wire, although there aren't any more telephone wires anymore, kind of a phenomenon where, you know, it picks up, you know, and then droops down again. And so, to basically address that and to have a more stable earning asset level throughout the quarter, intra-quarter,

And that of our ending periods I call the telephone wire, although there anymore telephone wires anymore kind of said kind of a phenomenon where it picks up.

And then drops down again, and so and so.

Basically address that and to have a more stable, earning asset level throughout the quarter intra quarter. We have had the reverse basically plan for the held for sale book at a marathon because thats such a short window, we can play with that and so and so we have driven up average balances lower than the ending balances and you're out of it.

Speaker 3: We have had the reverse basically planned for the help for sale book at AmeriHome, because that's such a short window we can play with that. And so we have driven up average balances lower than the ending balances. And you add them together, you get something a little more.

Together, you get something a little more stable.

Speaker 3: terms of averages and endings. Going forward, I think we're there. We've taken the health for sale portfolios kind of where we want them to be. I'm not looking for continued growth in there, neither on an ending nor an average basis necessarily. And meanwhile, again, now that we've ramped that up, now that we have stocked up the liquidity that we had when we acquired AmeriHome, we were sitting on $6 billion in cash.

Averages and endings.

Going forward I think we are there.

We have we've taken the held for sale portfolio is kind of where we want them to be I'm not looking for continued growth in there either on an ending Norte average basis necessarily.

And and and Meanwhile.

Now that we've ramped that up now that we haven't stopped up the liquidity that we had when we acquired <unk> home, we were sitting on $6 billion in cash.

Speaker 3: We are our focuses now. Okay, what do we want to put on the Health for Investment book?

Where our focus is now okay. What do we want to put on the held for investment book and that's what Ken was referring to in terms of continuing to grow the residential piece, but with these nonqualified mortgages that are that are really good quality. These are low LTV either they are in.

Speaker 3: And that's what Ken was referring to in terms of continuing to grow the residential piece, but with these non-qualified mortgages that are really good quality. These are low LTV, they're in the mid to high 60s on LTV, 760 FICO, debt to income in the mid-30s.

In the mid to high <unk> on LTV 760, FICO debt to income in the mid thirties, and we think that's going to be pretty impervious to kind of swings in the business cycle and the residential valuation cycle as well.

Speaker 3: And we think that's going to be pretty impervious to kind of, you know, swings in the business cycle and the residential valuation cycle as well.

Okay, great. Thank you.

Your next question comes from the line of Brad Millsaps with Piper Sandler.

Speaker 1: Your next question comes from the line of Brad Millsaps with Piper Sandler.

Hey, good morning, guys.

Brian .

Speaker 8: Dale, you're using kind of the NBA data as a proxy. Your mortgage market share has kind of been plus or minus 2% for the past couple quarters. I was curious if you had an idea of kind of where you might see that increasing to over the next 12, 18 months as you guys kind of continue to take share. If that's my way to think about it.

Dale.

Do you think kind of the NBA data as a proxy.

<unk> market share has kind of been plus or minus 2% for the past couple of quarters.

I was curious.

If you had an idea of kind of where you might see that.

Increasing to over the next 12.

12, 18 months as you guys kind of continue.

Continue to take share if that's if that's one way to think about it.

Well, we have a we have a pretty flexible model whereby we can step up.

Speaker 3: Well, we have a pretty flexible model whereby, you know, we can step up on the share space to continue to, you know, take volume. So I think that's going to really depend upon, you know, what else we see, you know, kind of going on. We are sensitive to the...

On the share space to continue to.

Volume.

I think that's going to really depend upon what else, we see kind of going on we are sensitive to the.

Hum.

Speaker 3: you know, how elastic demand and pricing is in that space. We don't want to come in so strong that we start kind of pushing down pricing overall. But within that parameter, I think we could be taking up share to, again, address the expectations that we have from AmeriHome away from what they're doing on our balance.

How elastic demand and pricing is in that space, we don't want to come in so strong that we start kind of pushing down pricing overall.

But within that parameter.

We could be taking up share to again address that.

The expectations that we have from Amira home away from what they are doing on our balance sheet.

Speaker 8: And just curious, you addressed kind of the level of held for sale, that's going to remain pretty stable from here, but just kind of curious, if you do hold those for longer and generate more interest income, does that impact your gain on loan sale at all? Just kind of curious if there's a bit of a trade-off there, maybe we're not seeing it as much in fee income, but you're picking up more NII, just kind of curious kind of how the two pieces might work together.

Just curious.

You addressed kind of the level of held for sale, that's going to remain pretty stable from here, but.

Just kind of curious.

If you do hold those for longer and generate more interest income did that impact your.

Gain on loan sale at all just kind of curious if theres a bit of a trade off there maybe we're not seeing it as much in fee income, but youre picking up more NII, just just kind of curious kind of how the two pieces might work together.

Yes, let me say bingo, that's exactly what the conversation is.

Speaker 2: Yeah, let me say big go, that's exactly what the conversation is. And we work with our, we work with the Mara Home very closely to make sure that the net economic.

And we work with our work with the marrow home very closely to make sure that the net economics are better for the bank, whether it would be just taken the loans in holding them for three weeks and then putting them to the GSC.

Speaker 2: are better for the bank, whether it be just taking the loans in, holding them for three weeks and then putting them to the GSEs and getting a full gain on sale that way, or by having them reside and nest on our balance sheet for a longer period. So we look at it both ways, and wherever the best economics are, that drives what we do.

Getting a full gain on sale that way or by having them reside and nest on our balance sheet for a longer period. So we look at we look at it both ways and wherever the best economics are that drives what we do.

So if those loans, it's sort of reached kind of a steady level and you guys continue to take share you could actually see all else being equal.

Speaker 8: So if those loans have sort of reached, you know, kind of a steady level and you guys continue to take share, you could actually see, you know, all of us being equal to maybe, you know, maybe the gain on loan sale, key income line improve event first quarter, you know, kind of not withstanding due to seasonality. Correct.

Maybe maybe.

Maybe the the gain on loan sale.

Combined improve at that first quarter kind of notwithstanding due to seasonality.

Correct, Yes, Thats a fair comment.

Speaker 8: And then just on the servicing piece, I know it's not a big number, but you've got a pretty large servicing portfolio now and I think you're only generating a couple million bucks.

Okay, and then just on the.

On the servicing piece I know, it's not a big number but.

<unk> got a pretty large servicing portfolio now and I think youre only generating a couple million bucks.

Speaker 8: Can you kind of talk about some of the puts and takes there? It just seems like a low number. Again, not huge numbers, but just kind of curious where that could head.

Can you kind of talk about some of the puts and takes there. It just seems like a low number again not huge numbers, but just kind of curious where that could head.

Yes, so I mean.

Speaker 3: Yeah, so I mean, I appreciate that, Brad. So, I mean, the servicing piece, you know, has been affected by MSR dispositions we've undertaken. There's deconversion costs associated with that that have come out of that line as a, you know, a contra route. And so, you know,

I appreciate that Brad because so the servicing piece has been affected by.

MSR dispositions, we've undertaken Zeke conversion costs associated with that that have come out of that line is.

Concho route.

And so.

Speaker 3: Slowing down MSR dispositions could increase that number as well. We also think that, you know, I'm going to say the back half of last year, there was more refi activity than was expected, and I think what the reason for that is because

Slowing down MSR dispositions could increase that number as well we also think that.

I'm going to say the back half of last year.

There was more refi activity than was expected.

And I think what the reason for that is because.

Speaker 3: There's been such an appreciation of home values nationwide that some people, even though it wasn't necessarily economically advantageous to refi, did so anyway because they wanted cash out to be able to take some of that equity out to do for whatever they pleased.

There has been such an appreciation of home values nationwide that other some people, even though it wasn't necessarily economically advantageous to refi did so anyway, because they wanted a cash out to be able to take some of that equity ought to do for whatever they please.

Speaker 3: Um, you know, as we see rates rise more.

As we see rates rise more I don't know that Thats that trade really is going to make sense I think youre, probably better off leaving your first mortgage as is getting a home equity credit line on top of it at a higher rate rather than refinancing the whole thing. So I think that may slow down also if that were to slow down that would also result in less amortization.

Speaker 3: I don't know that that trade really is going to make sense. I think you're probably better off leaving your first mortgage as is, getting a home equity credit line on top of it at a higher rate, rather than refinancing the whole thing. So I think that may slow down also. If that were to slow down, that would also result in less amortization of MSR premiums as those lines lengthen out. And that's irrespective of that they probably will lengthen out just as rates rise to begin with, which both of those would be positive for us.

MSR premiums as those lives lengthen out and that's irrespective of that there probably will lengthen out just as rates rise to begin with which both of those would be positive for servicing revenue.

Okay. Thank you and final question for me just just for Ken on the C&I side of things with some really nice growth. This quarter I was curious if you could just maybe off a little more color.

Speaker 8: Okay, thank you. And final question for me, just for Ken, on the C&I side of things, some really nice growth this quarter. I was curious if you could just maybe offer a little more color, you know, is that line utilization coming back, you know, with some of that purchased again? Do you feel like there's some real momentum out there on the C&I side as things get back to normal and businesses, you know, rebuilding the tours and things like that? Or is that kind of still to come in terms of the growth you're seeing?

Is that is that line utilization coming back.

Some of that purchased again.

Do you feel like there's some some real momentum out there on the C&I side of things.

Things get back to normal.

Businesses rebuild inventories and things like that or is that is that kind of still to come in terms of the growth you're seeing.

Speaker 2: Yeah, you know, I would say the growth we're seeing is what we've been seeing almost throughout the year. Okay? That warehouse lending, for the most part, has been very strong throughout the year. A little bit quieter in Q4, though. Warehouse, I'm sorry, subscription lines and capital call lines continue to perform well and they did so in this quarter as well.

Yes.

I would say the growth we're seeing is what we've been seeing almost throughout the year. Okay.

Warehouse lending for the most part has been very strong throughout the year.

<unk> acquired them.

In Q4, though.

Our house, sorry subscription lines and capital call lines continue to perform well and they did so in this quarter as well.

Speaker 2: And they were up about, let me see, I'll tell you what they were up, I'll have it right

They were up about.

Let me say I'll tell you what they were off rebate right here.

Speaker 2: Yeah, they were up about $600 million.

Yeah, they were up about $600 million.

Speaker 2: So that helped. You know, we had good growth in the hotel sector. We grew that about $380 million. And then all our regional lines or businesses, they grew collectively this quarter.

So that helped.

Had.

Good growth in the hotel sector.

Grew that about $380 million and then our all our regional.

Lines are our businesses they group collectively.

This quarter.

Speaker 2: you know, nearly over a billion dollars as well. So, it was a good quarter, is what I would say. And sometimes I'll just say, when we talk about warehouse lending.

Nearly all over over $1 billion as well.

So.

It was it was a.

It was a good quarter.

Site, and sometimes I'll, just say when we talk about.

Warehouse lending.

Speaker 2: There are three components to warehouse lending. The traditional warehouse lending was relatively flat, but MSR lines that we capture in that number, they grew nearly 200 million. And then we have a note financing business.

There are three components of warehouse lending the traditional warehouse lending was relatively flat, but MSR lines.

Capture in that number.

They grew.

Nearly $200 million and then we have a note financing business again under the whole heading of warehouse lending and that grew another quarter of a $1 billion.

Speaker 2: again, under the whole heading of warehouse lending, and that grew another quarter of a billion dollars. So that's where we saw the growth for Q4.

So that's where we saw the growth for Q4.

Great. Thank you.

Speaker 1: Your next question comes from the line of Chris McGrady with KBW.

Your next question comes from the line of Chris Mcgratty with K B W.

Great. Thanks for the question.

Speaker 9: Great. Thanks for the question. D.L., I know you mentioned the low 40s on the efficiency ratio. I'm interested, kind of near-term, as this mortgage business gets reset a bit, maybe you can speak to some of the flexible expenses that would come out.

I know you mentioned the low forty's on the efficiency ratio I'm interested kind of near term as this mortgage business gets reset of it.

Maybe you can speak to the some of the flexible expenses that would come out.

Speaker 3: Yeah, so a few things. So Q1 is always a scenario that's a little bit tighter. We see a reload on expenses, payroll taxes, certain of our professional fees, and then the revenues contracted, because it's only 90, we're dropping two days, 92 to 90. And that's going to have an effect on the efficiency ratio. They're probably going to take it to, I'm going to say, 43, 44 in Q1.

Yes, so a few things so.

Q1 is always a.

Scenario, that's a little bit tighter, we see a reload on expenses.

Roll taxes certain of our professional fees and then the revenues contracted because it's only 90, we're dropping two days and I'd, even 92 to 90.

And that's going to have an effect on the on the efficiency ratio, they're probably going to take it through you know I'm going to say 43 44 in Q1.

But then from there what would a Maryland was.

Speaker 3: But then from there, what a mayor can do is, again, kind of process and right-size whatever makes sense in terms of where they are on their profile, given their opportunity. But overall, we think we're pretty strong in terms of on our efficiency profile and expense outlook.

Can do is again kind of process and rightsize wherever it makes sense in terms of where they are on their profile given their opportunity.

But overall, we think we're pretty strong in terms of an honor efficiency profile of expense expense allies.

Speaker 9: Great. Thanks. And would you mind, I was trying to catch up, you said something about 2022 guidance, that you're comfortable with the consensus out there. I missed that.

Great. Thanks, and would you mind I was trying to catch up.

You said something about 2022 guidance.

That you are comfortable with the consensus out there I missed that.

Yes, that's a floor.

Got it thank you.

Your next question comes from the line of Bryan Keane with <unk> Securities.

Speaker 1: Your Nate's question comes from the line of Brandon King with truest security.

Speaker 10: Hey, I wanted to touch on loan growth expectations with the guidance of $2 billion per quarter. Are you expecting a similar composition as last year, Q4, for this year? And do you anticipate any changes within that composition, especially with the change in strategy with the Marihona and the back half?

Hey.

I wanted to.

I wanted to touch on loan growth expectations with the guidance of 2 billion per quarter.

Are you expecting a similar composition as last year in Q4 for this and do you anticipate any changes within that competition, especially with.

The change in strategy with the mayor of home in the back half of the year.

Year.

Yeah, No I think.

Speaker 3: Yeah, no, I think, you know, in general, what we're seeing now and what we expect to continue is a broadening out of credit demand across our business lines.

In general what we're seeing now and we expect to continue as a broadening out of credit demand across our business lines and so and so it started during the pandemic. It was very narrow it was basically mortgage warehouse lines and residential real estate and capital call lines now.

Speaker 3: And so, and so, you know, it started during the pandemic, it was very narrow, it was basically, you know, mortgage warehouse lines and residential real estate and capital call lines. Now we're seeing, as Ken mentioned, you know, we've got, you know, we've seen increases in tech, increases in hotel, increases in the regions. I think that's going to continue. Where you could see maybe a little bit of an accordion element.

Seeing as Ken mentioned, we've got we've seen.

Increases in tax increases in hotel increases in the regions I think that's going to continue where you could see maybe.

Maybe a little bit of that.

An accordion element is is in the residential side. So so if our deposit growth.

Speaker 3: is in the residential side, so, you know, if our deposit growth, you know, shines.

Shines.

Speaker 3: You know, we're not going to push obviously on credit underwriting. And so the, you know, the valve to pick up that increased liquidity is going to really push on the residential piece on the NQM that we talked about. And so, you know, at a baseline level, you know, a performance, you know, I expect to see kind of the residential piece to be somewhere, you know, similar to what you alluded to.

We're not going to push obviously on credit underwriting and so the the valve to pick up that increased liquidity is going to really push on the residential piece on the N QM that we've talked about and so at a baseline level.

Performance I expect to see kind of the residential piece to be somewhere.

Similar to what you alluded to.

Speaker 3: Maybe, as it was, just over 40% in Q4, something in the 30s and 40s or whatever is probably pretty typical. If we're outsized on deposit growth, then you're going to see the residential fees pick that up.

It may be.

It was just over 40% in Q4, something in the <unk> and <unk> or whatever it's probably pretty typical.

If were outsized deposit growth.

Then youre going to see in the residential piece pick that up.

Okay.

Speaker 10: Okay. That's helpful. And then, you mentioned how hotel purchased finance bounced back in the quarter. You also mentioned tighter underwriting. And I wonder if I can get you more details on what sort of underwriting standards you're applying out from period till where they were before.

Helpful. And then mentioned how hotel franchise finance bounce back in the quarter.

You also mentioned the tighter underwriting and I wonder if I could get any more details on what sort of underwriting standards, you're applying now compared to where they were before.

Speaker 5: Our Chief Credit Officer has been sitting here very quietly. We're going to give him a chance to answer a credit question finally. Thanks. We, we, um...

Our chief Credit Officer has been sitting here very quietly we are going to give him a chance to answer a credit question finally.

Thanks.

<unk>.

<unk>.

I think has benefited over the last year.

Speaker 11: year really in being able to underwrite some of the best structures in part because there was some pullback. So what we're still seeing in that is very low loan to cost, loan to value advances.

Year.

Yes.

And being able to underwrite some of the best structures.

In part because there is there was some pullback.

So what we're still seeing and that is very low loan to loan to cost loan to value advances, we're seeing it with the.

Speaker 11: We're seeing it with the flags and asset type that we prefer, so we're seeing it in our target market.

With the flags and asset type that we prefer so we're seeing it in our target market and we're typically.

Speaker 11: And we're typically still underwriting with.

Still underwriting with <unk>.

Speaker 11: going in reserves that we wouldn't have prior to the pandemic. So I would call it conservative and thoughtful underwriting and

Going in reserves that we wouldn't have.

Prior to the pandemic, so I would call it conservative and thoughtful underwriting and well priced yes. When you mean reserves you mean, both operating reserves for somewhere between six and 12 month period and also payment reserves for principal and interest again for six to 12 months correct. Thanks, Ken.

Speaker 2: When you mean reserves, you mean both operating reserves for somewhere between a 6-12 month period and also payment reserves for principal and interest again for a 6-12 month period? Correct.

Okay.

Speaker 10: And then as far as the loan yields on that book, how have they trended since, you know, there's been sort of a reopening of the economy? Had loan yields kind of come down some based on what they were last year?

And then as far as loan yield when they book how have they trended.

So you know there's been sort of a reopening of the economy had as loan yields kind of come.

Come down some based on what they were last year.

So.

Speaker 2: In the midst of the pandemic, we were doing some underwriting still with hotel properties and into the first part of 2021. The yields were higher there because there was less competition and that's what we demanded to do underwriting at that time. In addition to a tip set, we had tighter underwriting standards.

In the midst of the pandemic, we were doing some underwriting still with.

On hotel properties and into the first part of 2021.

Yields were higher there because.

There was less competition and Thats, what we demanded to do underwriting at that time.

Two as Tim said, we had tighter underwriting standards so.

Speaker 2: So as more people have come back into the mock market, a number of our floors have dropped. We're still getting better pricing in that segment than we are elsewhere in our book of business. But yes, it has come down somewhat throughout 2021. Still great, very good risk-adjusted returns.

As more people will come back into the market a number of our floors have dropped we are still getting better pricing in that segment than we are elsewhere in our book of business, but yes. It has come down somewhat.

2021 still great very good risk adjusted returns here.

Okay.

Speaker 10: Okay. And then lastly, I wanted to touch expenses.

And then lastly, I wanted to.

<unk> expenses.

Speaker 10: I just wanted to get a sense of what your investment priorities are for the year and also get an understanding as far as how hiring has gone. I know talent acquisition has been tough in this inflationary environment and with, quote unquote, the great resignation, but I just wanted to get an update on that and the plans for the year. Thank you.

I just wanted to get a sense of what's your investment priorities are for the year and also get an understanding as far as how hiring has gone well my node.

Talent acquisition has been tough in this inflationary environment.

We don't quote the great resignation, but just wanted to get.

And the plans for the year.

Yes so.

Sure.

Speaker 2: We had a net growth in hiring this quarter, which is good. I agree that there is a war for talent. And we're out there trying to hire as many people as we can as soon as we can.

We had a net growth in hiring this quarter, which is good.

I agree that there is a war for talent.

We are out there.

I'm trying to hire as many people as we can as soon as we can.

Speaker 2: And we have appropriately so changed compensation levels inside of the bank to retain people as well as to attract new people. What I said in my opening remarks, you know, our efficiency ratio, our productivity improvements have been so significant that it's been able to capture the increase in the cost of new hires and retaining people. So that's question one.

We have.

Appropriately so changed compensation levels inside of a bank to retain people as well as to attract new people.

What I said in my opening remarks.

Our efficiency ratio our productivity improvements have been so significant that it's been able to capture the increase in the cost of new hires and retaining people.

Question, one what was the other question.

Speaker 12: Yeah, just your... Oh, just your...

Sure.

Speaker 2: On investments, the priority starts with risk management and technology. We need to have that right given the strong growth profile and trajectory that we have.

The first one.

Yes.

On investment.

Priority starts with.

Risk management and technology, Alright, we need to have that right given the strong growth profile and trajectory that we have okay. You can do some simple math and say hey, pretty soon these guys are going to get to $100 billion.

Speaker 2: You can do some simple math and say, hey, pretty soon these guys are going to get to $100 billion and we need to be ready to be regulated as a $100 billion bank. You don't start that when you get there. We've started that actually last year we started it. So that investment has been in our numbers and will continue to be in our numbers both for risk management and technology.

And they and we need to be ready to be regulated as a $100 billion bank you don't start that when you get there. We've started that actually last year. We started so that investment has been in our numbers and we will continue to be in our numbers, both for risk management and technology for new bids.

Speaker 2: for new business lines, it's interesting, the new business teams that we have brought on.

This lines it's interesting.

New business teams that we have brought on.

Speaker 2: Fortunately because there's such senior fees and bankers with great relationship

Fortunately, because theres, such senior seasoned bankers with great relationships, they come on and probably inside of six months on a run rate basis. Those groups are paying for themselves already so we don't have a large drag and bringing on new teams. So at least we havent yet alright.

Speaker 2: They come on and probably inside of six months, on a run rate basis, those groups are paying for themselves already. So we don't have a large draft.

Speaker 2: bringing on new teams, at least we have it yet.

Speaker 2: And then in terms of stuff that we're doing organically, embedded in our low 40s efficiency ratio guide, is the incremental work we're doing, for example, with tacit to get our blockchain payment system off and running. But also included in there are new business lines that we are beginning to build or examine.

Then in terms of stuff that we're doing organically embedded in our low forty's efficiency ratio guide is the incremental work. We're doing for example, with pass it to get our blockchain payment system up and running but also included in there are new business lines that we are beginning to.

Build or examine.

Speaker 2: that we hope will help us towards the back end of 2022 and give us some momentum into 2023. So we always look at our budgets as a eight-rowing-quarter process so we can lay out what we think of the appropriate spend in year one and begin to see what's going to happen in year two in terms of a payback.

And that we hope will help us towards the backend of 2022 and give us some momentum into 2023. So we always look at our budget.

Eight rolling quarter process. So we can lay out what we think is the appropriate spend in year, one and begin to see what's going to happen in year two in terms of a payback.

Okay. Thank you so thank you very much.

Speaker 1: Your next question comes from the line of Gary Tenor with DA Davidson.

Your next question comes from the line of Gary Tenner with D. A Davidson.

Thanks, Good morning.

Speaker 13: Thanks. Good morning. A couple of questions. First, Dale, I just want to make sure I understood kind of the mechanics or context around that credit loss note recovery. Is it simply that the additional CLNs issued in the fourth quarter reduces the exposure under the expected loss model? That that's why you get that game?

Couple of questions first I, just want to make sure I understood kind of the mechanics for context around that credit loss node.

Coverage is it simply that the additional <unk> issued in the fourth quarter reduces the exposure under the expected loss model.

That's why you get.

Again.

Speaker 3: You know, yes, exactly. So, so we sold, um, we sold the credit link note that we, so we received the proceeds, um, of about 230 million.

Yes, exactly so so we sold.

We sold the credit linked note that we saw we receive the proceeds.

Of about $230 million.

Speaker 3: And with that, they take first loss, the buyers of that note take a first loss on a $4.55 billion portfolio of residential mortgages.

And.

With that they take first loss the buyers of that and I'll take a first loss on a $4 $55 billion.

Portfolio of residential mortgages, and so we have no loss unless the losses on those loans is more than 5%, which seems beyond astronomical to me.

Speaker 3: And so we have no loss unless the losses on those loans is more than 5%, which seems beyond astronomical.

Speaker 3: I mean we've never had a loss on these loans to begin with and so we have but in any event that that's that's what they They're responsible for that and so and so but yet because the loans are still in our books Within Cecil the eight ACL we have a reserve on those loans of $7 million that that's what the ACL computation

I mean, we've never had a loss on these loans to begin with and so we have but in any event. That's what they are responsible for that and so and so but yet because the loans are still on our books within seasonal the eight ACL, we have a reserve on those loans of $7 million that that's what the ECL.

Computation is and so with that now that we have somebody else taking that loss were still responsible for that loss, but we have a direct offset that we would claim that loss by paying back the note that they bought from us.

Speaker 3: And so with that, now that we have somebody else taking that loss, we're so responsible for that loss, that we have a direct offset that we would claim that loss by paying back the note that they bought from us.

Speaker 3: the the not amount less the losses that have been put to them because they own the first loss position on that and that's a seven million dollar gain. So you can do this in the same corner. I mean, you know, when we are, I mean, we're originating residential mortgages. We expect that we're going to continue.

The node amount less the losses that have been put to them because they own the first loss position on that and that's the $7 million gain. So you can do this in the same quarter.

And we are I mean, we're originating residential mortgages, we expect that we're going to continue to to to put them out to a third party in most cases. The reason why we do that is because once you've done. This process you reduce it from a 50% risk weighting to a 20% risk weighting it is cheaper to do.

Speaker 3: to put them out to a third party in most cases. The reason why we do that is because once you've done this process, you reduce it from a 50% risk weighting to a 20% risk weighting. It is cheaper to do this and to pay the note to this third party than it is to issue a

Do this and to pay the note to this third party than it is to issue common stock to cover that 30% of reduction in <unk>.

Speaker 3: common stock to cover that 30 percent reduction in RWA.

And that makes sense, yes.

Speaker 2: One of the things that Dale said, I would like everyone on the phone to know that we're going to be coming to market with this on a

The other thing the Delta I would like to everyone on the phone to know that we're going to be coming to market with this.

On a on a periodic basis. So we're going to see this happen again during the course of.

Speaker 14: So you're going to see this happen again during the course of 2022, either another time or maybe at least two times. So this income that we're getting from it is going to find its way into the P&L. And then if, you want to take a second, have that, it then accretes back in as a cost. If you don't have losses, if you don't have losses, it accretes back in as a cost. It's just parallel to what is in the ACL.

2022, either another time or maybe at least two two times. So this income that we're getting from it is going to find its way into the P&L and then if Dale you want to take the second half of that is then the creeps back in as a cost. If you don't have losses, we don't have a glasses increase back in as a cost.

Parallel to what is in the ACL.

Speaker 13: So we have $7 million in the ACL that is a Contra asset, and now we have $7 million that is a Contra debit, a Contra liability that takes off of how much we owe this party. They're just going to go back and forth. You staple them together. That was my point. Yeah. Right. So it just effectively shows up on the fee line versus...

So we have $7 million in the ACL that you know as a contra asset and now we have $7 million that is a contra debit.

Contra liability that takes off of how much we owe this party there should go back and forth I mean, they're just your staple them together that was my point right. So it just it just effectively shows up on the fee line versus.

Speaker 13: you know, the reduction to the ACO, which would be a little more into it. So my question is what?

The reduction to the ICL, which would be a little more into it so.

One is what.

Speaker 3: that the first time you did this back in the what was it the second quarter why why was there not a similar the country you know you know i mean they're effectively was recursive that we've gone through and done that but i would say that the dollar amount for this for this piece is uh... is larger than uh... that you know that what that first one was uh...

The first time you did this back in the.

The second quarter why was there not a similar accounting treatment.

I mean, there are effectively wiser should've been we've gone through and done that but I would say that the dollar amount for this for this piece is larger than.

And what that first one was.

Speaker 3: Yeah, it was only $400,000 from the one for the first one. So the $7 million is overwhelmingly the residential.

Yes, it was only $400000 from the one for the first one so the $7 million is overwhelmingly the residential.

Speaker 13: thanks thanks for the color of that and then just what one one of the short question can in terms of your comments uh... regarding the kind of shift in production uh... and i think a third of the clients approved on that on the non-curement jumbo doing about two hundred million a month

Okay. Thanks, Thanks for the color and then just one additional question Ken in terms of your comments.

Regarding the kind of shift in production.

And I think a third of a client's approved on that on the non QM and jumbo doing about $200 million a month. So if you roll it out in all your clients are approved and they double their production.

Speaker 13: So if you roll that out and all your clients are approved and they double that production, that's three and a half or four billion a quarter, give or take in terms of that type of production. So is the idea that the overall mix will shift and be maybe 25% of that kind of production and the rest will remain conventional? Is that the way to think about it?

$3 $4 billion a quarter.

Give or take in terms of that type of production. So is that is the idea that the overall mix will shift and b, maybe 25% of that kind of production and the rest will remain conventional is that the way to think about it.

Speaker 2: So, boy, I love your math that 100% of 850 clients are all in on the program, so I love your enthusiasm on that, but we know that's not going to be the case. So I don't think you're going to see $3 billion a quarter, but I do think, you know, towards the end of 2018.

So.

Oh I love your math at 100% of 850 clients are all in on the program.

So.

I love your enthusiasm on that but we know that's not going to be the case. So I don't think youre going to see $3 billion a quarter.

But I do think.

Towards the end of 'twenty.

'twenty two.

Speaker 2: you know, you should be able to see from wherever we are about a billion dollars a quarter, okay? And a lot of this is gonna depend on how quickly we can get our client base educated, trained, and approved.

You should be able to see from wherever we are about $1 billion a quarter, okay and a lot of this is going to depend on how quickly we can get our client base educated trained it approved and then get them rolling out this product, which we think they.

Speaker 2: and then get them rolling out this product which we think they want.

I want and then again for US we're going to look at the.

Speaker 2: And then, again, for us, we're going to look at the dynamics. And we set internal benchmarks here. And if it is better, first of all, it all depends on our liquidity all the time, on how much we carry on the balance sheet.

Dynamics, and we're going to we set internal benchmarks here and if it is better first of all it all depends on our liquidity all the time about how much we carry on the balance sheet, but if we see better economics to sell alone away from us that's what we're going to do if we see better economics that we want to keep it that's what.

Speaker 2: But if we see better economics to sell a loan away from us, that's what we're going to do. If we see better economics that we want to keep it, that's what we're going to do. And so it provides us a lot more optionality. It just goes to show, really, what we've been saying since the day we purchased AmeriHolm that a mortgage company inside of a bank has many levers that it can pull that provide income streams. And that's what we're going to do.

We're going to do and so it provides us a lot more optionality.

It just goes to show really what we've been saying since the day, we purchased the marrow home that our mortgage company inside of a bank has many levers that it can pull.

That provide income streams to the parent company that they could not pull or use if they were a standalone company and so that's what we kind of like about Merrell.

Speaker 2: to the parent company that they could not pull or use if they were stand alone.

Speaker 14: And so that's what we kind of like about a merrol. And so I hope that answers your question.

And.

So I hope that answers your question.

Okay. Thanks, guys I appreciate it.

Okay.

Speaker 1: Your next question comes from a lot of David, Sheva Rainey with Wibbush Security.

Your next question comes from the line of David <unk>.

With Wedbush Securities.

Speaker 15: Hey, thanks. Question on the M&A pipeline, particularly non-bank, as it relates to, you made the announcement about digital disbursements. Any, any, could you talk about your appetite for additional transactions like that?

Hey, Thanks, a question on the M&A pipeline, particularly non bank as it relates to you made the announcement about digital disbursements any any could you talk about your appetite for additional transactions like that.

Speaker 16: So, as a general, one of the first...

So.

As a general rule one of the first.

Speaker 14: lenses of thought that goes into whether or not we want to do a transaction is what is the return on management's time we've got a lot of organic growth opportunities

Lenses.

Of thought.

That goes into whether or not we want to do a transaction is what is the return on management's time.

We've got a lot of organic growth opportunities and we are as you can tell very excited by them and as you've seen from our production either on the loan side on the deposit side be very successful with the ones that we've launched and the ones that we've been cultivating. So the first thing is return on management time.

Speaker 2: and we are, as you can tell, very excited by them. And as you've seen from our production, either on the long side or the positive side, be very successful with the ones that we've launched and the ones that we've been cultivating. So the first thing is return on management time. If there's...

If there are products or certain niches that are very good for us to bolt on to our existing program, we like those alright.

Speaker 2: Products or certain niches that are very good for us to bolt on to our existing program. We like

Speaker 2: Alright, we're not out there like many of the other banks.

We're not out there like many of the other banks fishing for a partner to do a sizable deal I always say, that's not we're looking for but of course.

Speaker 2: fishing for a partner to do a sizable deal.

Speaker 14: I always say that that's not what we're looking for, but of course, you know, you were pretty opportunistic if something falls on our lap, we will quickly recalibrate and see if it works for us. But right now, you know, that's not the conversations we're having where it's more along the smaller lines.

Pretty opportunistic if something falls on our lap we will quickly recalibrate and see if it works for us but right now.

Not.

The conversations we're having where it is.

More along the smaller lines and also really on what can generate transitional or transformational growth like we think the blockchain payment program can do over time, once we get comfort or comfortable with the mechanics of it and once we bring in incremental clients.

Speaker 14: and also really on what can generate transitional or transformational growth like we think the blockchain payment program can do over time once we get comfortable with the mechanics of it and once we bring in incremental clients to the company.

To the company.

That makes sense. Thank you.

Your next question comes from the line of John <unk> with RBC capital markets.

Speaker 1: Your next question comes from the line of John Ostrom with RBC Capital Markets.

Speaker 17: Thank you for taking the questions. Just two questions. On the guide for EPS in 22, you're talking about a steeper ramp maybe later in the year. How steep of a ramp are you talking about? You know, I have a 224 for the first quarter, a 262 for the fourth quarter on consensus and, you know, I don't really care about the first quarter. I'm interested more in the fourth quarter. So just help us understand how steep that ramp is throughout the year.

Hey, Thank you for taking the questions.

Just two questions.

On the guide for EPS in 'twenty. Two you are talking about a steeper ramp maybe later in the year, how steep of a ramp.

You're talking about I have a $2 24 for the first quarter or.

$2 62 for the fourth quarter on consensus.

I don't really care about the first quarter I am interested more in the fourth quarter. So just help us understand how steep that ramp is throughout the year.

Yes.

Okay.

Speaker 3: Yeah, so I would consider hair cutting your Q1 a bit. And seeing that number was 10%, throwing 10% onto the back half would be appropriate.

Yeah, so yeah, so I would.

I would consider haircut in your Q1 a bit.

And.

I'd say that number was 10% throwing 10% onto the back half would be would be appropriate for us.

Speaker 17: mm-hmm, okay. And you feel like it's sustainable EPS growth. I know you talked about some of the car vows, but again, I'm just trying to think about 2023. I know that's a long way out, but that's sustainable is what I'm thinking about.

Okay.

You feel like it's sustainable EPS growth I know you talked about some of the carve outs, but again I'm just trying to think about 2023, I know thats, a long way out but thats.

Sustainable is what im thinking about it.

Speaker 3: Yeah, I mean, I mean, so, you know, and really, I'm going to look to the balance sheet for this, but but we believe we've got momentum on these on what we're what we put out here already.

Yeah, I mean so.

It really I am going to look to the balance sheet for this but but we believe we've got momentum on these.

What we put out here already.

Speaker 3: As we indicated, we haven't factored in any of these new developments and initiatives.

As we indicated we haven't factored in any of these kind of new developments and initiatives both.

Speaker 3: You know with regarding the deposit side as well as some of the AmeriHome deals. We are we are constructive on the economy overall

With regarding to the deposit side as well as some of the Amira home deals. We are we are constructive on the economy overall as well and.

Speaker 3: as well. And I don't know how many rate increases we're going to get, but to me it's probably going to be at least four. We're personally dialing in three this year, March, June , and September .

And I don't know how many rate increases, we're going to get but Jimmy it's probably going to be at least four were perfectly dialing in three this year March March June and September , but I don't think theyre going to be done with that and that should should give them momentum also so so yes, I mean I realize there are implications of what we're talking about.

Speaker 3: but I don't think they're going to be done with that and that should give momentum also. So yes, I mean, I realized there are implications of what we're talking about.

Speaker 17: Yeah. John , your question is... Let me just, let me ask you one more thing, Ken, before in this May tie into, if you want to add onto it, but Dale, you just touched on it. You know, there's a lot of questions on mortgage, and it's, you know, I know that they're not the easiest to answer, but do you guys want higher short-term rates? Is that positive for earnings? And if someone takes the over on rate hikes, is that positive for you when you mix it all together?

Yes, John .

Let me just let me ask you one more thing Tim before and this may tie into if you want to add onto it but Dale you just touched on it.

There's a lot of questions on mortgage.

No.

I know that they're not the easiest to answer but do you guys want higher short term rates is that positive for earnings and if someone takes the over on rate hikes is that positive for you.

When you mix it all together.

Speaker 2: The answer is yes, we go back to that flying eight, well, and Bill was saying, those numbers represent that interest income increases, take half of that, and that falls to the PP and R line, right? And so yeah, it's beneficial to the company. And certainly once you clear the third going on to the fourth rate hike.

Yes.

The answer is yes, but go back to that slide eight.

And Dan was saying those numbers represent net interest income increases take half of that and that falls to the <unk> line right and so yeah.

<unk>.

It's beneficial to the company and certainly once you clear the third going onto the fourth rate hike or most of our floors will be in the rearview mirror and we're going to get a higher beta.

Speaker 2: or most of our floors will be in the rearview mirror and we're gonna get a higher beta improvement on those loans that we carry John .

Improvement on those loans that we carry John .

Speaker 17: And then just last one, longer term return on tangible thinking as rates rise. I know you've got some provision questions in there, but can you hold this level of returns?

Okay. Okay, and then just last one longer term return on tangible thinking as rates rise I know you've got some provision questions in there but can.

Can you hold this level of returns.

Speaker 3: You know, I mean, so if we're at 9.1 right now on CET1, you know, could that, you know, could that stay to, you know, 9.3, 9.4? So there's maybe a little bit of capital implication there. I do think that we're, you know, as we said, we're going to see margin expansion, particularly in a rising rate environment. That would hold us, you know, pretty close to where we are now. Even if rates didn't move up or they plateaued, you know, more quickly, I still don't see how we'd fall out of the 20s. Yeah. Yeah. Okay. All right. Thanks.

So we are at $9 one right now on CET one.

That does that stay that 90, 394, so maybe a little bit.

Capital implication there I do think that.

As we said, we're going to see margin expansion, particularly in a rising rate environment that would hold us pretty close to where we are now even if rates didn't move up or they plateaued.

More quickly.

Obviously, how we fall out of the 20.

Okay, Alright, thanks for taking my question.

Thank you.

Speaker 18: Thank you.

Speaker 1: There are no further questions in queue. I'll now turn the call back over to Ken.

There are no further questions in queue I'll now turn the call back over to Ken.

Speaker 2: Okay, I just want to say thanks everyone. Thank you, everyone, for joining us today. And we look forward to speaking to you again in three months. Have a good day.

Okay. Just wanted to say thanks, everyone and thank you to everyone for joining us today and we look forward to speaking to you again in three months have a good day.

Speaker 1: Thank you for participating in today's conference call. You may now disconnect.

Thank you for participating in today's conference call you may now disconnect.

Sure.