Q3 2023 Regions Financial Corp Earnings Call

Speaker 1: Good morning and welcome to the region financial corporations quarterly earnings call. My name is Christine and I'll be your operator for today's call.

Good morning, and welcome to the regions Financial Corporation's quarterly earnings call My.

My name is Christine and I'll be your operator for today's call.

Speaker 1: I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call there will be a question.

I would like to remind everyone that all participant phone lines have been placed on listen only.

At the end of the call there will be a question and answer session.

Speaker 1: If you wish to ask a question, please press star 1 on your telephone keypad. I will now turn the call over to...

You wish to ask a question. Please press star one on your telephone keypad.

I will now turn the call over to Dana Nolan to begin.

Speaker 2: Thank you, Christine. Welcome to region third quarter 2023 earnings call. John and David will provide high level commentary regarding the quarter. Earnings documents, which include our forward looking statement disclaimer and non gap information are available in the investor relations section of our website. These disclosures cover our presentation materials, prepared comments, and Q&A. I will now turn the call over to John . Thank you, Dana. And good morning, everyone. We appreciate you joining our call today.

Thank you for saying welcome to regions third quarter 2023 earnings call, John and David will provide high level commentary regarding our quarter earnings documents, which include our forward looking statement disclaimer and non-GAAP information are available on the Investor Relations section of our website.

Disclosures.

Dentation materials prepared comments and Q&A I will now I'll turn the call over to John Thank you Dana and good morning, everyone. We appreciate you joining our call today.

Speaker 2: Earlier this morning, we reported earnings of $465 million resulting in earnings per share of 49 cents.

Earlier. This morning, we reported earnings of $465 million, resulting in earnings per share of <unk> 49.

Speaker 2: And while we have some unusual items in our results this quarter, our core performance remains strong and we continue to have one of the best return on average tangible common equity ratios in our peer group at 21%.

And while we have some unusual items in our results this quarter. Our core performance remains strong and we continue to have one of the best return on average tangible common equity ratios in our peer group at 21%.

Speaker 2: During the quarter, we continued to experience elevated levels of check-related fraud.

During the quarter, we continued to experience elevated levels of check related fraud.

Speaker 2: Our third quarter results reflect an incremental $53 million in loss.

Our third quarter results reflect an incremental $53 million in losses stemming from a second fraud scheme, which also began in the second quarter, but was unknown to us at the top.

Speaker 2: stemming from a second fraud scheme, which also began in the second quarter, but was unknown to us at the time.

Speaker 2: This game manifested itself in delayed returns and as a result has had a much longer tail.

This game manifested itself in delayed returns and as a result has.

He has had a much longer tail.

Speaker 2: After adjusting our countermeasures to identify potential fraud instances more quickly, the volume of-

After adjusting our countermeasures to identify potential fraud instances more quickly the.

The volume of new fraud claims has slowed.

Speaker 2: Although difficult to project based on what we know today, we expect quarterly fraud losses to come down significantly.

Although difficult to project based on what we know today, we expect quarterly fraud losses to come down significantly.

Speaker 2: and to be approximately $25 million in the fourth quarter.

To be approximately $25 million in the fourth quarter.

Speaker 2: Based upon the increases we are seeing in check fraud across the industry, in fact, based on data we have, we indicate losses are up about 40% year over year. We expect future fraud losses to normalize in the $25 million per quarter range in 2024.

Based upon the increases we're seeing in check fraud across the industry. In fact based on data. We have would indicate losses were up about 40% year over year, we expect future fraud losses to normalize in the $25 million per quarter range in 2024.

Speaker 2: Although the industry faces headwinds from lingering economic and regulatory uncertainty, we continue to benefit from our strong and diverse balance sheet with solid capital, robust liquidity, and prudent credit risk management.

Although the industry faces headwinds from lingering economic and regulatory uncertainty, we continue to benefit from our strong and diverse balance sheet with solid capital robust liquidity and prudent credit risk management.

Speaker 2: Our proactive hedging strategies have positioned us for success in any interest rate environment.

Our proactive hedging strategies have positioned us for success.

Any interest rate environment.

Speaker 2: and our granular deposit base and relationship banking approach continue to serve us well.

And our granular deposit base and relationship banking approach continues to serve us well.

We spent over a decade de risking our balance sheet and are well positioned to manage through proposed regulatory changes without significant impact to our business model.

Speaker 2: We spent over a decade de-risking our balance sheet and are well positioned to manage the proposed regulatory changes without significant impact to our business model.

Christine: Good morning and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Christine and I will be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed unlisted only.

Speaker 2: We remain committed to appropriate risk adjusted returns. And now is not the time.

We remain committed to appropriate risk adjusted returns.

And now is not the time to stretch for growth.

Speaker 2: focused on supporting existing customers, where we have a relationship, and a proven history.

We're focused on supporting existing customers, where we have a relationship and a proven history.

Christine: At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star one on your telephone keypad.

We have a great team with a proven track record of executing our strategy with focus and discipline.

Speaker 2: We have a great team with a proven track record of executing our strategy with focus and

Dana Nolan: I will now turn the call over to Dana Nolan to begin. Thank you, Christine. Welcome to Regions. This is the third quarter of 2023 earnings call. John and David will provide high level commentary regarding the quarter. Earnings documents which include a forward-looking statement disclaimer and non-gap information are available in the investor relations section of our website. These disclosures cover our presentation materials, prepared comments and Q&A.

Speaker 2: I'm confident in our ability to adapt to the changing regulatory and economic landscape while continuing to generate top quartile returns through the cycle.

I'm confident in our ability to adapt to the changing regulatory and economic landscape, while continuing to generate top quartile returns through the cycle.

Now David some highlights regarding the quarter.

Speaker 3: Thank you, John . Let's start with a balance sheet. Average and ending loans remain relatively stable quarter over quarter. Within the business portfolio, average loans were stable, while ending loans decreased 1%. As John mentioned, we are being judicious and reserving our capital for business, where we can have a full relationship.

Thank you John let's start with the balance sheet average in ending loans remained relatively stable quarter over quarter within the business portfolio average loans were stable, while ending loans decreased 1% as John mentioned, we are being judicious and preserving our capital for business, where we can have a full relationship.

John: I will now turn the call over to John. Thank you, Dana, and good morning, everyone. We appreciate you joining our call today.

John: Early this morning, we reported earnings of $465 million, resulting in earnings per share of 49 cents. And while we have some unusual items in our results this quarter, our core performance remains strong. And we continue to have one of the best return on average tangible common equity ratios in our peer group at 21%. During the quarter, we continued to experience elevated levels of check-related fraud. Our third quarter results reflect an incremental $53 million in losses, stemming from a second fraud scheme, which also began in the second quarter, but was unknown to us at the time.

Speaker 3: client sentiment varies across industries, with some continuing to expect growth, while others have a more muted out.

Client sentiment varies across industries with some continuing to expect growth, while others have a more muted outlook commercial.

Speaker 3: commercial commitments are down 1% compared to the second quarter.

Commitments are down 1% compared to the second quarter.

Average and ending consumer loans increased 1% as growth in mortgage and interbank was partially offset by declines in home equity and runoff exit portfolios.

Speaker 3: Average and ending consumer loans increased 1% as growth in mortgage and Interbank was partially offset by declines in home equity and run-off exit portfolio.

John: This scheme manifested itself in delayed returns, and as a result has had a much longer tail. After adjusting our countermeasures to identify potential fraud instances more quickly, the volume of new fraud claims has slowed. Although difficult to project based on what we know today, we expect quarterly fraud losses to come down significantly and to be approximately $25 million in the fourth quarter. Based upon the increases we are seeing in check fraud across the industry, in fact, based on data we have, we indicate losses are up about 40% year over year.

Speaker 3: Subsequent to quarter end, we executed a sale of our remaining GreenSky portfolio of approximately $300 million, which represents one of our consumer exit portfolios.

Subsequent to quarter end, we executed a sale of our remaining green Scott portfolio of approximately $300 million, which represents one of our consumer exit portfolios. The economics of the transaction are relatively neutral, but will create approximately 14 basis points of incremental charge offs in the fourth.

Speaker 3: The economics of the transaction are relatively neutral, but will create approximately 14 basis points of incremental charge-offs in the fourth quarter, offset by the related cheated terribly.

<unk> offset by the related reserve release.

Speaker 3: Looking forward, we expect 2023 ending lung growth to be in the low single digits.

Looking forward, we expect 2023 ending loan growth to be in the low single digits.

From a deposit standpoint, the modest deposit declines were in line with expectations, largely driven by late cycle rate seeking behavior.

Speaker 3: From a deposit standpoint, the modest deposit declines were in line with expectations, largely driven by late-cycle, rate-seeking behavior. We continued to experience remixing out of non-interest-bearing, or NIB, products and ended the quarter with NIB representing 35% of total deposits.

Continued to experience remixing out of noninterest bearing or niv products and ended the quarter with niv, representing 35% of total deposits.

Speaker 3: Given the current rate environment, we expect the percentage to ultimately level off in a low 30% range.

Given the current rate environment, we expect the percentage to ultimately level off in the low 30% range.

John: We expect future fraud losses to normalize in the $25 million per quarter range in 2024. Although the industry faces headwinds from lingering economic and regulatory uncertainty, we continue to benefit from our strong and diverse balance sheet with solid capital, robust liquidity, and prudent credit risk management. Our proactive hedging strategies have positioned us for success in any interest rate environment. And our granular deposit base and relationship banking approach continue to serve us well.

Speaker 3: While some customers find alternatives in other investment channels outside of regions, many are moving to our CDs and money market accounts.

While some customers find alternatives in other investment channels outside of regions. Many are moving to our Cds and money market accounts.

Speaker 3: We also continue to provide off-balance sheet opportunities through our wealth management platform and in the corporate banking segment via money market mutual fund solutions.

We also continue to provide off balance sheet opportunities through our wealth management platform and then the corporate banking segment via money market Mutual fund solutions.

Speaker 3: In the case of corporate clients, overall liquidity under management has remained stable quarter over quarter. Acquisition and retention of high primacy and operating relationships are strong, reflecting our focus to sustain and extend our deposit advantage through cycles.

In the case of corporate clients overall liquidity under management has remained stable quarter over quarter.

Acquisition and retention of high primacy and operating relationships are strong, reflecting our focus to sustain and extend our deposit advantage through cycles.

John: We spent over a decade derisking our balance sheet and our well-positioned to manage their proposed regulatory changes without significant impact to our business model. We remain committed to appropriate risk adjusted returns, and now is not the time to stretch for growth. We are focused on supporting existing customers where we have a relationship and a proof in history.

Speaker 3: forward, the higher rate environment, a tightening Federal Reserve, and heightened competition will likely continue to constrain deposit growth and pressure costs for the industry through year-end and into early 2024.

Looking forward the higher.

The rate environment, and tightening federal reserve and heightened competition will likely continue to constrain deposit growth and pressure cost for the industry through year end and into early 2024.

Speaker 3: Accordingly, we expect deposits to be stable to modestly lower in the fourth quarter, and we expect continued remixing into interest-bearing categories.

Accordingly, we expect deposits to be stable to modestly lower in the fourth quarter.

John: District. We have a great team with a proven track record record of executing our strategy with focus and discipline. I'm confident in our ability to adapt to the changing regulatory and economic landscape while continuing to generate top quartile returns through the cycle.

We expect continued remixing into interest bearing categories.

So let's shift to net interest income.

Speaker 3: Net interest income declined by 6.5% in the third quarter, reflecting the anticipated normalization from elevated net interest income and margin levels back towards a sustainable longer term range.

Net interest income declined by six 5% in the third quarter, reflecting the anticipated normalization from elevated net interest income and margin levels back towards a sustainable longer term range.

David: Now, David will find some highlights regarding the quarter. Thank you, John.

Speaker 3: The decline is driven by deposit cost normalization, the start of the active period on $6 billion of incremental hedging, as well as a one-time leverage lease residual value adjustment.

David: Let's start with a balance sheet. Average and ending loans remain relatively stable quarter to quarter. Within the business portfolio, average loans were stable while ending loans decrease 1%. As John mentioned, we are being judicious in reserving our capital for business where we can have a full relationship. Plant sentiment varies across industries with some continuing to expect growth, while others have a more muted outlook. Commercial commitments are down 1%, compared to the second quarter.

The decline is driven by deposit cost normalization.

Start of the active period on $6 billion of incremental hedging as well as a onetime leverage lease residual value adjustment.

Speaker 3: As the Federal Reserve nears the end of its tightening cycle, net interest income is supported by elevated floating rate loans and cash yields at higher market interest rates and fixed rate asset turnover from the maturity of lower yielding loans and securities.

As the Federal reserve nears the end of its tightening cycle net interest income is supported by elevated floating rate loan and cash yields at higher market interest rates and fixed rate asset turnover from the maturity of lower yielding loans and securities.

Deposit costs continue to increase through a combination of repricing and remixing, increasing the cycle to date interest bearing deposit beta to 34%.

Speaker 3: deposit costs continue to increase through a combination of repricing and remixing.

David: Average and ending consumer loans increased 1% as growth and mortgage and intervention was partially offset by declines in home equity and runoff exit portfolios. Subsequent to quarter end, we executed a sale of our remaining green sky portfolio of approximately $300 million, which represents one of our consumer exit portfolios. The economics of the transaction are relatively neutral, but will create approximately 14 basis points of incremental charge offs in the fourth quarter offset by the related reserve release.

Speaker 3: increasing the cycle-to-date interest-bearing deposit data to 34%. Historically, this behavior persists for a few quarters after the Fed stops moving interest rate.

Historically this behavior persists for a few quarters after the fed stops moving interest rates.

Speaker 3: While we expect the pace of repricing to moderate, a higher federal funds rate over an extended period will cause remixing from low-cost deposits to persist, ultimately pushing deposit beta's higher than previously anticipated.

While we expect the pace of repricing to moderate a higher federal funds rate over an extended period will cause remixing from low cost deposits to persist ultimately pushing deposit betas higher than previously anticipated.

We now project cycle to date beta to increase to near 40% by year end.

David: Looking forward, we expect 2023 ending loan growth to be in the low single digits. From a deposit standpoint, the modest deposit declines were in line with expectations largely driven by late cycle rate seeking behavior. We continue to experience remixing out of nonintersparing or NIV products and ended the quarter with NIV representing 35% of total deposits. Given the current rate environment, we expect the percentage to ultimately level off in a low 30% range.

Regardless, we remain confident that our deposit composition, who will provide a meaningful competitive advantage for regions when compared to the broader industry.

If the fed remains on hold fourth quarter net interest income is expected to decline approximately 5% driven by continued deposit and funding cost normalization and the beginning of the active hedging period on another $3 billion of previously transacted forward starting swaps.

Speaker 3: Fed remains on hold, fourth quarter net interest income is expected to decline approximately 5%, driven by continued deposit and funding cost normalization, and the beginning of the active hedging period on another $3 billion of previously transacted forward-starting swaps.

Speaker 3: Net interest income is projected to grow approximately 11% in 2023 when compared to 2022.

Net interest income is projected to grow approximately 11% in 2023 when compared to 2022.

David: While some customers find alternatives in other investment channels outside of regions, many are moving to our CDs and money market accounts. We also continue to provide off-bound sheet opportunities through our wealth management platform and in the corporate banking segment via money market mutual fund solutions. In the case of corporate clients, overall equity under management has remained stable quarter to quarter. Acquisition and retention of high primacy and operating relationships are strong, reflecting our focus to sustain and extend our deposit's advantage through cycles.

As we look to 2020 for higher rates for longer likely extends the period of deposit cost and mix normalization.

We expect net interest income trends to stabilize over the first half of the year and grow over the back half of the year.

The balance sheet hedging program is an important source of earnings stability in today's uncertain environment hedges.

Speaker 3: Hedges added to date create a net interest income profile that is well protected and mostly neutral to changes in interest rates through 2025. While we do not anticipate adding meaningfully to the hedging position over the coming quarters, we continue to look for opportunities to add protection at attractive rate levels in out of years through the use of derivatives or securities.

Hedges added to date create a net interest income profile that is well protected and mostly neutral to changes in interest rates through 2025, while we do not anticipate adding meaningfully to the hedging position over the coming quarters. We continue to look for opportunities to add protection at attractive rate levels.

David: Looking forward, the higher rate environment, the tightening federal reserve, and heightened competition will likely continue to constrain deposit growth and pressure costs for the industry through year end and into early 2024. Accordingly, we expect deposit to be stable to modestly lower in the fourth quarter and we expect continued remixing into intersparing categories.

In outer years through the use of derivatives or securities.

Speaker 3: During the third quarter, we added $1.5 billion of forward-starting swaps and $500 million of forward-starting rate collars.

During the third quarter, we added $1 $5 billion of forward, starting swaps and $500 million afford starting rate collars.

David: So let's shift to net interest income. Net interest income declined by 6.5% in the third quarter, reflecting the anticipated normalization from elevated net interest income and margin levels back towards a sustainable longer term rate. Page, that the client is driven by deposit cost normalization, the start of the active period on $6 billion of incremental hedging, as well as the one-time leverage-lease residual value adjustment. As the Federal Reserve nears the end of its tightening cycle, net interest income is supported by elevated floating rate loans and cash yields at higher market interest rates and fixed rate asset turnover from the maturity of lower yielding loans and securities.

Take a look at fee revenue and expense.

Speaker 3: Adjusted non-interest income decreased 2% from the prior quarter, as modest increases in mortgage and wealth management income were offset by declines primarily in service charges in capital markets.

Adjusted noninterest income decreased 2% from the prior quarter as modest increases in mortgage and wealth management income were offset by declines primarily in service charges and capital markets.

The increase in mortgage income was driven by higher servicing income associated with a bulk purchase of the rights to service $6 $2 billion of residential mortgage loans closed early in the quarter.

Speaker 3: The increase in mortgage income was driven by higher servicing income associated with a bulk purchase of the rights to service $6.2 billion of residential mortgage loans closed early in the quarter.

Speaker 3: Service charters declined 7%, reflecting the run rate impact of the company's overdraft grace feature implemented late in the second quarter.

Service charges declined 7%, reflecting the run rate impact of the company's overdraft Grace feature implemented late in the second quarter.

Speaker 3: Based on our experience to date, as well as our expectation for another record year in Treasury management, we now expect full year service charges of approximately $590 million.

Based on our experience to date as well as our expectation for another record year in Treasury management, we now expect full year service charges of approximately $590 million.

David: Deposit cost continues to increase through a combination of repricing and remixing, increasing the cycle-to-date interest-bearing deposit data to 34%. Historically, this behavior persists for a few quarters after the Fed stops moving interest rates. While we expect the pace of repricing to moderate, a higher federal fund rate over an extended period will cause remixing from low-cost deposits to persist, ultimately pushing deposit betas higher than previously anticipated. We now project the cycle-to-date data to increase the near 40% by year-end.

Speaker 3: Total capital markets income decreased $4 million.

Total capital markets income decreased $4 million, excluding the impact of CVA and DVA capital markets income decreased 13% sequentially as increases in M&A fees were offset by declines in other categories. We.

Speaker 3: including the impact of CBA and DBA, capital markets income decreased 13% sequentially, as increases in M&A fees were offset by declines in other categories.

Speaker 3: We had a negative $3 billion CBA and DBA adjustment during the quarter versus the $9 million negative adjustment in the prior quarter.

We had a negative $3 million CVA and DVA adjustments during the quarter.

The $9 million negative adjustment in the prior quarter.

Speaker 3: With respect to the outlook, we now expect full year 2023 adjusted total revenue to be up 5 to 6% compared to 2022.

With respect to the outlook, we now expect full year 2023, adjusted total revenue to be up 5% to 6% compared to 2022.

David: Regardless, we remain confident that our deposit composition will provide a meaningful competitive advantage for regions when compared to the broader industry. If the expected decline approximately 5%, driven by continued deposit and funding cost normalization, and the beginning of the active hedging period on another $3 billion of previously transacted forward-starting swaps, net interest income is projected to grow approximately 11% in 2023 when compared to 2022. As we look to 2024, higher rates for longer likely extends the period of deposit cost and mixed normalization.

Let's move on to noninterest expense adjusted noninterest expense decreased 2% compared to the prior quarter and includes the previously noted elevated operational losses.

Speaker 3: Let's move on to nine interest expense. Adjusted nine interest expense decreased 2% compared to the prior quarter and includes the previously noted elevated operational law.

Speaker 3: excluding the incremental fraud experienced in both the second and third quarters, adjusted non-interest expenses increased 1% sequentially.

Excluding the incremental fraud experienced in both the second and third quarters adjusted noninterest expenses increased 1% sequentially.

Speaker 3: Salaries and benefits decreased 2% driven primarily by lower incentives and payroll taxes, while other non-interest expense increased 12% driven primarily by a $7 million pension settlement charge.

Salaries and benefits decreased 2%, driven primarily by lower incentives and payroll taxes, while other noninterest expense increased 12% driven primarily by $7 million pension settlement charge.

Speaker 3: We remain committed to prudently managing expenses in order to fund investments in our business.

We remain committed to prudently managing expenses in order to fund investments in our business. We will continue to refine our expense base focusing on our largest categories, which include salaries and benefits occupancy and vendor spend.

David: We expect net interest income trends to stabilize over the first half of the year and grow over the back half of the year. About sheet hedging program is an important source of earnings stability in today's uncertain environment. Hedges added the date create a net interest income profile that is well protected and mostly neutral to changes and interest rates through 2025. While we do not anticipate adding meaning plate to the hedging position over the coming quarters, we continue to look for opportunities to add protection at attractive rate levels in out of years through the use of derivatives or securities. During the third quarter, we added $1.5 billion of forward-starting swaps and $500 million of forward-starting rate collars.

Speaker 3: We will continue to refine our expense base focusing on our largest categories, which includes salaries and benefits, occupancy, and vendor spend.

Speaker 3: We expect four year 2023 adjusted non-interest expenses to be up 9.5%.

We expect full year 2023, adjusted noninterest expenses to be up nine 5%.

Speaker 3: excluding the $135 million of incremental operational losses experienced the past two quarters, we expected just nine interest expenses to be up approximately 6% in 2023 when compared to 2022.

Excluding the $135 million of incremental operational losses experienced in the past two quarters, we expect adjusted noninterest expenses to be up approximately 6% in 2023 when compared to 2022.

Speaker 3: From an asset quality standpoint, overall credit performance continues to normalize as expected.

From an asset quality standpoint, overall credit performance continues to normalize as expected.

Speaker 3: Now, charge-offs increase seven basis points to 40 basis points due to elevated charge-offs related to a solar program. We've since discontinued that interbank, as well as lower commercial recoveries versus the second quarter.

Charge offs increased seven basis points to 40 basis points due to elevated charge offs related to solar program. We've since discontinued at interbank as well as lower commercial recoveries versus the second quarter.

David: Let's take a look at fee revenue and expense. Adjusted net interest income decreased 2% from the prior quarter, as modest increases in mortgage and wealth management income were offset by clients primarily in service charges and capital markets. The increase in mortgage income was driven by higher servicing income associated with a bulk purchase of the right to service $6.2 billion of residential mortgage loans closed early in the quarter. Service Charter's Decline 7% reflecting the run rate impact of the company's overdraft, grace feature implemented late in the second quarter.

Speaker 3: Non-performing loans, business services criticized loans, and total delinquencies also increased.

Nonperforming loans.

Business services criticized loans and total delinquencies also increased.

Speaker 3: Non-performing loans as a percentage of total loans increase 15 basis points in the quarter due primarily to a large, platterized information credit.

Nonperforming loans as a percentage of total loans increased 15 basis points in the quarter due primarily to a large collateralized information credit.

Speaker 3: Provision expense was $145 million, or $44 million in excess of net charge offs. The allowance for credit loss ratio increased by basis points to 1.7% while the allowance as a percentage of non-performing loans declined to 261%.

Provision expense was $145 million or $44 million in excess of net charge offs. The allowance for credit loss ratio increased five basis points to one 7%, while the allowance as a percentage of nonperforming loans declined to 261%.

David: Based on our experience today, as well as our expectation for another record-year and treasury management, we now expect four-year service charges of approximately $590 million. Total capital markets income decreased $4 million, excluding the impact of CBA and DBA, capital markets income decreased 13% sequentially, as increases in M&A fees were offset by declines in other categories. We had a negative $3 million CBA and DBA adjustment during the quarter versus the $9 million negative adjustment in the prior quarters. With respect to the outlook, we now expect four-year 2023 adjusted total revenue to be up 5-6% compared to 2022.

The increased our allowances due primarily to adverse risk migration and continued credit quality normalization.

Speaker 3: The increased our allowances due primarily to adverse risk migration and continued credit quality normalization, as well as the build and qualitative adjustments for incremental risk in certain portfolios including office, multifamily and select markets, and interbank.

As well as the building qualitative adjustments for incremental risk in certain portfolios, including office multifamily in select markets and interbank.

Speaker 3: It's also worth noting the outcome of the most recent Chair National Credit Exam is reflected in our results.

It's also worth noting the outcome in the most recent shared national credit exam is reflected in our results.

Speaker 3: The allowance on the office portfolio increased from 2.7 to 3.1%.

The allowance on the office portfolio increased from two seven to three 1%.

Speaker 3: importantly, the vast majority of our office exposure is in class A properties located primarily within the Sun Belt and non-Gateway Mark.

Importantly, the vast majority of our office exposure is and class a properties located primarily within the sunbelt and non gateway markets. Overall, we continue to feel good about the composition of our office book and do not expect any meaningful loss in this portfolio.

David: Let's move on to nine interest expense. Adjusted nine interest expense decreased 2% compared to the prior quarter and includes the previously noted elevated operational losses, excluding the incremental fraud experience in both the second and third quarters, adjusted nine interest expenses increased 1% sequentially. Souries and benefits decreased 2% driven primarily by lower incentives and payroll taxes, while other nine interest expense increased 12% driven primarily by a $7 million pension settlement charge. We remain committed to prudently managing expenses in order to fund investments in our business.

Speaker 3: Overall, we continue to feel good about the composition of our office book and do not expect any meaningful loss in this portfolio.

Speaker 3: We expect net charge loss will continue to normalize, including this quarter's charge loss, but excluding the 14 basis point impact on our fourth quarter green sky loan sale, we expect full year, 2023 adjusted net charge off ratio to be slightly above 35 basis points.

We expect net charge offs will continue to normalize.

<unk> this quarter's charge offs, but excluding the 14 basis point impact on our fourth quarter Green Sky loan sale, we expect full year 2023, adjusted net charge off ratio to be slightly above 35 basis points.

In the third quarter, two anticipated notices of proposed rulemaking for issued while we plan to provide feedback through the comment process on both we are well positioned to absorb the ultimate impacts without major changes to our business.

Speaker 3: In the third quarter, two anticipated notices of proposed rulemaking were issued, while we plan to provide feedback through the comment process on both, we're well positioned to absorb the ultimate impacts without major changes to our business.

David: We will continue to refine our expense base, focusing on our largest categories, which includes salaries and benefits, occupancy and vendor spend. We expect four-year 2023 adjusted nine interest expenses to be up 9.5%. Excluding the $135 million of incremental operational losses experienced the past two quarters, we expect adjusted nine interest expenses to be up approximately 6% in 2023 when compared to 2022.

With respect to Basel III endgame as proposed we estimate a low to mid single digit increase in risk weighted assets under the expanded risk based approach. In addition to the phase in of a OCI into regulatory capital.

Speaker 3: to the risk-weighted assets under the expanded risk-based approach in addition to the phase-in of AOCI Interregulatory CAH.

Speaker 3: Regarding minimum long-term debt, we estimate a need to issue approximately $6 billion of long-term debt over the course of several years. We view this amount to be manageable, resulting in a modest drag on earnings.

Regarding minimum long term debt, we estimate a need to issue approximately $6 billion of long term debt over the course of several years.

We view this amount to be manageable, resulting in a modest drag on earnings.

Speaker 3: importantly, the proposal provide clarity on the evolution of the regulatory environment and support our decision to maintain our common equity tier one ratio around 10% over the near term as this level should provide sufficient flexibility to meet the proposed changes along the implementation timeline while supporting strategic growth objectives.

David: From an asset quality standpoint, overall credit performance continues to normalize as expected. Now, charge-offs increased seven basis points to 40 basis points due to elevated charge-offs related to a solar program. We've since discontinued that interbank, as well as lower commercial recoveries versus the second quarter. Non-performing loans, business services criticize loans, and total delinquencies also increased. Non-performing loans as a percentage total loans increase 15 basis points, and the quarter due primarily to a large, platterized, information credit.

Importantly, the proposal will provide clarity on the evolution of the regulatory environment and support our decision to maintain our common equity tier one ratio around 10% over the near term as this level should provide sufficient flexibility to meet the proposed changes along the implementation.

<unk> line, while supporting strategic growth objectives.

Speaker 3: by the current macroeconomic and geopolitical uncertainty, as well as the continued evolution of the regulatory framework, we expect that shared repurchases will resume in the near-term.

Despite the current macroeconomic and geopolitical uncertainty as well as the continued evolution of the regulatory framework, we expect that share repurchases will resume in the near term.

And finally, we have a slide summarizing our expectations, which we have addressed throughout the prepared comments with that we will move to the Q&A portion of the call.

Speaker 3: And finally, we have a slide summarizing our expectations, which we have addressed throughout the prepared comments. With that, we'll move to the Q&A portion.

David: Prevision expense was $145 million, or $44 million in excess of net charge-offs. The allowance for credit-loss ratio increased five basis points to 1.7% while the allowance as a percentage of non-performing loans declined to 261%. The increase to our allowances do primarily to adverse risk migration and continue credit quality normalization, as well as a building qualitative adjustments for incremental risk and certain portfolios, including office, multi-family and select markets, and interbank. It's also worth noting the outcome of the most recent shared national credit exam is reflected in our results.

Thank you we will now be conducting a question and answer session.

Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

If you would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: You may press star 2 if you would like to remove your question from the queue. Please hold while you compile.

You May press star two if he would like to remove your question from the queue.

Please hold.

While the Q&A roster.

Speaker 1: Thank you. Our first question comes from a line of Scott Seepers with Piper Sandler. Please receive your question.

Thank you. Our first question comes from the line of Scott Berg with Piper Sandler. Please proceed with your question.

Speaker 4: Thank you for taking the question. I wanted to start out just on the NIII trajectory. When we start talk about NIII stabilizing in the first half of 24, I guess we might be suggesting that it could continue to compress a bit after the fourth quarter's dip. So maybe just thinking if you could help us to sort of size any potential pressure beyond year end 23, and then additionally your thoughts on what would allow it to resume growing in the second half of next.

Good morning, everyone. Thank you for taking the question I.

I wanted to start off just on the NII trajectory when we talk about NII stabilizing in the first half of 'twenty or I guess, where it might be suggesting that it could continue to compress a bit after the fourth quarter's dip.

David: The allowance on the office portfolio increase from 2.7 to 3.1%. Importantly, the vast majority of our office exposure is in class A properties, located primarily within the Sun Belt and non gateway markets. Overall, we continue to feel good about the composition of our office book and do not expect any meaningful loss in this portfolio. We expect net charge loss will continue to normalize, including this quarter's charge loss, but excluding the 14 basis point impact on our fourth quarter green sky loan sale. We expect full year 2023 adjusted net charge off ratio to be slightly above 35 basis points.

So maybe just thinking if you could help us to sort of size the any potential pressure beyond year end 'twenty three and then additionally, your thoughts on what would allow us to resume resume growing in the second half of next year.

Hey, Scott This is David So you're right you will see some pressure in the fourth quarter in particular as we see.

Speaker 3: So you're right, you will see some pressure in the fourth quarter in particular as we see

Speaker 3: Continued remixing of non-interest bearing deposits going into interest bearing given a higher for longer rates

Continued remixing of noninterest bearing deposits going into interest bearing given higher for longer rates and due to the fact that we have $3 billion of notional of interest rate swaps have become live in the fourth quarter.

Speaker 3: And due to the fact that we have $3 billion of noional interest rate swaps that become live in the fourth quarter, that alone cost about $20 million in the NNII.

That that alone cost about $20 million are in the in NII.

David: In the third quarter to anticipated notices of proposed rulemaking for issued, while we plan to provide feedback through the comment process on both, we're well positioned to absorb the ultimate impacts without major changes to our business. With respect to Basel III in game, as proposed, we estimate a low to mid single digit increase of the risk weighted assets under the expanded risk-based approach in addition to the phase end of AOCI interregulatory capital.

Speaker 3: uh... so you'll see an adjustment uh... not as big as you just saw relative to an editor smart of the client but you'll see some decline in the four quarter when we get to the third quarter while we do have an additional two and a half billion dollars of interest rates was it become live then

So you'll see an adjustment.

Not as big as you just saw relative to our net interest margin decline, but you will see some decline in the fourth quarter when we get to the third quarter. While we do have an additional two and a half a billion dollars of interest rate swaps. It become live then.

Speaker 3: We think the remixing will start slowing. We think there is somewhere between three and five billion dollars worth of remixing of non-interest bearing deposits into interest bearing. And that's going back and studying our consumers in particular and how much they had in their accounts relative to their spend.

We think the Remixing.

We'll start slowly and we think there is somewhere between three and $5 billion worth of Remixing of noninterest bearing deposits into interest bearing.

David: Regarding minimum long term debt, we estimate a need to issue approximately $6 billion of long term debt over the course of several years. We view this amount to be manageable, resulting in a modest drag on earnings. Importantly, the proposal provide clarity on the evolution of the regulatory environment and support our decision to maintain our common equity tier one ratio, around 10% over the near term, as this level should provide sufficient flexibility to meet the proposed changes along the implementation timeline, while supporting strategic growth objectives.

And that's going back and studying.

Our consumers in particular and how much they had in their accounts relative to their spend and that $3 billion to $5 billion gets you back to where they were from a pre pandemic standpoint. So we have confidence that we should see that starting to slow after the fourth quarter there'll be like I said a little.

Speaker 3: and we're that three to five billion dollars gets you back to where they were from a pre-pandemic standpoint. So we have confidence that we should see this starting to slow after the fourth quarter. There'll be like I said, a little pressure in the first quarter because of the new derivatives coming on.

A little pressure in the first quarter because of the new derivatives coming on.

Speaker 3: That number will affect us about 10 to 15 million in the first quarter, then we don't have any more after that. So we start stabilizing from there, and when you get to the second half of the year, we can start to grow.

That number will affect us about $10 million to $15 million in the first quarter. Then we don't have any more after that so we start stabilizing from there and when you get to the second half of the year, we can start to grow.

David: Despite the current macroeconomic and geopolitical uncertainty, as well as the continued evolution of the regulatory framework, we expect that share repurchases will resume in the near term.

Speaker 3: If I kind of cut to the chase on the end game, we think after all of a sudden done, we can support our margins should bottom out around 350, perhaps a bit higher than that. So you're not going to see the kind, you can't take the change that you just saw, it's continue to extrapolate that all the way through the end of the second quarter. It, you'll have a bigger change in the fourth, a smaller change in the first and negligible change.

If I kind of cut to the chase on the end game, we think after all a sudden done we can support.

Our margin should bottom out around 350.

David: And finally, we have a slide summarizing our expectations, which we have addressed throughout the prepared comments.

Perhaps a bit higher than that so youre not going to see the kind that you can't take the change that you just saw continued to extrapolate that all the way through the end of the second quarter.

David: With that, we'll move to the Q&A portion of the call. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. You may press star two if you would like to remove your question from the queue. Please hold while you compile the Q&A roster. Thank you.

You'll have a bigger bigger change in the fourth are smaller.

The smaller change in the first and.

Negligible change in the second quarter.

Speaker 3: so uh... the balance sheet which important at all that is the balance sheet continues to reprise we have about fifteen billion dollars with the fixed rate securities and loans that reprise and the front book back book impacts are about uh... two hundred fifty basis points uh... and we continue to have have had that uh... problem is it's been overwhelmed by the move of

So the balance sheet, what's important and all of that is the balance sheet continues to reprice, we have about $15 billion worth of fixed rate securities and loans that repriced in the front book back book impacts are about.

Scott Cepers: Our first question comes from a line of Scott Cepers with Piper Sandler. Please proceed with your question.

David: Good morning, everyone. Thank you for taking the question. I wanted to start out just on the NII trajectory. When we start talk about NII stabilizing in the first half of 24, I guess we might be suggesting that it could continue to compress a bit after the fourth quarter's dip. So maybe just thinking if you could help us to sort of size the any potential pressure beyond year end 23. And then additionally your thoughts on what would allow it to resume growing in the second half of next, here.

250 basis points.

We continue to have have had that.

<unk> has been overwhelmed by the move of <unk>.

Speaker 3: non-interesting deposits into interest bearing. And as I just mentioned that, it should start to slow. And so I think, again, our margin bottoming out, kind of in that 350, it's slightly better than that, is really the relevant point here.

Noninterest bearing deposits into interest bearing and as I, just mentioned that should start to slow and so.

I think again, our margin bottoming out kind of in that $3 50, or slightly better than that is really the relevant point here.

Speaker 4: Okay, perfect. Thank you for that color. And then I guess just on the notion of deposits and, you know, betas, I know we're thinking about a 40% betas through the end of the year, but maybe thoughts on how things could trend into next year. If we, if we indeed have just sort of some drag on price, you know, how much more pressure could we see once raised peak? How much might that level up?

Okay perfect. Thank you for that color and then I guess just on that notion of.

Deposits and betas I mean, no we're thinking about a 40% beta through the end of the year, but maybe maybe thoughts on how things could trend into next year. If we if we indeed have just sort of some drag on on pricing you know how much more pressure or could we see once rates peak.

David: Hey Scott, this is David, so you're right, you will see some pressure in the fourth quarter in particular as we see continued remixing of non-interest bearing deposits going into interest bearing given higher for longer rates. And due to the fact that we have $3 billion of notional interest rate swaps that become live in the fourth quarter, that that alone cost about $20 million in the NNII. So you'll see an adjustment, not as big as you just saw relative to an editor's mark of the client, but you'll see some decline in the fourth quarter.

How quickly might that level up.

Speaker 3: Yeah, I think so what's making to what I just told you is that we would have a beta through the end of this year pushing on 40%, maybe a little underneath that, and then we go into perhaps the mid 40s.

Yes, I think so what's baked into what I. Just told you is that we would have a beta through the end of this year pushing on 40%, maybe a little underneath that and then we go into perhaps the mid forty's.

Speaker 3: into next year. And again, that's considering higher for longer. It starts to slow there again because we don't have as much moving out of non-interest bearing into interest bearing. So I think the, again, if we have rates even continue to go up, we're slightly asked and repricing.

Into into next year, and again, that's considering higher for longer.

It starts to slow there again, because we don't have as much moving out of noninterest bearing into interest bearing so I.

David: When we get to the third quarter, while we do have an additional two and a half billion dollars of interest rate swaps that become live in, we think the remixing will start slowing. We think there is somewhere between $3 and $5 billion worth of remixing of non-interest bearing deposits into interest bearing. And that's going back and studying our consumers in particular and how much they had in their accounts relative to their spend.

I think the again, if we have rates even continue to go up we're slightly asset sensitive and the repricing of our balance sheet starts to overwhelm the deposit moves and I think that's the that's a piece that people might not be picking up on.

Speaker 3: of our balance she starts to overwhelm the deposit moves and i think that's the that's a piece that people might not be picking up

Speaker 4: All right, wonderful. Thank you very much.

Okay, Alright wonderful thank you very much.

Yeah.

Our next question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.

Speaker 1: Our next question comes from Ryan Nash with Goldman Sachs. Please proceed with your question. Good morning. Good morning, guys.

Good morning, Hey, good morning, guys.

David: And that $3 to $5 billion gets you back to where they were from a prepandemic standpoint. So we have confidence that we should see this starting to slow after the fourth quarter. There'll be, like I said, a little pressure in the first quarter because of the new derivatives coming on. That number will affect us about 10 to 15 million in the first quarter, then we don't have any more after that. So we start stabilizing from there and when you get to the second half of the year, we can start to grow.

Thanks.

Speaker 3: Maybe the ask a question on credit. First, maybe just to clarify, the implied a little bit above 35 for the year, which I guess implies around 45 for the fourth quarter. So that pushes reported up to about 60 with green skies. Wanted to verify that. And then can you expand on the comments regarding what you're seeing in office, multifamily, and maybe what happened with EnterBank, which I think your reference higher charge us in exiting some parts of the portfolio? Yeah, so you mean.

Maybe to ask a question on credit first maybe just to clarify.

Implied a little bit above 35 for the year, which I guess implies around 45 for the fourth quarter. So that pushes reported up to about 60 with Green Sky I just wanted to verify that and then can you expand on the comments regarding what you're seeing in office multifamily and maybe what happened with interbank, which I think you referenced higher charge offs and exiting some parts of the.

The portfolio yes.

So let me start.

Speaker 3: so yeah i i think that uh... we'll see some increase uh... some listening to greens copy that because that's gonna be no way that we can announce that separate go back to kind of core charge off to be slightly higher than thirty five call that a couple points maybe thirty seven which implies

David: If I kind of cut to the chase on the end game, we think after all of a sudden done, we can support our margins should bottom out around 350, perhaps a bit higher than that. So you're not going to see the kind you can't take the change that you just saw and continue to extrapolate that all the way through the end of the second quarter. You'll have a bigger change in the fourth, a smaller change in the first and a negligible change in the second quarter.

So, yes, I think that we will see some increase so let's keep the greens cap piece out because that's going to be noise that we kind of announced that separate go back to kind of core charge offs. We said it would be slightly higher than 35 call that a couple of points, maybe 37, which implies.

Speaker 3: a fourth quarter in that 40 basis point charge off range. We will continue to see L.A. charge off coming through Interbank for which we provided this pass quarter relative to our program that we discontinued. And so we'll see that for a quarter or two.

Fourth quarter and that 40 basis point charge off range, we will continue to see elevated charge offs coming through interbank for which we provided this past quarter relative to the program that we discontinued and so we'll see that for a quarter or two.

Speaker 3: And that's factored into the guidance that we've given you.

David: So the balance sheet, which is important at all that is the balance sheet continues to reprise. We have about $15 billion for the fixed rate securities and loans that reprise. And the front book, back book, impacts are about 250 basis points. And we continue to have had that. The problem has been overwhelmed by the move of non-interest bearing deposits into interest bearing. And as I just mentioned that should start to slow. And so I think, again, our margin bottoming out kind of in that 350 is slightly better than that is really the relevant point here. Okay, perfect.

And that factored into the guidance that we've given you.

Speaker 2: You know, from an office standpoint, our office continues to decline, even in October I think we put that in order. Outstanding continues, client. Quality of the portfolio. Outstanding, sorry. Let me speak to that. With respect to office, we've got about a V and six in outstanding, David's point.

From an office standpoint, our office continues to decline even in October I think we put that Outstandings continued quality of the portfolio.

Maybe I'll speak to that with respect to office, we've got about $1 billion six in Outstandings to David David's point.

Speaker 2: that that represents some decline pay downs, refinances over the course of the last quarter. As we said before about 39% of that portfolio is in credits direct to single tenant credits and the bulk of that is to investment grade quality tenants.

That represents some decline paydowns refinances over the course of the last quarter as we said before about <unk>.

39% of that portfolio is in credits direct two single tenant credits.

David: Thank you for that color. And then I guess just on the notion of deposits and, you know, betas, I know we're thinking about 40% beta through the end of the year. But maybe maybe thoughts on how things could trend into next year if we, if we indeed have just sort of some drag on on price. How much more pressure could we see once raised peak? How might that level up? Yeah, I think so what's making to what I just told is that we would have a beta through the end of this year pushing on 40% maybe a little underneath that and then we go into perhaps the mid 40s into into next year and and again that's considering higher for longer.

And the bulk of that is to investment grade quality tenants.

Speaker 2: Balance of our exposure 61 plus percent are in multi-tenant credits.

<unk> of our exposure, 61% are in multi tenant credits, 63% of that is in the Sun belt market.

Speaker 2: 63% of that is in the Sunbelt Market. 92% is Class A. We have in total about 100 borrowers. So we are very much on top of the portfolio, having ongoing conversations with customers. About 50% of our exposure, matures this year and in 2024. So we're actively working that. One of the, I think, good signs about the portfolio is that this sort of overall team will share the MOL's portfolio ???arl

92% as class a.

Have in total about 100 borrowers. So we are very much on top of the portfolio, having ongoing conversations with customers about 50% of our exposure matures. This year and in 2024. So we're actively working that one of the I think good signs about the portfolio.

Oh is that sponsors have contributed over the course of the last couple of quarters over $150 million to the projects. Most of them are on guaranteed. So those are commitments as sponsors we're making to the continued.

Speaker 2: sponsors have contributed over the course of the last

Speaker 2: a couple of quarters over $150 million to the projects. Most of them are unguaranteed, so those are commitment sponsors are making to the continued.

David: If we have rates even continue to go up we're slightly asked that sensitive and the repricing of our balance she starts to overwhelm the deposit moves and I think that's the that's a piece that people might not be picking up on. Okay, all right wonderful.

Speaker 2: renewal extension of those projects, right sizing of them. And as a consequence, we feel good about our office exposure. We have one non accrual, and that credit has been renegotiated and is paying as a agreed current.

Renewal extension of those projects right sizing of them and as a consequence, we feel good about our office exposure, we have one non accrual.

Scott Cepers: Thank you very much.

That credit has been renegotiated and is paying as agreed currently.

Ryan Nash: Our next question comes from Ryan Nash with Goldman Sachs. Please proceed with your question. Good morning guys. Maybe the ask a question on credit first maybe just to clarify you know the implied a little bit above 35 for the year which I guess implies around 45 for the fourth quarter. So that pushes reported up to about 60 with green skies wanted to verify that and then can you expand on the comments regarding you know what you're seeing in office multifamily and maybe what happened with and their bank which I think your reference higher charge us and exiting some parts of the portfolio.

Speaker 2: I expect to, yeah, the rest of the portfolio, we did see some uptick in in non-accruals. As David said, we're still guiding to 35 to 45 basis points of loss in 2024. We feel good about that. I think the portfolio is performing as we expected as it normalizes and that's occurring with an inner bank.

Got it.

Yes, sorry.

Im sorry.

The rest of the portfolio, we did see some uptick in non accruals as David said, we're still guiding to 35 to 45 basis points of loss in 2024, we feel good about that I think the portfolio is performing as we expected as it as it normalizes and that's occurring with an interbank.

Speaker 2: We have a specific program that was associated with a single vendor and it effectively was what I'll call kind of a bought-out pay later program where the customer entered into an agreement to put solar equipment on their house. There was a period of time when that equipment would be installed on the house, the customer did not make any payments.

We have a specific program that.

Was associated with.

A single vendor.

And it effectively was what I'll call kind of a buy now pay later program, where the customer entered into an agreement to put solar equipment on their house. There was a period of time when that equipment would be installed on the house the customer did not make any payments. We exited that program in October of 2022, just don't based.

David: Yeah, so let me start. So yeah, I think that we'll see some increase some let's keep the greens copies that because that's going to be noise that we kind of announce that separate. Go back to kind of core charge off. We said be slightly higher than 35 call that a couple points maybe 37 which implies a fourth quarter in that 40 basis point charge off range. We will continue to see elevator charge off coming through interbank for which we provided this past quarter relative to our program that we discontinued and so we'll see that for a quarter or two.

Speaker 2: We exited that program in October of 2022, just based on our analysis of the risk-adjusted returns associated with it. And the profile of the product was just not something we wanted to continue. Well, now we're beginning to see those.

On our analysis of the risk adjusted returns associated with it.

And the profile of the product is just not something we wanted to continue will now we're beginning to see those those loans reach a point where customers are having to make payments and we are experiencing a little higher level of losses, but the losses within <unk> and within or bank are still below our.

Speaker 2: Those loans, reach point where customers are having to make timet and we are experiencing a little higher level of losses but the losses within the bank are still below our expectations.

David: And that's factored into the guidance that we've given you. You know from an office standpoint our office continues to decline even in October I think we put that out. Outstanding continued. I'll let maybe I'll speak to that with respect to office we've got about a day in six and outstanding David point that that represent some decline pay downs refinances over the course of the last quarter. As we said before about 39% of that portfolio is in credits direct to single tenant credits.

<unk> for interbank in general and it continues to perform.

Speaker 2: before interbike in general and it continues to perform.

Speaker 2: better than at least at least consistent with if not better than we had hoped we made the acquisition.

Better than at least at least consistent with if not better than we had hoped when we made the acquisition.

Yeah.

Speaker 5: got it uh... david maybe a follow-up on expenses you know i know this lots of moving pieces in the scenario you've highlighted that you guys have been doing work on for a while but just given the revenue headwind that you likely to face in the beginning of the of the year can you maybe just talk about you know what you're doing and and while i know you might not be ready to give twenty four guidance do you think you could potentially hold the line on expenses and keep them relatively fat flat given the challenging revenue environment into to

Got it David maybe a follow up on expenses I know, there's lots of moving pieces in this scenario I know you've highlighted that you guys have been doing work on for a while but just given the revenue headwinds that you're likely to face in the beginning of the of the year can you. Maybe just talk about you know what youre doing and while I know you might not be ready to give 'twenty four.

David: And the bulk of that is to investment grade quality tenants. The balance of our exposure 61 plus percent are in multi tenant credits. 63% of that is in the sunbelt market 92% is class A. We have in total about a hundred borrowers so we are very much on top of the portfolio having ongoing conversations with customers. About 50% of our exposure mature this year and in 2024 so we're actively working that.

Guidance do you think you could potentially hold the line on expenses and keep them relatively flat given the challenging revenue environment into 24. Thanks.

Speaker 3: Yeah, so I don't think it should be a surprise to anybody that revenue is going to be challenging that's been out there for a while. We've known it and as a result we started working on our expense management and our continuous improvement program throughout 2023. You know this particular quarter, unfortunately we had some things that you know the fraud, pension settlement, we had some equipment and software costs that...

So I don't think it should be a surprise to anybody that the revenue is going to be challenging.

<unk>.

<unk> been out there for a while we've known it.

As a result, we started working on our expense management.

And our continuous improvement program throughout 2023.

Particular quarter. Unfortunately, we had some things that the.

Fraud pension settlement, we add some equipment software costs.

David: One of the I think good signs about the portfolio is that sponsors have contributed over the course of the last couple of quarters over a hundred and fifty million dollars to the projects. Most of them are unguaranteed so those are commitment sponsors are making to the continued. Renewal Extension of those projects, the right sizing of them, and as a consequence, we feel good about our office exposure. We have one non accrual, and that credit has been renegotiated and is paying as agreed currently.

Speaker 3: that won't repeat at the level that we had and some professional fees that we incurred. We don't think that we'll be repeated.

That won't repeat at the level that we had and some professional fees that we incurred that we don't think will.

That will be.

<unk>.

Speaker 3: That being said, we're going to need to even double down on expense management for 2024. We're not going to give you guidance for that, but I think, if I say our reported number that we have for 20, we should be able to have our number in 2024 to be underneath our reported number for 2023. How much will give you guidance as we get towards in the year? But yeah, I think we should be able to be underneath that number.

That being said.

Oh, we're going to need to even double down on expense management for 2024.

We're not going to give you a guidance for that but I think suffice it to say our reported number that we have of 'twenty, we should be able to have our number 2024 to be underneath a reported number for 2023, how much will we will give you guidance as we get towards the end of the year, but yeah. I think we can we should be able to be underneath that that number.

Speaker 2: I just add, Ryan, we've demonstrated, I think, over time, a commitment to effectively manage the expenses, and it's our intention to continue doing that. We realize the importance of it.

Just add Brian that we've demonstrated I think over time.

David: The rest of the portfolio, we did see some uptick in non accruals. As David said, we're still guiding to 35 to 45 basis points of loss in 2024. We feel good about that. I think the portfolio is performing as we expect it, as it normalizes. And that's occurring with an inner bank.

<unk> essentially managed expenses and it's our intention to continue doing that we realize the importance of it.

I appreciate all the color.

Thank you.

Speaker 1: Our next question comes to line of John Pankari with Evergore. Please proceed with your question. Good job, warning.

Our next question comes from the line of Jonathan Gary with Evercore. Please proceed with your question.

David: We have a specific program that was associated with a single vendor, and it effectively was what I'll call kind of a by now pay later program, where the customer entered into an agreement to put solar equipment on their house. There was a period of time when that equipment would be installed on the house. The customer did not make any payments. We actually did that program in October of 2022, just based on our analysis of the risk adjusted returns associated with it, and the profile of the product was just not something we wanted to continue well.

Hey, John Good morning.

On the fraud costs.

Speaker 6: It's given us a little bit more color on that. Were they running higher than expected? Then you had expected when you discussed them last quarter and why are they, have they been persistent given the issue that you discovered? And also that 25 million per quarter of frog cost that you flag for 2024. Is that brand new, or is that already to a degree baked in the year?

Give us a little bit more color on that where they.

Are they running higher than expected than you had expected when you discuss them last quarter.

And why are they have they been persistent given the issue that you've discovered and and also that 25 million per quarter.

Fraud costs that you flagged for 2024 is that brand new or was that already to a degree baked into your.

Speaker 6: run rate expectation as you look at 2024 or is this brand new given the longer than expected persistence of this

Run rate expectation as you look at 2024 hours this brand new given the longer than expected persistence of this issue.

David: Now we're beginning to see those loans, reach point where customers are having to make payments, and we are experiencing a little higher level of losses. But the losses with inner bank are still lower expectations for inner bank in general, and it continues to perform better than at least at least consistent with if not better than we had hoped we made the acquisition.

Yes, So let me answer the second question first so the 25 per quarter is slightly higher than our historical run rate.

Speaker 3: Yeah, so let me answer the second question first. So the 25 per quarter is slightly higher than our historical red rate.

Speaker 3: you know fraud is increased dramatically in the industry.

Fraud has increased dramatically in the industry.

Speaker 3: We seem to be the ones called out and to us very hard.

We seem to be the ones called out has hit us very hard.

Speaker 3: So your first question, this was a different scheme this time than what we've reported on last quarter.

To your first question. This was a different scheme. This time than what we reported on last quarter and Unfortunately this scheme that they had you don't know about until.

Speaker 3: and unfortunately this scheme that they had, you don't know about until the banks on which the checks are written notify you that that's not a good item and it takes about.

David: David, maybe a follow up on expenses. I know there's lots of moving pieces in the scenario. I know you've highlighted that you guys have been doing work on for a while, but just given the revenue headwinds that you're likely to face in the beginning of the year, can you maybe just talk about what you're doing, and while I know you might not be ready to give 24 guidance, do you think you could potentially hold the line on expenses and keep them relatively flat, given the challenging revenue environment?

Until the banks in which the checks are written notify you.

That's not a good good item and it takes about 50 to 60 days before you know that.

Speaker 3: 50 to 60 days before you know that. We can look at when events occurred and we can kind of see a pattern where we feel reasonably confident that.

We can look at when events occurred in and we can kind of see a pattern, where we feel reasonably confident that that we're not going to see that kind of increase going forward from the schemes that we've seen and of course, we're putting in new controls, we're putting in new technology.

Speaker 3: that we're not going to see that kind of increase going forward from the schemes that we've seen and of course we're putting in new controls we're putting in new technology

David: Yes, so I don't think it should be an surprise to anybody that revenue is going to be challenging that's been out there for a while. We've known it, and as a result we started working on our expense management and our continuous improvement program throughout 2023. This particular quarter, unfortunately, we had some things that the fraud, pension settlement, we had some equipment and software costs that won't repeat at the level that we had and some professional fees that we incurred that we don't think will be repeated.

Speaker 3: and uh... it's very disappointing we have the twenty five John it higher call it five million higher than we historically have had because

It's very disappointing.

Have the 25, John a bit higher call it $5 million higher than we historically have had because.

Speaker 3: And this is just a big deal in the industry. And so we want to be a bit conservative. We'll give you better guidance on expenses, including fraud when we get to reporting on 2024 expectations later. But so it's a tad higher. But.

Yeah. This is just a big deal in the industry and so we want to be a bit conservative we'll give you better guidance on expenses, including fraud, when we get to two reporting on 2024 expectations later, but.

So it's a it's a tad higher but.

David: That being said, we're going to need to even double down on expense management for 2024. We're not going to give you guidance for that, but I think vice is to say our reported number that we have for 20, we should be able to have our number in 2024 to be underneath our reported number for 2023. How much will give you guidance as we get towards in the year, but I think we should be able to be underneath that number.

Speaker 6: Okay, all right David, thank you and then I guess related to that any

Okay, Alright, David Thank you and then.

Guess related to that any I.

Speaker 6: You're given this the second visible fraud issue to come up and as many quarters. Are you getting any pressure incrementally from regulators to invest more actively like you said around these new controls that you're putting in or any input there and then separately on the capital fund you talk about buybacks likely to resume in the near term. Can you give us some color on the timing and potential magnitude there?

I mean, given the second visible fraud issue to come up with.

Many quarters.

Are you getting any pressure incrementally.

From regulators to invest more accurately like you said around these new controls that you're putting in or any any input there and then separately.

On the capital front, you talked about buybacks likely to resume in the near term could you maybe give us some color on the timing and potential magnitude there.

David: I just add, Ryan, you know, we've demonstrated, I think, over time, a commitment to effectively manage the expenses and then it's our intention to continue doing that. We realize the importance of it. Appreciate all the color.

Speaker 3: So, you know, we won't talk about our relationship with our regulators, but fraud is our issue. If we have to have our regulators tell us what to do with regards to fraud or anything else, we'd probably already missed that both.

Sure so.

We won't talk about our relationships with our regulators but.

Fraud is our issue.

If we have to have a regulators tell us what to do with regards to fraud or anything else, we probably aren't missed that boat.

Ryan Nash: Thank you.

Speaker 3: So it's not a, that's not an issue. We're highly disappointed in it. We're working hard. We have found some people that have committed fraud. They've been put jail.

So it's not a that's not an issue.

John: Our next question comes to line of John Pancari with Evergore. Please proceed with your question. Good morning. On the frog costs, if you give us a little bit more color on that, were they, were they running higher than expected, then you had expected when you discussed them last quarter. And why are they, have they been persistent given the issue that you discovered. And, and also that 25 million per quarter of frog cost that you flag for 2024. Is that brand new, or was that already to a degree baked into your run rate expectation as you look at 2024 or is this brand new given the longer than expected persistence of this issue?

We're highly disappointed in it.

We're working hard we have found some people that have committed fraud, they've been put in jail.

Speaker 3: but it's again the industry of report we saw is up from seventeen billion dollars and twenty two to twenty five billion of fraud in twenty four thus far

But.

Again, the industry report, we saw is up from $17 billion and 22 to 25 billion of fraud and 24, thus far.

Speaker 3: So it's in 23, sorry. So it's affecting all of us, but it seems to have gotten us and I kind of concentrated in these two quarters. And again, I feel confident we put in controls and we'll be putting in more monitoring it going forward.

<unk>.

It's a 23, sorry, so it's affecting all of us, but it seems to have gotten us in a kind of concentrated in these two quarters.

And again I feel confident we've put in controls and we will be putting in more monitoring it going forward.

Speaker 3: relative to capital. Yeah, so we're at 10.3 on common equity tier one. We now have seen the the Biles will 3 in game proposal. We'll be going through and, you know,

Relative to capital Yeah. So we're at 10.3 on common equity tier one we now have seen the Basel III endgame proposal.

David: Yeah, so let me answer the second question first. So the 25 per quarter is slightly higher than our historical run rate. You know, fraud is increased dramatically in the industry. We seem to be the ones called out. It's hit us very hard to your first question. This was a different scheme this time than what we've reported on last quarter. And unfortunately, this scheme that they had, you don't know about until until the banks on which the checks are written notify you that that's not a good, good item.

David: And it takes about 50 to 60 days before you know that we can look at when events occurred and we can kind of see a pattern where we feel reasonably confident that that we're not going to see that kind of increase going forward. From the schemes that we've seen. And of course, we're putting in new controls, we're putting in new technology and it's very disappointing. We have the 25 gone a bit higher, call it 5 million higher than we historically have had because this is just a big deal in the industry.

We'll be going through and.

Providing our comment letter on that as well as the debt MPR.

Speaker 3: providing our comment letter on that as well as that NPR. We feel confident in kind of where we are relative to that and the implementation.

We feel confident in kind of where we are relative to that and the implementation timeframe hopefully we get a bit of reprieve on that but even if we didn't we feel that we're in a good place to be able to implement.

Speaker 3: time frame hopefully we get a bit of uh... reprieve on that but even if we didn't we feel that we're in a good place to be able to uh... implement that without too much harm and there's no need for us to continue to let our capital to continue to increase we we agreed twenty thirty basis points of capital every quarter uh... so we did nothing we would be pushing on ten six that's just higher than we need

Implement that without too much harm and there is no need for us to continue to let our capital to continue to increase.

We accrete 2030 basis points of capital every quarter.

So if we did nothing we would be pushing on 10, six that's just higher than we need.

Speaker 3: And so we think we can enter into the buybacks, you know, as soon as we get out of the blackout period and what we left in our comments was we would operate close around that 10% CET-1 number.

And so we think we can enter into buybacks.

As soon as we get out of the blackout period, and and what we left in our comments were that we would operate closer around that 10% CET one number.

Great. Thanks, David appreciate it.

Speaker 1: Our next question comes from a line of Ibrahim Tsimwala with Bank of America. Please proceed with your question.

Our next question comes from the line of Ebrahim <unk> with Bank of America. Please proceed with your question.

David: And so we want to be a bit conservative. We'll give you better guidance on expenses, including fraud when we get to reporting on 2024 expectations later. But so it's a tad higher, but. OK, all right, David, thank you.

Speaker 7: Hey, Ram. Hey, good morning. I guess thanks for the color on CID offers.

Abraham.

Morning.

I guess, thanks for the color on CRD ulcers.

Speaker 7: I was wondering if you can talk about anything beyond the theory of this, particularly on multi-family in any of the Sun Belt states. We've read articles about just over-supplying some of these markets like Raleigh, Austin, et cetera. This talk to us one in terms of exposure and whether or not you're seeing softness within multi-family.

Just was wondering if you can talk about anything beyond CRT office, particularly on multifamily and many of the Sun belt States.

Ed I think it was about just oversupply in some of these markets that because all they all student et cetera, I just talked to one in terms of exposure and whether or not you're seeing softness within multifamily.

David: And then I guess related to that any given this the second visible fraud issue to come up in and as many quarters. Are you getting any pressure incrementally on from regulators to invest more actively like you said around these new controls that you're putting in or any input there and then separately. On the capital front, you talk about buybacks, likely to resume in the near term. Can you give us some color on the timing and potential magnitude there?

So.

Speaker 2: So Abraham, this is John Turner. We are a total exposure, I think, in multifamily to exceed just about $3 billion. It is.

Ebrahim This is John Turner.

Our total exposure in multifamily just above $3 billion is a very diverse portfolio spread across.

Speaker 2: very diverse portfolios spread across the 137 total submarkets, some number like that. We are

137, total submarkets some number like that.

We are.

Speaker 2: in terms of concentrations our top five exposures would be and cities that you would recognize Dallas, Houston.

David: Sure. So, you know, we won't talk about our relationship with our regulators, but fraud is our issue. If we have to have our regulators tell us what to do with regards to fraud or anything else, we probably already missed that both. So it's not a that's not an issue. We're highly disappointed in it. We're working hard. We have found some people that have committed fraud. They've been put jail. But it's again, the industry report we saw is up from 17 billion dollars and 22 to 25 billion of fraud in 24 thus far.

In terms of concentrations are top five exposures would be and in cities that you would recognize Dallas Houston, Charlotte Raleigh, Orlando Miami.

Speaker 2: Charlotte, Raleigh, Orlando, Miami, places where we have just historically banked and have a presence. We don't have any concentrations at all in any of those markets that would exceed, when I think one exception would exceed five, six percent. So again, good diversity. We are seeing some softening of rents, increasing costs associated with...

Places, where we are.

Who have historically banked and have a presence we don't have any concentrations at all in any of those markets that would exceed.

The one exception would exceed five 6%. So again good diversity, we are seeing some softening of rents increasing costs associated with.

Speaker 2: interest cost about a little over 50% of the portfolio is currently still under construction. So we expect that those construction projects to be completed over the next 24 months to deliver out.

Interest cost about a little over 50% of the portfolio is currently still under construction. So.

David: So it's as put in 23 sorry. So it's affecting all of us, but it seems to have gotten us at a kind of concentrated in these two quarters. And again, I feel confident we put in control so we will be putting in more monitoring at going forward.

We expect that those construction projects to be completed over the next 24 months to deliver out.

Speaker 2: We're not, while we're watching it closely, we really haven't seen any adverse movement within the portfolio to speak of, and again, given.

We're not while we're watching it closely we really haven't seen any adverse movement within the portfolio to speak of and again given the.

David: Relative to Capitol. Yeah, so we're at 10.3 on Common Equity Tier 1. We now have seen the Basel III in-game proposal. We'll be going through and, you know, providing our comment letter on that as well as that NPR. We feel confident in kind of where we are relative to that and the implementation time frame. Hopefully we get a bit of a reprieve on that, but even if we didn't, we feel that we're in a good place to be able to implement that without too much harm.

Speaker 2: The location of our projects, which are in suburban markets, given the diversity of the distribution across geographies and the location primarily in the Sun Belt, we feel good about our multifamily portfolio.

The location of our projects, which are in suburban markets given the diversity of the distribution across geographies and the location primarily in the sunbelt.

Feel good about our multifamily portfolio.

Speaker 7: Got it. First, I think just a separate question in terms of the deposit beta outlook that you mentioned.

Got it.

Yes.

Separate question in terms of the deposit.

Beat outlook that you mentioned.

Speaker 7: How are you thinking about the systems of the mix of customers? One, are you seeing the consumer be depleted because of users in that driving the post at NIB, or the fall to clear home?

How long do you think.

The mix of customers one are you seeing.

David: And there's no need for us to continue to let our Capitol to continue to increase. We, we agreed 20, 30 basis points to Capitol every quarter. So if we did nothing, we would be pushing on 10.6. That's just higher than we need. And so we think we can enter into the five acts, you know, as soon as we get out of the blackout period. And, and what we left in our comments was we would operate close or around that 10% CET1 number. Great. Thanks, David. Appreciate it.

Keith repeated because usage and that's driving the bus it may be.

Okay.

No.

Speaker 7: What's about that to some extent then? Where do you see CDs shaking out in terms of in from from from deposit customers and where CD mix could be 12 months from now if you don't get any rate cuts?

That's about that to some extent and then where do you see Cds shaking out in terms of.

Some borrowers from.

With customers and with CD mix could be 12 months from now if we don't get needed cuts.

Speaker 3: Yeah, you were breaking up there a little bit, but I think you were saying, what are we seeing in terms of movement of NIB into CDs? So that's been the big change thus far for us.

Yes, you were breaking up there a little bit, but I think you were saying what are we seeing in terms of movement of niv into Cds.

So.

That's been the big change thus far for us.

Eberham Waller: Our next question comes from a line of Eberham Waller with Bank of America. Please proceed with your question. Hey, Graham. Hey, good morning. I guess, thanks for the color on CRE office. Just was wondering if you can talk about anything beyond CRE office, particularly on multi-family in any of the Sun Belt states. We've read articles about just over supplying some of these markets like Raleigh Austin, etc. Just talk to us one in terms of exposure and whether or not you think so for the multi-family.

Speaker 3: I think our CDs are right at 10% Just under 10% of our book of our total deposit book that could grow. We do have money market Offers that were that were working on we want to be competitive This remix has been really relegated to high net worth customers that are taking excess cash and putting it to work

I think our Cds or right at 10% just under 10% of our book of our total deposit book.

That could grow we do have.

Money market offers that were that were working on we want to be competitive.

This remix has been really relegated to high net worth customers that are taking excess cash and putting it to work.

Speaker 3: And the reason we think that that remix is somewhere in a 3-5 to go is because...

And the reason, we think that that remix is somewhere in the three to five to go is because that customer base gets down to having the amount of cash in their accounts relative to the spend pattern that they had pre pandemic and so I think that happens by the end of.

Speaker 3: that customer base gets down to having the amount of cash in their account relative to the spin pattern that they had pre-pandemic. And so I think that happens by the end of next year, I mean in the middle of next year. You know, as we think about where CD balances could be as a percentage of total deposits, maybe you pick up another two or three percent through that remix. And it really is dependent on how we think about.

John Turner: So, Eberham, this is John Turner. We, you know, our total exposure, I think in multi-family to exceed just about $3 billion. It is a very diverse portfolio spread across 137 total submarkets, some number like that. We are in terms of concentrations. Our top five exposures would be in cities that you would recognize. Dallas, Houston, Charlotte, Raleigh, Orlando, Miami, places where we have just historically banked and have a presence. You don't have any concentrations at all in any of those markets that would exceed what I think one exception would exceed five, six percent.

Of next year.

The middle of next year, as we think about where CD balances could be as a percentage of total deposits, maybe you pick up another 2% or 3% through that remix and it really is dependent on how we think about.

Speaker 3: uh... other offers money market and we're working on that so there could be there could be some mix in terms of how that three to five gets put to work uh... but it's specific to cities to three percent

Other offers money market and we're working on that so there could be there could be some mix in terms of how that 3% to five gets put to work.

Specific to see these 2% to 3%.

Got it thank you.

Speaker 1: Our next question comes from a line of Ken used in with jeffries. Please see with your question.

Our next question comes from the line of Ken Houston with Jefferies. Please proceed with your question.

Speaker 8: Hey David, and he gone just a quick question on the on the beside clear guidance for the fourth quarter just know that those service charges continue to come in much better 590 for the year. Obviously it implied lower exit for the fourth quarter. Can any line of sight in terms of like are we are we getting closer as the leveling out period here on that service charges line in terms of yeah, I know cash management has been outfroying the other pieces, but is this kind of the right level of use going?

Again.

John Turner: So, again, good diversity. We are seeing some softening of rents, increasing costs associated with interest cost. About a little over 50% of the portfolio is currently still under construction. So, we expect that those construction products to be completed over the next 24 months to deliver out. We are not, while we are watching it closely, we really haven't seen any adverse movement within the portfolio to speak of. And, again, given the location of our projects, which are in suburban markets, given the diversity of the distribution across geographies and the location primarily in the Sun Belt, we feel good about our multi-family portfolio.

Hey, David.

Eberham Waller: Thank you. Got it.

Just a quick question on the on the fee side.

For clear guidance for the fourth quarter just.

Those service charges continue to come in much better at $5 90 for the year.

Obviously, an implied lower exit for the fourth quarter.

Any line of sight in terms of like a week.

We're getting close to that.

Leveling out period here on that service charges line in terms of.

I know cash management has been outgrowing the other pieces, but.

Is this kind of the right level to use going forward.

Speaker 3: I think from a fee standpoint, let's break down the two big pieces. So our service charge number relative to our 24 hour grace, that was implemented in the middle of the second quarter. So we have a full quarter run rate on that. We don't see that changing materially. We've been very proud of our treasury management team that done a good job of penetrating our cut commercial base.

Yes, I think from a fee standpoint, let's break down the two big pieces. So our service charge number relative to our 24 hour Grace that was implemented in the <unk>.

Middle of the second quarter. So we have a full quarter run rate on that we don't see that changing materially we've been very proud of our treasury management team had done a good job of penetrating our commercial base.

David: That's just a separate question in terms of the deposit beta outlook that you mentioned. How I think of the mix of customers? One, are you seeing? Can someone be pleated because of users in that driving deposit and IB? What's about that to some extent then? Where do you see CDs shaking out in terms of? In that from warmers from deposit customers and where CD mix could be 12 months from now if you don't get any rate cuts.

Speaker 3: And we see in that that hold up pretty well. So I don't think you should see the kind of decline in service charges that you just saw.

And we're seeing that hold up pretty well.

So I don't think you should see the kind of decline in service charges that you just saw.

Speaker 3: The only thing that can affect us in fees would be you know there's a discussion going on with debit interchange and

And the only thing that can affect us and fees would be.

There's a discussion going on with.

Debit interchange in.

Speaker 3: It's been percentages thrown out as to what that may mean, just to level set with everybody. We have about 310 million of debit per year. So whatever percentage change we have, you can do your own math on that. We're not sure that now I even come out, but that's been mentioned. And so I thought I'd just put that out there.

It has been percentages thrown out as to what that May mean, just to level set with everybody we have about $310 million of debit.

David: Yeah, you were breaking up there a little bit, but I think you were saying, what are we seeing in terms of movement of NIB into CDs? So, that's been the big change thus far for us. I think our CDs are right at 10% just under 10% of our total deposit book. That could grow. We do have money market offers that we're working on. We want to be competitive. This remix has been really relegated to high net worth customers that are taking excess cash and putting it to work.

Per year, so whatever percentage change we have you can do your own math on that we're not sure that now even come out, but that's been mentioned and so I thought I'd just put that out there.

Speaker 8: Yeah, that's fair. And David, can I just come back on that capital point? You know, you're comfortably in that 10 plus zone. And just, obviously not a lot of current growth in the loan book. So just the push and pull of potentially re-engaging in the buyback versus just keeping where you are in a more uncertain environment, kind of just walk us through just, you know, what would be your thought process there.

Yeah, that's fair and David can I just come back on the capital point Youre comfortably in that 10 plus zone.

There's obviously not a lot of current growth.

The loan book, So just the push and pull of potentially re engaging in the buyback versus just keeping where you are.

In a more uncertain environment.

Just walk us through just.

What would be your thought process there sure. So as you know we do an awful lot of stress testing.

Speaker 3: Sure. So as you know, we do an awful lot of stress testing. We do it constantly. We have our C-car submission. We have a mid-year submission week.

David: And the reason we think that that remix is somewhere in a 3-5 to go is because that customer base gets down to having the amount of cash in their account relative to the spin pattern that they had pre-pandemic. And so I think that happens by the end of next year, I mean in the middle of next year. As we think about where CD balances could be as a percentage of total deposits, maybe you pick up another 2% or 3% through that remix.

We do it constantly we have our CCAR submission we are a mid year submission.

Speaker 3: We feel very confident that even if we go into a recession, which we are not calling for, but even if we did that we'd have capital withstand that. So it's all about optimization, Ken. And we think that, you know, we still believe our operating range of 925 to 975 is the right range for regions based on our risk profile. That being said, we've had...

We feel very confident that even if we go into recession, which we are not calling for it but even if we did that we'd have capital withstand that.

So it's all about optimization can and we think that.

David: And it really is dependent on how we think about other offers, money market, and we're working on that. So there could be some mix in terms of how that 3-5 gets put to work, but specific to CDs, 2-3%.

We still believe our operating range of 925 to 975 is the right range for regions based on our risk profile that being said we've had an NPR we have uncertainty going on so we added 50 basis points to give us the flexibility to adapt and overcome whatever environment.

David: Thank you.

Speaker 3: and npr we have uncertainty going on so we added fifty basis points to give us the flexibility to adapt and overcome whatever environment uh... as thrown at us we don't see the need to take ten point three and let it write up to ten point six ten point nine and keep going and so um...

Is thrown at US we don't see the need to take 10, three and let it ride up to 10, 610, nine and keep going and so.

John Pancari: Our next question comes from line of 10, used in with Jeffries. Please see with your question. Again.

Speaker 3: that's what gives us confidence. We don't have a big CRE book like others do. We don't have the risk that some others do. And we have a very good engine. Our PP and our engine is among the strongest because of our deposit profile that we have.

That's what gives us confidence we don't have a big CRE book like others do we don't have the risk that some others do and we have a very good engine are our people and our engine is among the strongest because of our deposit profile that we have.

David: Hey, David. Just a quick question on the, on the B side, clear guidance for the fourth quarter. Just, you know, that those service charges continue to come in much better 590 for the year. Obviously, it implied lower exit for the fourth quarter. Can any line of sight in terms of like are we getting close to the leveling out period here on that service charges line in terms of. Yeah, I know cash management has been outfroying the other pieces, but is this kind of the right level of use going forward?

Speaker 3: And so we have confidence that our earning stream is going to get us where we need to be and we think this out.

And so we have we have confidence that our earnings stream has gone up.

Get us where we need to be and we we think that.

Speaker 3: We have enough capital right now, so if we generate more, we can buy our stock back. Got it.

We have enough capital right now so if we generate more we can buy our stock back.

Got it okay. Thanks, David.

Yes.

Speaker 1: Our next question, comments from Ryan, or Eric and Ijari and with UBS, please receive with your question.

Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.

David: Yeah, I think, you know, from a fee standpoint, let's break down the two big pieces. So our service charge number relative to our 24-hour grace, that was implemented in the middle of the second quarter. So we have a full quarter run rate on that. We don't see that changing materially. We've been very proud of our treasury management team that done a good job of penetrating our cut commercial base. And we see in that that hold up pretty well.

Speaker 1: Good morning. Hi, good morning. You stated my first question for you. I feel like.

Good morning.

Good morning.

David My first question is for you.

If you like.

Speaker 9: Given the reaction of the stock, I think it's probably best to completely de-risk consensus numbers.

Given the reaction in the stock I think it's probably.

Derisked.

Census numbers right. So.

Speaker 9: Forgive me for asking a super-specific question, but based on the disclosure of the swap book and everything that you're telling us about deposit behavior and hire for longer, it seems like you could hit that sort of 350 croft in the first quarter, kind of stay there, maybe go up a little bit and then get towards three.

Forgive me for asking a super specific question, but based on the disclosure of the swap book and everything that you are telling us about deposit behavior and higher for longer it seems like you said hit.

David: So I don't think you should see the kind of decline in service charges that you just saw. The only thing that can affect us in fees would be, you know, there's a discussion going on with debit interchange and it's been percentages thrown out as to what that may mean, just to level set with everybody. We have about 310 million of debit per year. So whatever percentage change we have, you can do your own math on that. We're not sure that that would even come out, but that's been mentioned. And so we thought, I thought I'd just put that out there. Yeah, that's fair.

Hit that sort of 350 trough in the first quarter.

Stay there maybe go up a little bit and then.

Get towards three six.

Speaker 9: It's not a little bit over 3.6 by 4.Q23. So that gives you sort of a full year. Let's call it between 3.5, 355, if we're 24. Again, based on the forward curve, based on slow growth, does that feel fair?

A little bit over three six months <unk> 23.

So that gives me sort of a full year, let's call. It between $5 55 for 24 again based on the forward curve based on slow growth is that fair.

Speaker 3: I think you're pretty good at math. I don't know if that's, you've nailed exactly the thing. I can't even think of guidance. You've done pretty well. You're understanding exactly how this works in terms of a bigger, bigger down drafts in the fourth quarter than you'll see in the first part of the year than they will be grown from there. So, directly, you're exactly right.

I think you're pretty good at math.

That's that you've you've nailed exactly you haven't given any guidance.

Ken: And David, can I just come back on that capital point? You know, you're comfortably in that 10 plus zone and just there's obviously not not a lot of current growth in the loan book. So just the push and pull of potentially re-engaging in the buyback versus just keeping where you are, you know, in a less, in a more uncertain environment, kind of just walk us through just, you know, what would be your thought process there?

You've done pretty well youre understanding exactly how this works in terms of a bigger bigger downdraft in the fourth quarter, then youll see in the first part of the year, then being able to grow from there so directionally you're exactly right.

Speaker 9: Got it. And I'll follow up with Dave. I do the balance sheet later because I do want to ask this second question of John . I think

Got it.

Follow up with Dave.

Is it the balance sheet later, because you want to ask the second question is John I think.

Ken: Sure. So, as you know, we do an awful lot of stress testing. We do it constantly. We have our C car submission. We have a mid-year submission. We feel very confident that even if we go into a recession, which we are not calling for, but even if we did that we'd have capital withstand that. So it's all about optimization, Ken, and we think that, you know, we still believe our operating range of 925 to 975 is the right range for regions based on our risk profile.

Well I guess what was surprising to me is that you like.

Speaker 9: I guess what was surprising to me is that you had a BNPL solar thing to begin with, right? So, you know, Regents has done a great job at not only convincing investors that it completely changed in terms of the writing and risk management, but also in numbers. And I guess this is a two-part question number one. And, you know,

Be NPL solar thing.

Right. So you know regions has done a great job.

Not only convincing inbox.

Completely changing correct.

On risk.

But all of that.

Yeah.

In the numbers.

Again this is a two part question number one.

Speaker 9: As you think about an uncertain map ahead, do you feel like you've sort of fully captured like things like that, the BNPL solar that you're now just continuing that may not be, you know, something that you would normally do under your risk management profile?

As you as you think about an uncertain.

Ken: That being said, we've had an NPR. We've had uncertainty going on. So we added 50 basis points to give us the flexibility to adapt and overcome whatever environment has thrown at us. We don't see the need to take 10.3 and let it ride up to 10.6, 10.9 and keep going. And so that's what gives us confidence. We don't have a big CRE book like others do. We don't have the risk that some others do.

Do you feel like you've fully captured.

Things like that the NPL similar that Youre now discontinuing that may not be.

Something that you would normally do under your through your risk management profile.

Speaker 9: And maybe the follow up question to that is the 3545 basis points. I think a lot of investors are thinking about a mild recession.

Maybe the follow up question to that is 35 45 basis points I think a lot of investors are thinking about a mild recession.

Speaker 2: in 2024, maybe it just feels like for bank investors versus other types of investors. But in that case, where would Regents peak an held recession relative to that 35, 45 basis point range for next year? I think that the answer to your first question is, yes, to anything that we're, we feel like we've been through our portfolios, certainly been through the new businesses we've acquired.

In 2024, maybe it just feels like we're banking.

Versus other types of investors, but in that case.

Ken: And we have a very good engine. Our PP and our engine is among the strongest because of our deposit profile that we have. And so we have confidence that our earnings stream is going to get us where we need to be. And we think that we have enough capital right now. So if we generate more, we can buy our stock back.

David: Got it. Okay. Thanks, David.

Where would region peak.

Session relative to that 35 45 basis point range for next year.

I think the answer to your first question is yes.

Anything that we are and we feel like we've been through our portfolios certainly been through the new businesses we've acquired.

Speaker 2: in any products or programs that don't meet our risk and return profiles, we've exited. And in the case of this particular program, as I mentioned, we exited it in 2022 because of the structure of it, we've only begun to see.

Any products or programs that don't meet our risk and return profiles, we've exited and in the case of this particular program as I mentioned, we exited in 2022 because of the structure of it we've only begun to see some results and frankly those resolve.

Eric: Our next question comes from Rhino, Eric and Igeria with UBS. Please receive your question.

David: Hi, good morning. David, my first question is for you. I feel like given the reaction of the stock, I think it's probably best to completely de-risk consensus numbers, right? So forgive me for asking a super specific question, but based on the disclosure of the swap book and everything that you're telling us about deposit behavior and hire for longer, it seems like you could, you know, hit that sort of 350 croft in the first quarter.

Speaker 2: some results and frankly those results probably are consistent with our expectations.

It's probably a consistent with our expectations.

Speaker 2: when we shut the program down. So we are continuing to always evaluating the performance of our products, of our capabilities, our businesses, our portfolios to ensure that we're getting an appropriate return on the business that we do. And so I'm pretty comfortable there. With respect to our guidance at 35 to 45 basis points,

When we shut the program down so we are continuing to always evaluating the performance of our products of our capabilities our businesses our portfolios to ensure that we're getting an appropriate return on the <unk>.

David: So if you're kind of stay there, maybe go up a little bit and then, you know, get towards 36. It's not a little bit over 36 by 4Q 23. So that gives you sort of a full year. Let's call it between 3535 for 24 again, based on the forward curve, based on slow growth. Does that feel fair? I think you're pretty good at math. I don't know if that's, you've, you've nailed exactly what you've done.

Business that we do and and so I'm pretty comfortable there with respect to our guidance of 35 to 45 basis points.

Speaker 2: We've compared it to 2014 to 2019, our average charge-offs were 38 basis points. And so I think we still, and we have contemplated, we believe.

Period of 2014 to 2019, our average charge offs were 38 basis points.

So I think we feel we have contemplated.

We believe.

Speaker 2: What we consider to be the probability of soft landing versus a mild recession in our projections for charge-offs at this point still feel good about the 35 to 45 basis points in 2020.

We would consider to be the probability of a salt planning versus.

<unk> recession in our projections for charge offs at this point still feel good about <unk> 35 to 45 basis points in 2024.

David: You've done pretty well. You're, you're understanding exactly how this works in terms of a bigger, bigger down draft in the fourth quarter than you'll see in the first part of the year than they will grow from there. So directly you're, you're exactly right.

John: Got it.

Speaker 3: I would add this David that, you know, if he'd think about

I would add is David that if you think about.

Speaker 3: our recessions probably if it comes, it would be, we think, fairly mild.

Recession is probably if it comes.

It would be we think fairly mild.

John: And I'll follow up with Dave, guys with a balance sheet later, because if you want to ask the second question of John, I think, I guess what was surprising to me is that you had like a BNPL solar thing to begin with, right. So, you know, Regions has done a great job at not only convincing investors that it, you know, completely change. Interriding and risk management, but also in numbers.

Speaker 3: As we look at consumers and we look at them through the checking account and activity going in there, we look at businesses, we talk to our business partners all the time.

As we look at consumers and when you look at them through the checking account and activity going in there. We look at businesses, we talked to our business partners. All the time businesses and consumers are in pretty good shape and in particular for the consumer. If you look at housing prices has continued to remain strong and a lot of our lending if you will.

Speaker 3: businesses and consumers are in pretty good shape and in particular for the consumer if you look at housing prices those continued to remain strong and a lot of our lending if you will in the consumer space is tied to the house to the home So I think that we have a bit of a buffer and go back to the history that John just mentioned the 38 basis points between 14 and 19 gives us confidence that even if we did that we'd be in that range

In the consumer space is tied to the house to the home so I think that we.

We have a bit of a buffer and go back to the history that John just mentioned, a 38 basis points between 14, and 19 gives us confidence that even if we did that we'd be in that range.

John: And I guess this is a two part question number one, you know, as you, as you think about an uncertain ahead, do you feel like you've sort of fully captured like things like that, the BNPL solar that you're now just continuing that may not be, you know, something that you would normally do under your risk management. And maybe the follow up question to that is 3545 basis points. I think a lot of investors are thinking about a mild recession in 2024, maybe it just feels like for bank investors versus other types of investors.

Thank you.

Thank you.

Yes.

Speaker 1: Our next question comes from line of Manan Ghasalya with Morgan Stanley . Please receive it your question.

Our next question comes from the line of <unk> <unk> with Morgan Stanley . Please proceed with your question.

Speaker 10: Good morning, thanks for taking my question.

Good morning, Hey, good morning, guys. Thanks for taking my question.

Speaker 10: You noted that high rates are pushing up deposit betas and also changing the mix in NIB and IB deposit.

You noted that either high rates pushing up deposit beta is and also.

The mix.

Niv and IV deposits.

Speaker 10: Some of you bears have been saying we're closer to the end of this.

Some of your peers have been saying we're closer to the end of this.

Speaker 10: Do you think that there's anything different that your thing versus peers or is your deposit strategy changing in any way given the increase likelihood of higher for longer rip?

John: But in that case, you know, where would Regions peak out of recession relative to that 3545 basis point range for next year. I think that the answer to your first question is yes, to anything that we're, we feel like we've been through our portfolios, certainly been through the new businesses we've acquired in any products or programs that don't meet our risk and return profiles. We've exited and in the case of this particular program, as I mentioned, we exited it in 2022 because of the structure of it, we've only begun to see some results.

Do you think that there's anything different that you're seeing versus <unk> or is your deposit strategy changing in any way given the increased likelihood of higher for longer rates.

I don't think our deposit base.

Speaker 3: I don't think our deposit base, if anything, is a bit better than the peer group. We don't have anything unique to us that would cause our babies to be higher than anybody else in this rising rate environment, as a matter of fact. We did happen to grow more non-interest bearing deposits during the pandemic than most of our peers, and that's being put to work. So that element of it...

Anything is.

A bit.

Better than the peer group.

We don't have anything unique to us that would cause our beta to be higher.

Than anybody else in this rising rate environment as a matter of fact.

We did.

We did happen to grow more noninterest bearing deposits during the pandemic than most of our peers and that's being put to work. So that element of it may be that piece of it is a bit different and and thats, what we called for.

Speaker 3: maybe that piece of it is a bit different and that's what we call for in the guidance that would give you that it would remix into uh... and you're sparing the count

John: And frankly, those results probably are consistent with our expectations when we shut the program down. So we are continuing to always evaluating the performance of our products, of our capabilities, our businesses, our portfolios to ensure that we're getting an appropriate return on the business that we do. And so I'm pretty comfortable there. With respect to our guidance of 35 to 45 basis points, compared to 2014 to 2019, our average charge offs were 38 basis points.

The guidance that we're giving you that it would remix into.

Interest bearing accounts.

Speaker 3: You know, we still have a low loan deposit ratio. We still have, you know, a whole set of funded. So I don't think that...

We still have a low loan deposit ratio, we still have.

Not wholesale funded.

I don't think that.

Speaker 3: Whatever the beta is in the industry, regions is going to be better than that. We're already better than that right now with a beta of 34% and the peers are at 49 on a peer median basis right now. So I just don't think that if it's coming to the end then it'll come to the end for us too.

Whatever the beta is in the industry regions is going to be better than that we're already better than that right now with a with a beta of 34% and the peers are at 49 on a on a peer median basis right now so I just don't think that if.

If it's coming to the end and then it will come to the end for us too.

John: And so I think we still, and we have contemplated, we believe what we consider to be the probability of a soft landing versus a mild recession in our projections for charge offs. At this point, still feel good about the 35 to 45 basis points in 2024. I would add, as David, that, you know, if you think about recessions, probably if it comes, it would be, we think fairly mild. As we look at consumers, and we look at them through the checking account and activity going in there, we look at businesses, we talk to our business partners all the time.

Speaker 10: Got it. And then just a separate question on liquidity. Several of the bills have increased their levels of cash, this quarter. How do you think about managing your liquidity ahead of any changes in the LCR rule?

Got it.

Then just a separate question on liquidity.

It appears to have increased their level of cash this quarter.

How are you thinking about managing your liquidity.

Head of any changes in the LCR rules.

Yes, so we still have again, a very liquid balance sheet access to two that we maintain a good cash position right now.

Speaker 3: Yeah, so we still have, again, a very liquid balance sheet access to that. We maintain a good cash position right now. We haven't added to our securities book as much as some others. You know, we think to the extent LCR comes in, we'll be able to be compliant without without any major changes to our structure of our balance sheet.

We haven't added to our Securities book.

As much as some others.

We think to the extent the LCR comes in we'll be we'll be able to be compliant with that without any major change to our structure of our balance sheet.

Great. Thank you.

John: Businesses and consumers are in pretty good shape, and in particular for the consumer, if you look at housing prices, those continue to remain strong in a lot of our lending, if you will, in the consumer space is tied to the house, to the home. So I think that we have a bit of a buffer, and go back to the history that John just mentioned, the 38 basis points between 14 and 19, gives us confidence that even if we did that, we'd be in that range.

Yeah.

Speaker 1: Our final question comes from line of deraude Cassidy with RB State. Please proceed with your question.

Our final question comes from the line of Gerard Cassidy with RBC. Please proceed with your question.

Hey, Gerard.

Speaker 2: John and David. David, can we circle back to the shared national credit exam? I'm curious, obviously, it's changed over the years.

Hey, David.

Manan Gosalia: Thank you.

David can we circle back to the shared national credit exam I'm curious, obviously, it's changed over the years and if I recall correctly. They examine those books both in the spring and the fall, which you referenced.

Speaker 2: If I recall correctly, they examine those books both in the spring and the fall, which you referenced. And we'll get the results early in February or sometime in February . But can you share with us any color like what was the emphasis? Was it on leverage loans? Was it on office commercial real estate? Was there greater stress in certain markets over others? Just any elaboration would be helpful.

We'll get the results early in February or sometime in February .

Can you share with us any color like what was the emphasis was on leveraged loans as an office commercial real estate was there greater stress in certain markets over others, just any elaboration would be helpful.

Manan Gosalia: Our next question comes from a line of Manan Gosalia with Morgan Stanley, please receive your question. Good morning. Hey, good morning.

David: I'm actually taking my question. You noted that high rates are pushing up deposit betas and also changing the mix in NIB and IB deposits. Some of you bears have been saying we're closer to the end of this. Do you think that there's anything different that your thing versus bears or is your deposit strategy changing in any way given the increase likelihood of higher for longer rates? I don't think our deposit base, if anything, is a bit better than the peer group.

Speaker 2: Yeah, um, Dr. Susanna, I don't, we didn't notice anything specific about the most recent exam. It was broad-based.

John This is John I don't we didn't notice anything specific about the most recent exam it was broad based.

Speaker 2: with respect to product type and business and geography.

With respect to product type.

Business and geography.

Very good and then you guys touched a little bit about.

Speaker 11: very good and then you guys touch a little bit about The economy in your markets you give us obviously the forecast you use and Building out Cecil reserves. What are you guys seeing down there? There's so many cross currents going on and the national numbers and still I'm assuming they're strength There's you know employment strength. There's business strength and any color there would be helpful as well

The economy in your markets. So you gave us obviously the forecast should use.

Building out a seasonal reserves what are you guys seeing down there. There's so many cross currents going on in the national numbers.

David: We don't have anything unique to us. It would cause our betas to be higher than anybody else in this rising rate environment, as a matter of fact. We did happen to grow more non-interest bearing deposits during the pandemic than most of our peers. And that's being put to work. So that element of it may be that piece of it is a bit different. And that's what we've called for in the guidance that would give you that it would remix into an interest bearing account.

Still I am assuming there strength, there's employment strength, there's business strength any color there would be helpful as well.

Speaker 2: Yeah, across the southeast, which is where 86% of our deposits are in seven southeast or stage, we had Texas that goes above 90%. We're still seeing a pretty strong economy and seven of

Yeah across the southeast, which is where 86% of our deposits are in <unk>.

South Eastern stage, we had taxes it goes above 90%, we're still seeing a pretty strong economy in seven of the eight.

Speaker 2: the eight South-Eastier States that we would point to.

South Eastern States.

0.2.

Speaker 2: Unemployment rates are at or near historical lows. Customers are still consumers, are still in a very good position. There are plenty of work.

Unemployment rates are at or near historical lows customers are still consumers are still in a very good position there are plenty of work.

David: You know, we still have a low loan deposit ratio. We still have, not wholesale funded. So I don't think that whatever the beta is in the industry, regions is going to be better than that. We're already better than that right now with a beta of 34% and the peers are at 49% on a peer median basis right now. So I just don't think that if it's coming to the end, then it'll come to the end for us, too. Got it.

Speaker 2: There are routinely economic development projects, new jobs being announced across markets, Alabama, Tennessee, Georgia, Florida, Mississippi, and of course, Texas is continuing to do really well so.

There are routinely economic development projects, new jobs being announced across markets, Alabama, Tennessee, Georgia, Florida, Mississippi and of course, Texas is continuing to do really well so.

<unk>.

Speaker 2: I'd say customer sentiment is still positive, but cautious given all the things that are going on on both the national and international geopolitical level. But customers are businesses are still doing pretty well and the consumer definitely is.

I would say customer sentiment is still positive, but cautious given all of the things that are going on both the national and international geopolitical level, but customers are businesses are still doing pretty well in the consumer definitely is.

David: And then just a separate question on liquidity. Several of the peers have increased their levels of cash, this quarter. How do you think about managing your liquidity ahead of any changes in the LCR rules? Yeah, so we still have, again, a very liquid balance sheet access to that. We maintain a good cash position right now. We haven't added to our securities book as much as some others. You know, we think to the extent LCR comes in, we'll be able to be compliant without without any major changes to our structure of our balance sheet. Great.

Speaker 11: actually done just to follow up quickly there putting the geopolitical international issues on the side for a moment do you have any sense what the customers are looking for to give a more confidence is it a said finishing with interest rates you know raising interest rates you know we get to that terminal rate or is it better

Actually Jon just to follow up quickly there, putting the geopolitical international issues on the side for a moment do you have any sense. What the customers are looking forward to give them more confidence is it a fed finishing with interest rates rising interest rates that we get to that terminal rate or is it.

Better.

Speaker 11: the better budgeting out of Washington, because we hear this from your peers as well, so it's not uncommon, but I'm trying to figure out what the catalyst will be where businesses really get confident again.

The better budgeting out of Washington.

Because we hear this from your peers as well so it's not uncommon, but I'm trying to figure out what the catalyst will be where businesses really get confident again.

Gerard Cassidy: Thank you. Our final question comes from a line of Gerard Cassidy with RBC. Please receive your question. Hey, Gerard. Hey, John. Hey, David. David, can we circle back to the shared national credit exam? I'm curious. Obviously, it's changed over the years and if I recall correctly, they examine those books both in the spring and the fall, which you referenced. And we'll get the results early in February or sometime in February. But can you share with us any color like what was the emphasis?

Speaker 2: I think the biggest thing is, is self-reserve and that's sad making

I think the biggest thing is the federal reserve in.

Sure.

Gerard Cassidy: Was it on leverage loans? Was it on office commercial real estate? Was there greater stress in certain markets over others? Just any elaboration would be helpful. Yeah, Gerard, this is John. I don't, we didn't notice anything specific about the most recent exam. It was broad-based with respect to product type and business and geography. Jeffy, very good. And then you guys touch a little bit about the economy in your markets, so you give us obviously the forecast you use and building out Cecil reserves.

Fed, making a declaration that inflation is now under control and that they're not going to continue to raise rates don't have to continue to raise rates I think.

Speaker 2: inflation is now under control and they're not going to continue to raise rates. Don't have to continue to raise rates. I think giving, sending that message and creating a sense that the environment is more stable than others might, business owners may feel today would be hugely helpful. With respect to what's going on in the national level politically, I don't know that I have an answer for you there and I don't expect that to change anytime in the near term. Great.

Sending that message and creating a sense that the environment is more stable than others might.

Business owners may feel today would be hugely helpful with respect to what's going on on the national level politically.

I don't know that.

I have an answer for you there and I don't expect that to change anytime in the near term.

Great I appreciate it thank you.

Okay, well that's all the calls for today I. Appreciate your participating. Thank you I'll just say it has been an unusual quarter had a number of things going on but at the core of our business is really sound and solid we have spent the last 10 years working to build a bear.

Speaker 2: Okay, that's all the calls for today. I appreciate your participating. Thank you. I'll just say it has been an unusual quarter. I had a number of things going on, but at the core, our business is really sound and solid. We have spent the last 10 years working to build a balance sheet and income statement that's going to be consistently performing, sustainable, and resilient. We believe we've done that.

Alex sheet and income statement, it's going to be consistently performing sustainable and resilient and we believe we've done that we have a lot of confidence in our future performance and I. Appreciate your support thank you.

Gerard Cassidy: What are you guys seeing down there? There's so many cross currents going on in the national numbers. Still, I'm assuming there's strength, there's employment strength, there's business strength. And any color there would be helpful as well. Yeah, across the southeast, which is where 86% of our deposits are in seven southeastern states. We had Texas, it goes above 90%. We're still seeing a pretty strong economy and seven of the eight southeastern states that we would point to unemployment rates are at and near historical lows.

Speaker 2: We have a lot of confidence in our future performance and appreciate your support. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time.

Speaker 1: This concludes today's teleconference. You may disconnect your lines at this time.

Yeah.

Speaker 2: in our future performance and appreciate your support.

But it's in our future performance and I appreciate your support.

Gerard Cassidy: Customers are still consumers. In a very good position, there are plenty of work. There are routinely economic development projects, new jobs being announced across markets, Alabama, Tennessee, Georgia, Florida, Mississippi. Of course, Texas is continuing to do really well. Also, I'd say customer sentiment is still positive, but cautious given all the things that are going on both the national and international geopolitical level, but customers are businesses are still doing pretty well and the consumer definitely is.

Gerard Cassidy: Actually, John, just to follow up quickly there, putting the geopolitical international issues on the side for a moment, do you have any sense what the customers are looking for to give them more confidence? Is it a said finishing with interest rates, raising interest rates? Do we get to that terminal rate? Or is it better budgeting out of Washington? Because we hear this from your peers as well, so it's not uncommon, but I'm trying to figure out what the catalyst will be where businesses really get confident again.

Gerard Cassidy: I think the biggest thing is as far as urban and the fed making a declaration that inflation is now under control and that they're not going to continue to raise rates, don't have to continue to raise rates. I think sending that message and creating a sense that the environment is more stable than others. My business owners may feel today would be hugely helpful with respect to what's going on on the national level politically. I don't know that I have an answer for you there and I don't expect that to change any time in the near term. Great. No, I appreciate it. Thank you.

Unknown Executive: Okay, let's all the calls for today. Appreciate your participating. Thank you.

Unknown Executive: Just say it has been an unusual quarter. I had a number of things going on, but at the core, our business is really sound and solid. We have spent the last 10 years working to build a balanced income statement that's going to be consistently performing sustainable and resilient. We believe we've done that. We have a lot of confidence in our future performance and appreciate your support. Thank you.

Unknown Executive: This concludes today's teleconference. You may disconnect your lines at this time. It's in our future performance and appreciate your support.