Q4 2023 Comerica Inc Earnings Call

January 19, 2024

Hello, and welcome to the Comerica 4th Quarter 2023 Earnings Conference Forum webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. Hello, and welcome to the Comerica [indiscernible] Quarter 2023 Earnings Conference Call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kelly Gage, Head of Investor Relations. Please go ahead, Kelly. You may be placed in the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.

Hello, and welcome to the Comerica fourth quarter 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone.

You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.

Pat as it were.

Reminder, this conference is being recorded its now my pleasure to turn the call over to Kelly Gay Director of Investor Relations. Please go ahead Kelly.

It is now my pleasure to turn the call over to Kelly Gates, Director of Investor Relations. Please go ahead, Kelly.

Thanks, Kevin Good morning, and welcome to America's fourth quarter 2023 earnings conference call participating on this call will be our president Chairman and CEO, Curt Farmer, Chief Financial Officer, Jim Herzog.

Kelly Gates: Thanks, Kevin. Good morning. Welcome to Comerica's fourth quarter 2023 earnings conference call. Participating on this call will be our President, Chairman, and CEO, Kurt Farmer, two financial officers, Jim Herzog, Chief Credit Officer, Melinda Coffey, and Chief Banking Officer, Peter Seppich. During this presentation, we will be referring to slides which will provide additional details. The presentation slides and our press release are available on the SEC's website as well as the investor relations section of our website, Comerica.com. This conference call contains forward-looking statements, and in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations.

Thanks, Kevin. Good morning, and welcome to Comerica's Fourth Quarter 2023 Earnings Conference Call. Participating on this call will be our President, Chairman, and CEO, Curt Farmer; Chief Financial Officer, Jim Herzog; Chief Credit Officer, Melinda Chausse; and Chief Banking Officer, Peter Suzi. During this presentation, we will be referring to slides, which will provide additional details. The presentation slides and our press release are available on the SEC's website as well as in the Investor Relations section of our website, comerica.com. It is now my pleasure to turn the call over to Kelly Gates, Director of Investor Relations. Please go ahead, Kelly.

We've cut it off there Melinda chassis and Chief banking Officer, Peter Septic.

Kelly Gates: During this presentation, we will be referring to slides which will provide additional details. The presentation slides and our press release are available on the SEC's website as well as the investor relations section of our website, Comerica.com.

During this presentation, we all different referring to slides, which will provide additional detail the presentation slides and our press release are available on the Sec's website as well as the Investor Relations section of our website Comerica Dot com.

Kelly Gates: This conference call contains forward-looking statements, and in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the safe harbor statement in today's earnings presentation on Slide 2, which is incorporated into this call as well as the SEC filings for factors that can cause actual results to differ.

Kelly Gates: This conference call contains forward-looking statements, and in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today's earnings presentation on slide 2, which is incorporated into this call, as well as the SEC filings for factors that can cause actual results to differ. Also, this conference call will reference non-GAAP measures. And in that regard, I direct you to the reconciliation of these measures in the earnings materials that are available on our website.

This conference call contains forward looking statements and in that regard you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectation.

Kelly Gates: Forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward-looking statements.

Kelly Gates: Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the safe harbor statement in today's earnings presentation on Slide 2, which is incorporated into this call as well as the SEC filings for factors that can cause actual results to differ.

Forward looking statements speak only as of the date of this presentation and we undertake no obligation to update any forward looking statements.

Kelly Gates: Please refer to the Safe Harbor Statement in today's earnings presentation on slide 2, which is incorporated into this call, as well as the SEC filings for factors that can cause actual results to differ.

Please refer to the Safe Harbor statement in today's earnings presentation on slide two which is incorporated into this call as well as long as the SEC filings for factors that can cause actual results to differ.

Kelly Gates: Also, this conference call will reference non-GAAP measures, and in that regard, I direct you to the reconciliation of these measures in our earnings materials that are available on our website. With that, I'll turn the call to Kirk.

So this conference call will reference non-GAAP measures and in that regard I direct you to the reconciliation of these measures in the earnings materials that are available on our website with that I'll turn the call to Kurt.

Kelly Gates: Thank you, Kelly, and good morning, everyone. Thank you for joining us on our call. Although 2023 was challenging for our industry, we felt it was a year of achievement. Following industry disruptions, we protected relationships, stabilized deposits, maintained strong credit quality, enhanced our capital, and took steps to position our business for future success. In fact, we delivered record average loans and record net interest income. Despite the marketplace and instability, we advanced key strategic initiatives and received impressive recognition for our results.

Kelly Gates: With that, I'll turn the call to Curt. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today's earnings presentation on slide 2, which is incorporated into this call, as well as the SEC filings for factors that can cause actual results to differ. Also, this conference call will reference non-GAAP measures. And in that regard, I direct you to the reconciliation of these measures in the earnings materials that are available on our website. With that, I'll turn the call to Curt.

Thank you Kelly and good morning, everyone and thank you for joining our call.

Kirk: Thank you Kelly and good morning everyone. Thank you for joining our call.

Kirk: Thank you, Kelly, and good morning everyone. Thank you for joining us on our call. Although 2023 was challenging for our industry, we felt it was a year of achievement. Following industry disruption, we protected relationships, stabilized deposits, maintained strong credit quality, enhanced our capital, and took steps to position our business for future success. In fact, we delivered record average loans and record net interest income to small businesses as we initiated a national expansion effort, delivered award-winning products and achieved our 3-year living goal ahead of schedule. Noninterest income remained a priority as we launched targeted initiatives aimed at enhancing our products and increasing our mix of capital-efficient income.

Kirk: Although 2023 was challenging for our industry, we felt it was a year of achievement.

Although 2023 was challenging for our industry. We felt it was a year of achievement.

Kirk: Following industry disruption, we protected relationships, stabilized deposits, maintained strong credit quality, enhanced our capital, and took steps to position our business for future success.

Following industry disruption, we projected relationships.

Babelize deposits maintained strong credit quality and enhanced our capital it took steps to position our business for future success.

Kirk: In fact, we delivered record average loans and record net interest income.

In fact, we delivered record average loans and record net interest income.

Kirk: Despite the marketplace instability, we advanced key strategic initiatives and received impressive recognition for our results.

Kirk: Despite the marketplace instability, we advanced key strategic initiatives and received impressive recognition for our results. Small business was a highlight as we initiated a national expansion effort, delivered award-winning products, and achieved our three-year lending goal ahead of schedule. Although the economic environment remains uncertain, we observed a cautiously more optimistic trend in customer sentiment at year-end as we believe many expect less rate pressure in 2024. We remain committed to supporting our customers, and feel we are positioned to grow alongside them as the economy strengthens. Full year financial highlights are on Slide 4. With 7% growth, we produced our highest level of average annual loans despite the impact of deliberate authorization efforts in the second half of the year. Deposits remained a targeted focus, and we were pleased to see stabilization following industry events and ongoing quantitative tightening. We delivered record net interest income, aided by higher rates and loan balances.

Despite the marketplace instability, we advanced key strategic initiatives. It received impressive recognition for our results.

Small business the highlight as we initiated a national expansion effort delivered award winning products and achieved our three year living go ahead of schedule.

Kirk: Small business is a highlight as we initiated a national expansion effort, delivered award-winning products, and achieved our three-year lending goal ahead of schedule.

Kirk: Although 2023 was challenging for our industry, we felt it was a year of achievement. Following industry disruption, we protected relationships, stabilized deposits, maintained strong credit quality, enhanced our capital, and took steps to position our business for future success. In fact, we delivered record average loans and record net interest income to small businesses as we initiated a national expansion effort, delivered award-winning products and achieved our 3-year living goal ahead of schedule. Noninterest income remained a priority as we launched targeted initiatives aimed at enhancing our products and increasing our mix of capital-efficient income.

Noninterest income remains a priority as we launched targeted initiatives aimed at enhancing our products.

Kirk: Non-interest income remains a priority as we launch targeted initiatives aimed at enhancing our products and increasing our mix of capital, sufficient income.

Kirk: Non-interest income remains a priority as we launch targeted initiatives aimed at enhancing our products and increasing our mix of capital and sufficient income. Although the economic environment remains uncertain, we observe a cautiously more optimistic trend in customer sentiment at year-end, as we believe many expect less rate pressure in 2024. We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens.

Increasing our mix of capital sufficient income.

Kirk: Although the economic environment remains uncertain,

Although the economic environment remains uncertain.

Kirk: We observe a cautiously more optimistic trend in customer sentiment at year-end, as we believe many expect less rate pressure in 2024.

He observed that cautiously more optimistic trend in customer sentiment at year end as we believe many expect less rate pressure in 2024.

Kirk: We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens.

We remain committed to supporting our customers and feel we are well positioned to grow alongside them as the economy strengthens.

Kirk: We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens. Although the economic environment remains uncertain, we observe a cautiously more optimistic trend in customer sentiment at year-end, as we believe many expect less rate pressure in 2024. We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens.

Kirk: For your financial highlights, you're on cloud four.

Kirk: For your financial highlights, you're on cloud four. With 7% growth, we produced our highest level of average annual loans despite the impacts of deliberate optimization efforts in the second half of the year. Credit quality remained strong, with net charge-offs well below historical averages. This was a strong quarter for the company, and we ended with a good fourth quarter. Since there are a number of notable items in this quarter's results, I'm going to hand the call to Jim to discuss those upfront and provide context for the remainder of the presentation. With 7% growth, we produced our highest level of average annual loans despite the impacts of deliberate optimization efforts in the second half of the year.

Full year financial highlights here on slide four.

Kirk: With 7% growth, we produced our highest level of average annual loans, despite the impacts of deliberate optimization efforts in the second half of the year.

We're 7% growth, we produced our highest level of average annual loans. Despite the impact of deliberate optimization efforts in the second half of the year.

Kirk: The small business segment is a highlight as we initiated a national expansion effort, delivered award-winning products, and achieved our three-year lending goal ahead of schedule. Although the economic environment remains uncertain, we observed a cautiously more optimistic trend in customer sentiment at year-end as we believe many expect less rate pressure in 2024. We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens. Full year financial highlights are on Slide 4. With 7% growth, we produced our highest level of average annual loans despite the impact of deliberate authorization efforts in the second half of the year. Deposits remained a targeted focus, and we were pleased to see stabilization following industry events and ongoing quantitative tightening. We delivered record net interest income, aided by higher rates and loan balances.

Deposits remained a targeted focus and we were pleased to see stabilization following the industry events and ongoing quantitative tightening.

Kirk: Deposits remain the targeted focus and we were pleased to see stabilization following industry events and ongoing quantitative tightening.

Kirk: Deposits remain the targeted focus, and we were pleased to see stabilization following industry events and ongoing quantitative tightening. We delivered record net interest income, aided by higher rates and loan balances. We delivered record net interest income, aided by higher rates and loan balances.

We delivered record net interest income aided by higher rates and loan balances.

Kirk: We delivered record net interest income aided by higher rates and loan balances.

Kirk: Credit card remains strong with net charge-offs well below the historical average.

Kirk: Credit card remains strong, with net charge-offs well below the historical average.

Quality remains strong with net charge offs well below historical averages.

Kirk: It all was a strong quarter for the company, and we ended with a good fourth quarter.

Kirk: Thanks, Curt, and good morning, everyone. Slide 5 details the notable items Curt referenced, most of which were disclosed in an 8-K earlier this month. As previously announced, we recorded $109 million in noninterest expenses related to the onetime special FDIC assessment. This was unchanged from the indications provided in our December update.

Kirk: It was a strong quarter for the company, and we ended with a good fourth quarter. Since there are a number of notable items in this quarter's results, I'm going to hand the call to Jim to discuss those up front and provide context for the remainder of the presentation. Jim?

It always a strong quarter for the company and we ended with a good fourth quarter.

Kirk: Since there are a number of notable items in this quarter's results, I'm going to hand the call to Jim to discuss those up front and provide context for the remainder of the presentation. Jim?

Since there were a number of notable items in this quarter's results I'm going to hand, the call to Jim to discuss those upfront.

Kirk: Credit quality remained strong, with net charge-offs well below historical averages. This was a strong quarter for the company, and we ended with a good fourth quarter. Since there are a number of notable items in this quarter's results, I'm going to hand the call to Jim to discuss those upfront and provide context for the remainder of the presentation.

To provide context for the remainder of the presentation Jim.

James J. Herzog: Thanks, Kurt, and good morning, everyone. Slide 5 details the notable items Kurt referenced, most of which were furnished in an 8K earlier this month.

James J. Herzog: Thanks, Kurt, and good morning, everyone. Slide 5 details the notable items Kurt referenced, most of which were furnished in an 8K earlier this month. Next was the accounting impact from the pending cessation of BISP since approximately $7 billion of our swap portfolio was designated to BISP loans. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net noncash loss of $88 million. The key message is that cessation does not result in an economic impact, only a change in the time recognition of earnings. These recognized losses will creep back, and the normal course of pay received cash settlements and earnings recognition on the swaps remain uninterrupted.

Thanks, Curt and good morning, everyone.

Slide five details the notable items current reference most of which were furnished in an 8-K earlier this month.

James J. Herzog: As previously announced, we recorded $109 million in non-interest expenses related to the one-time special FDIC assessment.

James J. Herzog: As previously announced, we recorded $109 million in non-interest expenses related to the one-time special FDIC assessment. This was unchanged from the indications provided in our December update. This was unchanged from indications provided in our December update. Next was the accounting impact from the pending cessation of BISB since approximately $7 billion of our swap portfolio was designated to BISB loans. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net non-cash loss of $88 million. While the realization of losses flowed through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value. Also note, operationally and from a customer perspective, we feel well prepared for a seamless transition.

As previously announced we recorded $109 million in noninterest expenses related to the onetime special FDIC assessment.

James J. Herzog: This was unchanged from indications provided in our December update.

This was unchanged from indications provided in our December update.

James J. Herzog: Next was the accounting impact from the pending cessation of BISB since approximately $7 billion of our swap portfolio was designated to BISB loan.

James J. Herzog: Next was the accounting impact from the pending cessation of BISB since approximately $7 billion of our swap portfolio was designated to BISB loans. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net non-cash loss of $88 million. While the realization of losses flowed through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value. Also note, operationally, and from a customer perspective, we feel well prepared for a seamless transition.

Next was the accounting impact from the pending cessation of BSP since approximately $7 billion of our swap portfolio was designated to just be loans.

James J. Herzog: The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net non-cash loss of $88 million.

The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net noncash loss of $88 million.

James J. Herzog: The key message is that cessation does not result in an economic impact, only a change in the timed recognition of earnings.

James J. Herzog: The key message is that cessation does not result in an economic impact, only a change in the timed recognition of earnings. These recognized losses will creep back, and the normal course of paid-in cash settlements and earnings recognition on the swaps remain uninterrupted. While the realization of losses spoke through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value. Also note, operationally and from a customer perspective, we feel well prepared for a seamless transition.

The key message is that cessation does not result in an economic impact only a change in the time recognition of earnings.

James J. Herzog: Next was the accounting impact from the pending cessation of BISP since approximately $7 billion of our swap portfolio was designated to BISP loans. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net noncash loss of $88 million. The key message is that cessation does not result in an economic impact, only a change in the time recognition of earnings. These recognized losses will creep back, and the normal course of pay received cash settlements and earnings recognition on the swaps remain uninterrupted.

James J. Herzog: These recognized losses will creep back and the normal course paid received cash settlements and earnings recognition on the swaps remain uninterrupted.

These recognized losses will creep back in the normal course pay received cash settlements in earnings recognition on the swaps remained uninterrupted.

James J. Herzog: Third on the list were $25 million in severance charges, which elevated fourth quarter noninterest expenses and were intended to enhance future earnings power and create capacity for investment. We previously signaled such efforts were being considered, and we will discuss them in more detail later in the presentation. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net non-cash loss of $88 million. While the realization of losses flowed through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value. Also note, operationally, and from a customer perspective, we feel well prepared for a seamless transition. Third on the list were $25 million in severance charges, which elevated fourth quarter noninterest expenses and were intended to enhance future earnings power and create capacity for investment. We previously indicated such efforts were being considered, and we will discuss them in more detail later in the presentation.

James J. Herzog: While the realization of losses spoke through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value.

While the realization of losses flowed through to our regulatory capital ratios. They did not further impact tangible common equity or tangible book value.

Also note operationally and from a customer perspective, we feel well prepared for a seamless transition.

James J. Herzog: Also note, operationally and from a customer perspective, we feel well prepared for a seamless transition.

James J. Herzog: The last item does not impact bottom-line results but creates line item geography changes within our income statement. The finalization of our agreement with Ameriprise to serve as our new investment platform provider caused a decline in noninterest income, offsetting a decline in noninterest expenses. While it will have a relatively small impact in late 2023, we do not discuss it here because we expect a larger impact in 2024.

Third on the list were $25 million and severance charges, which elevated fourth quarter noninterest expenses and were intended to enhance future earnings power and create capacity for investment.

James J. Herzog: Third on the list were $25 million in government charges, which elevated fourth quarter non-existent expenses and were intended to enhance future earnings power and create capacity for investment.

James J. Herzog: Third on the list were $25 million in government charges, which elevated fourth-quarter non-existent expenses and were intended to enhance future earnings power and create capacity for investment. We previously signaled such efforts were being considered, and we will discuss them in more detail later in the presentation. The last item does not impact bottom-line results but created line item geography changes within our income statement. Slide 6 summarizes our fourth quarter results. Overall, the quarter performed in line with expectations, excluding notable items. Considering the impact of those items, I'm going to move to the individual line item slides to discuss the quarterly results in more detail.

James J. Herzog: We previously signaled such efforts were being considered and we will discuss them in more detail later in the presentation.

We previously signaled such efforts were being considered and we will discuss them in more detail later in the presentation.

James J. Herzog: The last item does not impact bottom line results, but created line item geography changes within our income statement.

The last item does not impact bottom line results, but creative line item geography changes within our income statement.

James J. Herzog: The finalization of our agreement with Ameriprise to serve as our new investment platform provider causes a decline in non-interest income, offsetting a decline in non-interest expenses. While a relatively small impact in late 2023, we note it here because we expect a larger impact in 2024. While this will have a relatively small impact in late 2023, we note it here because we expect a larger impact in 2024.

The finalization of our agreement with Ameriprise to serve as our new investment platform provider caused a decline in non interest income offsetting a decline in noninterest expenses.

James J. Herzog: While a relatively small impact in late 2023, we note it here because we expect a larger impact in 2024.

James J. Herzog: We previously signaled such efforts were being considered, and we will discuss them in more detail later in the presentation. The last item does not impact bottom-line results but creates line item geography changes within our income statement. Slide 6 summarizes our fourth-quarter results. Overall, the quarter performed in line with expectations, excluding notable items. Considering the impact of those items, I'm going to move to the individual line item slides to discuss the quarterly results in more detail.

While relatively small impact in late 2023, we noted here because we expect a larger impact in 2024.

Slide six summarizes our fourth quarter results overall, the quarter performed in line with expectations. Excluding notable items.

James J. Herzog: Slide 6 summarizes our fourth quarter results. Overall, the quarter performed in line with expectations, including those aligned.

James J. Herzog: Slide 6 summarizes our fourth quarter results. Overall, the quarter performed in line with expectations, including those aligned. Considering the impact of those items, I'm going to move to the individual line item slides to discuss quarterly results in more detail. Turning to slide 7, our intentional balance sheet management reduced average loans and commitments in the fourth quarter. Ongoing funding of multifamily and industrial construction projects continues to drive higher commercial real estate utilization, [but] commitments declined for the second consecutive quarter as we strategically manage pipeline and originations. The floating rate nature of our commercial loan portfolio benefited from higher rates as loan yields continued to climb to 6.38% in the fourth quarter.

James J. Herzog: Turning to Slide 7, our intentional balance sheet management reduced average loans and commitments in the fourth quarter. The exit of Mortgage Banker Finance contributed to almost half of the reduction in average balances. At year-end, approximately $250 million in loans remained in that business. Muted customer demand due to elevated rates impacted general middle market balances, while increased selectivity, prioritizing full relationships and higher returns, reduced loans and equity fund services, and corporate banking.

James J. Herzog: Considering the impact of those items, I'm going to move to the individual line item slides to discuss quarterly results in more detail.

Considering the impact of those items I'm going to move to the individual line items slides to discuss quarterly results in more detail.

James J. Herzog: Turning to slide 7, our intentional balance sheet management reduced average loans and commitments in the fourth quarter.

Turning to slide seven our intentional balance sheet management reduced average loans and commitments in the fourth quarter.

James J. Herzog: The Exit and Mortgage Banker Finance contributed almost half of the reduction in average balance.

James J. Herzog: The Exit and Mortgage Banker Finance contributed almost half of the reduction in average balance. At year end, approximately $250 million in loans remain in that business. Muted customer demand due to elevated rates impacted general middle market balances, followed by increased productivity, prioritizing full relationships and higher returns, reduced loans and equity fund services, and corporate banking. Slide 8 highlights the stability of our deposit base. Average deposit balances remained relatively flat for the third quarter at $66 billion, even with declines of $564 million in brokered time deposits and $176 million related to the exit of Mortgage Banker Finance. Growth in general in Middle Market and Corporate Banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns.

The exit of mortgage banker finance contributed almost half of the reduction in average balances.

James J. Herzog: At year end, approximately $250 million in loans remains in that business.

At year end approximately $250 million in loans remained in that business.

Muted customer demand due to elevated rates impacted general middle market balances.

James J. Herzog: Muted customer demand due to elevated rates impacted general middle market balances, followed increased productivity, prioritizing full relationships and higher returns, reduced loans and equity fund services, and corporate banking.

James J. Herzog: Considering the impact of those items, I'm going to move to the individual line item slides to discuss quarterly results in more detail. Turning to slide 7, our intentional balance sheet management reduced average loans and commitments in the fourth quarter. Ongoing funding of multifamily and industrial construction projects continues to drive higher commercial real estate utilization, [but] commitments declined for the second consecutive quarter as we strategically manage pipeline and originations. The floating rate nature of our commercial loan portfolio benefited from higher rates as loan yields continued to climb to 6.38% in the fourth quarter.

Increased selectivity prioritizing for relationships and higher returns reduced loans and equity fund services and corporate banking.

Ongoing funding of multifamily and industrial construction projects continued to drive higher commercial real estate utilization our commitments declined for the second consecutive quarter as we strategically managed pipeline and originations.

James J. Herzog: On-going funding of multifamily and industrial construction projects continues to drive higher commercial real estate utilization, but commitments decline for the second consecutive quarter as we strategically manage pipeline and origination.

James J. Herzog: Ongoing funding of multifamily and industrial construction projects continues to drive higher commercial real estate utilization, but commitments declined for the second consecutive quarter as we strategically manage pipeline and origination. The floating rate nature of our commercial loan portfolio benefited from higher rates. The floating rate nature of our commercial loan portfolio benefited from higher rates. Declines in National Dealer Services deposits were attributed to operations, consistent with inventory and utilization trends observed in that business. Noninterest-bearing balances performed in line with expectations, and the pace of decline continued to flatten. Ongoing success in growing interest-bearing deposits drove a 42% noninterest-bearing deposit mix, which we continue to view as a competitive advantage.

James J. Herzog: The floating rate nature of our commercial loan portfolio benefited from higher rates.

The floating rate nature of our commercial loan portfolio benefited from higher rates as loan yields continued to climb to 638% in the fourth quarter.

James J. Herzog: Declines in National Dealer Services deposits were attributed to operations, consistent with inventory and utilization trends observed in that business. Noninterest-bearing balances performed in line with expectations, and the pace of decline continued to flatten. Ongoing success in growing interest-bearing deposits drove a 42% noninterest-bearing deposit mix, which we continue to view as a competitive advantage. However, industry competition, the rate environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative beta of 58% in the fourth quarter.

James J. Herzog: At year end, approximately $250 million in loans remain in that business. Muted customer demand due to elevated rates impacted general middle market balances, followed by increased productivity, prioritizing full relationships and higher returns, reduced loans and equity fund services, and corporate banking. Slide 8 highlights the stability of our deposit base. Average deposit balances remained relatively flat for the third quarter at $66 billion, even with declines of $564 million in brokered time deposits and $176 million related to the exit of Mortgage Banker Finance. Growth in general in Middle Market and Corporate Banking reflects seasonal patterns, while retail banking benefited modestly from promotional campaigns.

James J. Herzog: as loan yields continue to climb to 6.38% in the fourth quarter.

Slide eight highlights the stability of our deposit base.

James J. Herzog: Friday highlights disability with a positive.

James J. Herzog: Average deposit balances remain relatively flat to the third quarter at $66 billion.

James J. Herzog: Average deposit balances remain relatively flat to the third quarter at $66 billion, even with declines of $564 million in broker time deposits and $176 million related to the exit of mortgage banker finance. Growth in general middle market and corporate banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns. Even with declines of $564 million in broker time deposits and $176 million related to the exit of mortgage banker finance. Growth in general middle market and corporate banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns. The National Bureau of Services deposits were attributed to operations consistent with inventory and utilization trends observed in that business.

Deposit balances remained relatively flat to the third quarter at $66 billion, even with declines of 564 million in brokered time deposits and $176 million related to the exit of mortgage banker finance.

James J. Herzog: Even with declines of $564 million in broker time deposits and $176 million related to the exit of mortgage banker finance.

James J. Herzog: Industry competition, the rate environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative beta of 58% in the fourth quarter. Our deposit profile has historically been a strength, and with our favorable mix, the operating nature of our accounts, and uninsured trends, we feel it is even more compelling.

James J. Herzog: Growth in general middle market and corporate banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns.

Growth in general Middle market, and corporate banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns.

James J. Herzog: Our deposit profile has historically been a strength, and with our favorable mix, the operating nature of our accounts, and uninsured trends, we feel it is even more compelling.

Declines in National dealer services deposits were attributed to operations consistent with inventory and utilization trends observed in that business.

James J. Herzog: The National Bureau of Services deposits were attributed to operations consistent with inventory and utilization trends observed in that business.

James J. Herzog: The National Bureau of Services deposits were attributed to operations consistent with inventory and utilization trends observed in that business. As shown on Slide 19, we continue to normalize our liquidity position, using excess cash to repay wholesale funding while retaining significant capacity. We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 million in broker time deposits to mature in the quarter. We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs.

Non interest bearing balances performed in line with expectations and the pace of decline continued to flatten.

James J. Herzog: None of this bearing balance is performed in line with expectations, and the pace of decline continues to slide.

James J. Herzog: None of this bearing balance is performing in line with expectations, and the pace of decline continues to slide. I'm going to step in growing interest-bearing deposits through a probe of the 42% non-interest-bearing deposit mix, which we continue to view as a competitive advantage. Industry competition, the right environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative data of 58% in the fourth quarter. Period-end balances in our securities portfolio on Slide 10 increased approximately $550 million as paydowns and maturities were more than offset by a $975 million positive mark-to-market adjustment from rate movements late in the quarter. Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next 2 years.

James J. Herzog: I'm going to step in growing interest-bearing deposits through a probe of 42% non-interest-bearing deposit mix, which we continue to view as a competitive advantage.

On one success in growing interest bearing deposits grew up drove a 42% noninterest bearing deposit mix, which we continue to view as a competitive advantage.

James J. Herzog: As shown on Slide 19, we continue to normalize our liquidity position, using excess cash to repay wholesale funding while retaining significant capacity. We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 million in broker time deposits to mature in the quarter. We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs. At 78%, our loan-to-deposit ratio remained favorable and positions us to prioritize high-return loan growth going forward. As shown on Slide 19, we continue to normalize our liquidity position, using excess cash to repay wholesale funding while retaining significant capacity.

James J. Herzog: Industry competition, the right environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative data of 58% in the fourth quarter.

Industry competition, the rate environment and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative beta of 58% in the fourth quarter.

James J. Herzog: At 78%, our loan-to-deposit ratio remained favorable and positions us to prioritize high-return loan growth going forward.

James J. Herzog: Our deposit profile has historically been a strength, and with our favorable mix, operating nature of our accounts, and uninsured trends, we feel it is even more compelling.

James J. Herzog: Our deposit profile has historically been a strength, and with our favorable mix, the operating nature of our accounts, and uninsured trends, we feel it is even more compelling. As shown in slide 9, we continue to normalize our liquidity positions using excess cash to repay wholesale funding while retaining significant capacity. We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 billion in broker time deposits to mature in the quarter. Turning to Slide 11. Net interest income [ increased ] $17 million to $584 million driven by higher rates and deposit mix as volume changes related to loans, deposits, and wholesale funding were largely offset by lower balances at the Fed. The successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margin.

Our deposit profile has historically been a strength with our favorable mix operating nature of our accounts and uninsured trends, we feel it is even more compelling.

James J. Herzog: As shown in slide 9, we continue to normalize our liquidity positions using excess cash to repay wholesale funding while retaining significant capacity.

As shown on slide nine we continue to normalize our liquidity position using excess cash to retail host repay wholesale funding, while retaining significant capacity.

James J. Herzog: We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 million in broker time deposits to mature in the quarter. We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs. At 78%, our loan-to-deposit ratio remained favorable and positions us to prioritize high-return loan growth going forward.

James J. Herzog: I'm going to step into growing interest-bearing deposits through a probe of the 42% non-interest-bearing deposit mix, which we continue to view as a competitive advantage. Industry competition, the right environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative data of 58% in the fourth quarter. Period-end balances in our securities portfolio on Slide 10 increased approximately $550 million as paydowns and maturities were more than offset by a $975 million positive mark-to-market adjustment from rate movements late in the quarter. Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next 2 years.

We absorbed $1 $2 billion in maturing F. H L. P advances and allowed over $500 billion in brokered time deposits to mature in the quarter.

James J. Herzog: We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 billion in broker time deposits to mature in the quarter.

We expect decisions on future wholesale funding maturities to follow the normal course monitoring our balance sheet dynamics and funding needs.

James J. Herzog: We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs.

James J. Herzog: We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs. At 78%, our loan-to-deposit ratio remains favorable and positions us to prioritize high-return loan growth going forward. As shown on Slide 12, successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. Of note, BISP cessation did not impact the ongoing cash flow associated with our swaps listed on the slide. While we took a loss in the fourth quarter, we will accrete that loss back, with the majority coming back into net interest income in 2025 and 2026. We expect the impact in 2024 to be relatively muted, although there may be some mark-to-market volatility until we fully redesignate remaining impacted swaps to SOFR.

At 78% our loan to deposit ratio remained favorable and positions us to prioritize high return loan growth going forward.

James J. Herzog: At 78%, our loan-to-deposit ratio remains favorable and positions us to prioritize high return loan growth going forward.

James J. Herzog: As shown in slide 9, we continue to normalize our liquidity positions using excess cash to repay wholesale funding while retaining significant capacity. We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 billion in broker time deposits to mature in the quarter. Turning to Slide 11, net interest income [ increased ] $17 million to $584 million driven by higher rates and deposit mix as volume changes related to loans, deposits, and wholesale funding were largely offset by lower balances at the Fed. The successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margin.

James J. Herzog: Period end balances in our securities portfolio on slide 10 increased approximately $550 million as paid down for maturities were more than offset by a $975 million positive market-to-market adjustment in rate movements late in the quarter. Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next two years. Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next two years.

Period end balances in our securities portfolio on Slide 10 increased approximately $550 million as paydowns and maturities were more than offset by a $975 million positive mark to market adjustment from rate movements late in the quarter.

Treasury maturities and anticipated securities repayments are projected to benefit net interest income and a OCI and we anticipate a 25% improvement in unrealized securities losses over the next two years.

James J. Herzog: Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next two years.

Turning to slide 11, net interest income.

James J. Herzog: Turning to slide 11, Jennifer's income decreased from $17 million to $584 million, driven by higher rates in deposit mix, as volume changes related to loans, deposits, and wholesale funding were largely offset by lower balances of the Fed.

$17 billion to $584 million, driven by higher rates and deposit mix as volume changes related to loans deposits and wholesale funding were largely offset by lower balances at the fed.

James J. Herzog: Turning to slide 11, Jennifer's income decreased from $17 million to $584 million, driven by higher rates in the deposit mix, as volume changes related to loans, deposits, and wholesale funding were largely offset by lower balances of the Fed. By strategically managing our swap and securities portfolio, while considering balance sheet dynamics, we intend to maintain our insulated position over time. Credit quality remains strong, as highlighted on Slide 13. However, modest net charge-offs of 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher risk portfolios. By strategically managing our swap and securities portfolio while considering balance sheet dynamics, we intend to maintain our insulated position over time. Credit quality remains strong, as highlighted on Slide 13. Modest net charge-offs of 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher-risk portfolios.

James J. Herzog: At 78%, our loan-to-deposit ratio remains favorable and positions us to prioritize high-return loan growth going forward. As shown on Slide 12, successful execution of our interest rate strategy and the composition of our balance sheet position us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. Of note, BISP's cessation did not impact the ongoing cash flow associated with our swaps listed on the slide. While we took a loss in the fourth quarter, we will accrete that loss back, with the majority coming back into net interest income in 2025 and 2026. We expect the impact in 2024 to be relatively muted, although there may be some mark-to-market volatility until we fully redesignate remaining impacted swaps to SOFR.

James J. Herzog: Successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margins.

James J. Herzog: As shown in 12, successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margins. As shown in 12, successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. We observed some normalization in general Middle Market and Corporate Banking, as rates pressured customer profitability. These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total loans. Nonperforming assets increased, but still remained historically low. Overall, our portfolio continues to perform as expected, and we believe [indiscernible] will remain manageable.

Successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margin.

James J. Herzog: As shown by 12, successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rate.

As shown on slide 12 successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates.

James J. Herzog: Of note, this defamation did not impact the ongoing cash flow associated with the swaps listed on the slide.

James J. Herzog: Of note, this defamation did not impact the ongoing cash flow associated with the swaps listed on the slide. While we took a loss in the fourth quarter, we will recover that loss back, with the majority coming back into net interest income in 2025 and 2026. While we took a loss in the fourth quarter, we will recover that loss back, with the majority coming back into net interest income in 2025 and 2026.

Although <unk> did not impact the ongoing cash flow associated with our swaps listed on the slide.

James J. Herzog: While we took a loss in the fourth quarter, we will accrue that loss back with the majority coming back into net interest income in 2025 and 2026.

While we took a loss in the fourth quarter, we will accrete that loss back with the majority coming back into net interest income in 2025 and 2026.

James J. Herzog: On Slide 14, fourth quarter noninterest income was $198 million, which included $93 million in notable items. Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses, noninterest income performed in line with guidance. While we continue to expect noncustomer income in 2024 to come down from elevated levels in 2023, we remain committed to investing to drive capital-efficient fee growth over time.

James J. Herzog: We expect the impact in 2024 to be relatively useful, although there may be some market-to-market volatility until we fully re-designate remaining impacted swaps to SOFR.

We expect the impact in 2020 for it to be relatively muted, although there may be some mark to market volatility until we fully re designate remaining impacted swaps to sulfur.

James J. Herzog: As shown in 12, successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. We observed some normalization in general in Middle Market and Corporate Banking, as rates pressured customer profitability. These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total loans. Nonperforming assets also increased, but still remained historically low. Overall, our portfolio continues to perform as expected, and we believe [indiscernible] will remain manageable.

James J. Herzog: By strategically managing our SWOT and securities portfolio while considering balance sheet dynamics, we intend to maintain our insulated positions over time.

By strategically managing our swap and securities portfolio, while considering balance sheet dynamics, we intend to maintain our insulated position overtime.

James J. Herzog: Expenses on Slide 15 included $132 million in notable items. Beyond those items, increases in salaries and benefits reflected the impact of higher deferred compensation, offset by noninterest income. Increased consulting expenses are attributed to advancing strategic and risk management initiatives, and a smaller gain on the sale of real estate in the fourth quarter had the net impact of increasing expenses.

James J. Herzog: Credit quality remains strong as highlighted on slide 13.

James J. Herzog: Credit quality remains strong, as highlighted on slide 13. Although modest at charge-offs, the 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher-risk portfolios. We observe some normalization in general middle market and corporate banking as rates pressure customer profitability. These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total load.

Credit quality remained strong as highlighted on slide 13.

James J. Herzog: Modest at charge-offs, the 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher-risk portfolios.

Modest net charge offs of 15 basis points remains below our normal range and a few we had were more concentrated and relatively higher risk portfolios.

James J. Herzog: We observe some normalization in general middle market and corporate banking as rates pressure customer profitability.

We observed some normalization in general middle market and corporate banking as rates pressured customer profitability. These.

James J. Herzog: These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total load.

These normalization trends drove a slight increase in the allowance for credit losses to 1.41% of total loans.

James J. Herzog: We previously communicated an intention to address growing expense pressures and the structural impact on industry profitability from 2023. In addition to our normal efficiency efforts, this slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings. Through this process, we are prioritizing customers and positioning the business for future success. Complementing efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess a nominal customer impact. Although modest at charge-offs, the 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher-risk portfolios. We observe some normalization in general middle market and corporate banking as rates pressure customer profitability. These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total load.

James J. Herzog: Moving to Slide 16. We previously communicated an intention to address growing expense pressures and the structural impact on industry profitability from 2023 events. In addition to our normal efficiency efforts, this slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings. Through this process, we are prioritizing customers and positioning the business for future success. Complementing efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess a nominal customer impact.

James J. Herzog: Non-performing assets increased, but still remain historically low.

Nonperforming assets increased but still remained historically low.

James J. Herzog: Overall, our portfolio continues to perform as expected, and we believe migration will remain manageable.

Overall, our portfolio continues to perform as expected and we believe migration will remain manageable.

On slide 14 fourth quarter, not a $198 million included $93 million in notable items.

James J. Herzog: On slide 14, for a quarter of 9% of the $198 million included $93 million in notable items.

James J. Herzog: On slide 14, for a quarter of 9% of the $198 million, $93 million in notable items. Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses, non-interest income performed in line with guidance. While we continue to expect non-customer income in 2024 to come down from elevated levels in 2023, we remain committed to investing to drive capital-efficient fee growth over time. In order to enhance colleague efficiency and keep decision-makers close to our customers, we are streamlining our management structure and eliminating select roles. When combined with the impact of banking center closures, these actions eliminated approximately 250 positions.

James J. Herzog: Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses, non-interest income performed in line with guidance.

Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses noninterest income performed in line with guidance.

James J. Herzog: While we continue to expect non-customer income in 2024 to come down from elevated 2023 levels, we remain committed to investments to drive capital-efficient fee growth over time.

While we continue to expect non customer income in 2020 for it to come down from elevated 2023 levels, we remain committed to investments to drive capital efficient fee growth over time.

James J. Herzog: Expenses on slide 15 included $132 million in notable items.

James J. Herzog: Expenses on slide 15 included $132 million in notable items. Furthermore, we are optimizing our product offering to enhance capital efficiency and returns, and select contracts are being reviewed for renegotiation. In total, these actions have the effect of reducing expected 2024 expenses by $45 million, growing to an estimated benefit of $55 million in 2025. These decisions are challenging, and we do not take them lightly, but we feel they are necessary to support the sustainable growth of our business.

Expenses on slide 15 included $132 million in notable items.

James J. Herzog: Beyond those items, increases in salaries and benefits, response to the impact of higher deferred compensation, offset with a non-interest income.

Beyond those items increases in salaries and benefits reflected the impact of higher deferred compensation offset within noninterest income.

James J. Herzog: Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses, non-interest income performed in line with guidance. While we continue to expect non-customer income in 2024 to come down from elevated levels in 2023, we remain committed to investing to drive capital-efficient fee growth over time. In order to enhance colleague efficiency and keep decision-makers close to our customers, we are streamlining our management structure and eliminating select roles. When combined with the impact of banking center closures, these actions have eliminated approximately 250 positions.

James J. Herzog: Increased consulting expenses are attributed to advancing strategic and risk management initiatives, and a smaller gain on the sale of real estate in the fourth quarter had the net impact of increasing expenses.

Increased consulting expenses are attributed to advancing strategic and risk management initiatives and a smaller gain on the sale of real estate in the fourth quarter had the net impact of increasing expenses.

James J. Herzog: Moving to slide 16, we previously communicated an intention to address growing expense pressures and the structural impact to industry profitability from 2023 events.

James J. Herzog: Moving to slide 16, we previously communicated an intention to address growing expense pressures and the structural impact on industry profitability from 2023 events. Slide 17 highlights our solid capital position. Even with the impact of notable items, our estimated CET1 grew to 11.09%. Rate movement, coupled with continuous paydowns and maturities in our securities portfolio, reduced losses within AOCI and increased tangible common equity to 6.30%. Based on the December 31 forward curve, we expect our unrealized losses to reduce by 1/3 by the end of 2025.

Moving to slide 16, we previously communicated an intention to address growing expense pressures and the structural impact to industry profitability from 2023 events.

James J. Herzog: In addition, we are optimizing our product offering to enhance capital efficiency and returns, and select contracts are being reviewed for renegotiation. In total, these actions have the effect of reducing expected 2024 expenses by $45 million, growing to an estimated benefit of $55 million in 2025. These decisions are challenging, and we do not take them lightly, but we feel they are necessary to support the sustainable growth of our business.

In addition to our normal efficiency efforts. This slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings.

James J. Herzog: In addition to our normal efficiency efforts, this slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings.

James J. Herzog: In addition to our normal efficiency efforts, this slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings. Through this process, we are prioritizing customers and positioning the business for future success. Complementing efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess a nominal customer impact.

James J. Herzog: Through this process, we are prioritizing customers and positioning the business for future success.

Through this process, we are prioritizing customers and positioning the business for future success.

James J. Herzog: Based on the December 31 forward curve, we expect our unrealized losses to reduce by 1/3 by the end of 2025. Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing AOCI volatility and regulations as they evolve.

James J. Herzog: Complimenting efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess nominal customer impact.

Complementing efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers, where we assess nominal customer impact.

James J. Herzog: Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing AOCI volatility and regulations as they evolve.

James J. Herzog: Our outlook for 2024 is on Slide 18. We project full-year average loans to decline 1% to 2%, impacted by optimization trends late in 2023. While we expect some impact of selectivity to continue into the first quarter, we anticipate 5% loan growth from December to December, with contributions from almost all businesses. Full-year average deposits are expected to be down 1% to 2% from 2023, but we project relative stability point to point. Following a seasonal decline in the first quarter, we expect customer deposits to stabilize and rebound in the second half of the year. Through this process, we are prioritizing customers and positioning the business for future success. Complementing efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess a nominal customer impact.

In order to enhance colleague efficiency and keep decision makers close to our customers. We are streamlining our management structure and eliminating select roles.

James J. Herzog: In order to enhance college efficiency and keep decision makers close to our customers, we are streamlining our management structure and eliminating select roles.

James J. Herzog: In order to enhance college efficiency and keep decision makers close to our customers, we are streamlining our management structure and eliminating select roles. When combined with the impact of banking center closures, these actions have eliminated approximately 250 positions. In addition, we are optimizing our product offering to enhance capital efficiency and returns, and select contracts are being reviewed for renegotiation. In total, these actions have the effect of reducing expected 2024 expenses by $45 million, growing to an estimated benefit of $55 million in 2025. Based on the 12/31 forward curve, we expect full-year net interest income to decline 11% from 2023, driven largely by year-over-year deposit mix. We expect deposit seasonality, and, to a lesser extent, less income from BISP redesignation, slightly higher deposit betas, and lower loan balances to impact first quarter net interest income.

James J. Herzog: When combined with the impact of banking center closures, these actions eliminated approximately 250 positions.

When combined with the impact of banking center closures. These actions eliminated approximately 250 positions.

James J. Herzog: Further, we are optimizing our product offering to enhance capital efficiency and returns, and select contracts are being reviewed for renegotiation.

Further we are optimizing our product offering to enhance capital efficiency and returns and select contracts are being reviewed for renegotiation.

James J. Herzog: In total, these actions have the effect of reducing expected 2024 expenses by $45 million, growing to an estimated benefit of $55 million in 2025.

In total these actions have the effect of reducing expected 2024 expenses by $45 million growing to an estimated benefit of $55 million in 2025.

James J. Herzog: These decisions are challenging and we do not take them lightly, but we feel they are necessary to support sustainable growth of our business.

James J. Herzog: Based on the 12/31 forward curve, we expect full-year net interest income to decline 11% from 2023, driven largely by year-over-year deposit mix. We expect deposit seasonality, and, to a lesser extent, less income from BISP redesignation, slightly higher deposit betas, and lower loan balances to impact first quarter net interest income. From there, we expect a small uptick in the second quarter and more pronounced growth in the second half of the year.

James J. Herzog: These decisions are challenging, and we do not take them lightly, but we feel they are necessary to support the sustainable growth of our business.

These decisions are challenging and we do not take them lightly, but we feel they are necessary to support the sustainable growth of our business.

Slide 17 highlights our solid capital position.

James J. Herzog: Slide 17 highlights the starting capital position.

James J. Herzog: Slide 17 highlights the starting capital position. Even with the impact of notable items, our estimated CET1 grew to 11.09%. Great movement coupled with continuous pay-downs and maturities in our securities portfolio reduced losses within ALCI and increased tangible common equity to 6.30%. As it relates to BSBY hedge accounting, interest rates and the timing of REIT designation could create volatility, but we expect to eliminate most or all of that potential volatility from the transition of [indiscernible] by the end of the first quarter. Credit quality remained strong, and we expect continued migration to be manageable. We forecast full-year net charge-offs to move into the lower half of our normal 20 to 40-basis-point range. We expect noninterest income to grow 6% on a reported basis, which would be relatively flat year-to-year when adjusting for notable items.

James J. Herzog: Even with the impact of notable items, our estimated CET1 grew to 11.09%.

Even with the impact of notable items, our estimated CET one grew to 11, 9%.

James J. Herzog: We expect a small uptick in the second quarter and more pronounced growth in the second half of the year. When combined with the impact of banking center closures, these actions eliminated approximately 250 positions. In addition, we are optimizing our product offering to enhance capital efficiency and returns, and select contracts are being reviewed for renegotiation. In total, these actions have the effect of reducing expected 2024 expenses by $45 million, growing to an estimated benefit of $55 million in 2025.

James J. Herzog: Great movement coupled with continuous pay downs and maturities in our securities portfolio reduced losses within ALCI and increased tangible common equity to 6.30%.

James J. Herzog: Great movement coupled with continuous pay-downs and maturities in our securities portfolio reduced losses within ALCI and increased tangible common equity to 6.30%.

Rate movement, coupled with continuous paydowns and maturities in our securities portfolio reduce losses within a OCI and increased tangible common equity to $6 300%.

James J. Herzog: As it relates to BSBY hedge accounting, interest rates and the timing of REIT designation could create volatility, but we expect to eliminate most or all of that potential volatility from the transition of [indiscernible] by the end of the first quarter. Credit quality remained strong, and we expect continued migration to be manageable. We forecast full-year net charge-offs to move into the lower half of our normal 20 to 40-basis-point range. We expect noninterest income to grow 6% on a reported basis, which would be relatively flat year-to-year when adjusting for notable items. As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges, and BOLI to decline from elevated levels.

James J. Herzog: Based on the December 31st forward curve, we expect our unrealized losses to reduce by one-third by the end of 2025.

James J. Herzog: Based on the December 31st forward curve, we expect our unrealized losses to reduce by one-third by the end of 2025. Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing ALCI volatility and regulations as they evolve. Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing ALCI volatility and regulations as they evolve. Our outlook for 2024 is on slide 18. We project four-year average loans supplying 1% to 2% impacted by optimization trends late in 2023.

Based on the December 31st forward curve, we expect our unrealized losses to reduce by one third by the end of 2025.

Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing OCI volatility and regulations as they evolve.

James J. Herzog: Our outlook for 2024 is on slide 18.

Our outlook for 2024 is on slide 18.

We project full year average loans declined 1% to 2% impacted by optimization trends late in 2023.

James J. Herzog: We project four-year average loans supplying 1% to 2% impacted by optimization trends late in 2023.

James J. Herzog: We project four-year average loans supplying 1% to 2% impacted by optimization trends late in 2023. While we expect some impact of selectivity to continue into the first quarter, we anticipate 5% loan growth from December to December with contributions from almost all businesses.

James J. Herzog: As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges, and BOLI to decline from elevated levels. However, customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures in card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat.

While we expect some impact of selectivity to continue into the first quarter, we anticipate 5% loan growth from December to December with contributions from almost all businesses.

James J. Herzog: Customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures on card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat.

James J. Herzog: While we expect some impact of selectivity to continue into the first quarter, we anticipate 5% loan growth from December to December with contributions from almost all businesses. Four-year average deposits are expected to be down 1-2% from 2023, but we project relative stability point-to-point. Full-year noninterest expenses are expected to decline 4% on a reported basis but grew 3% after adjusting for notable items. Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework. Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target.

James J. Herzog: Four-year average deposits are expected to be down 1-2% from 2023, but we project relative stability point-to-point. Full year noninterest expenses are expected to decline 4% on a reported basis but grow 3% after adjusting for notable items. Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework. Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target.

James J. Herzog: Four-year average deposits are expected to be down 1-2% from 2023, but we project relative stability point-to-point.

Full year average deposits are expected to be down 1% to 2% from 2023, but we project relative stability point to points.

James J. Herzog: Full-year noninterest expenses are expected to decline 4% on a reported basis but grew 3% after adjusting for notable items. Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework. Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target.

James J. Herzog: Following a seasonal decline in the first quarter, we expect customer deposits to stabilize and rebound in the second half of the year.

Following a seasonal decline in the first quarter, we expect customer deposits to stabilize and rebound in the second half of the year.

James J. Herzog: Based on the 1231 forward curve, we expect 499% of homes to decline 11% from 2023, driven largely by year-over-year deposit measures.

James J. Herzog: Based on the 1231 forward curve, we expect 499% of homes to decline 11% from 2023, driven largely by year-over-year deposit measures. We expect positive seasonality and, to a lesser extent, less income from VisB redesignation, slightly higher deposit data, and a lower loan balance. We expect positive seasonality and, to a lesser extent, less income from the VisB redesignation, slightly higher deposit data, and a lower loan balance.

Based on the 12 31 forward curve, we expect full year net interest income to decline, 11% from 2023, driven largely by year over year deposit mix.

James J. Herzog: We expect a positive seasonality and to a lesser extent, less income from VisB redesignation, slightly higher deposit data, and lower loan balance.

We expect deposit seasonality and to a lesser extent less income from Brisbane designation slightly higher deposit betas and lower loan balances to impact first quarter net interest income.

James J. Herzog: We will continue to monitor AOCI volatility in the evolving regulatory environment as we evaluate the right time to resume share repurchases. In all, we are proud of our year, and we feel we've taken the right actions to support the future of our business. Now I'll turn the call back to Curt.

James J. Herzog: to impact first quarter net interest income.

James J. Herzog: to impact first-quarter net interest income. From there, we expect a small uptick in the second quarter and more pronounced growth in the second half of the year. As it relates to busy hedge accounting, interest rates and timing and redesignation could create volatility, but we expect to eliminate most or all of that potential volatility from the transition of indexes by the end of the first quarter. Thank you, Jim. Despite the industry volatility in 2023, we think it is important to take a step back and reinforce that our core business has remained unchanged, as shown on Slide 19.

James J. Herzog: From there, we expect a small uptick in the second quarter and more pronounced growth in the second half of the year.

From there we expect a small uptick in the second quarter and more pronounced growth in the second half of the year.

James J. Herzog: As it relates to busy hedge accounting, interest rates and timing and redesignation could create volatility, but we expect to eliminate most or all of that potential volatility from the transition of indexes by the end of the first quarter. Thank you, Jim. Despite the industry volatility in 2023, we think it is important to take a step back and reinforce that our core business has remained unchanged, as shown on Slide 19. As a leading bank for business with strong wealth management and retail capabilities, our tenured colleagues deliver value-added expertise to our impressive customer base.

As it relates to busy hedge accounting interest rates and timing of REIT designation could create volatility, but we expect to eliminate most or all of that potential volatility from transition of indexes by the end of the first quarter.

James J. Herzog: Credit quality remains strong and we expect continued migration to humanity.

James J. Herzog: Credit quality remains strong, and we expect continued migration to humanity. We forecast four-year net charge-offs to move into the lower half of our normal 20 to 40 basis point range. We forecast four-year net charge-offs to move into the lower half of our normal 20 to 40 basis point range. We expect Onyx's income to grow 6% on a reported basis, which will be relatively flat year to year when adjusting for notable items. As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges, and BOLI to decline from elevated levels. However, customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures in card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat.

Credit quality.

<unk> remains strong and we expect continued migration to be manageable.

James J. Herzog: We forecast four-year net charge-offs to move into the lower half of our normal 20 to 40 basis point range.

We forecast full year net charge offs to move into the lower half of our normal 20 to 40 basis point range.

James J. Herzog: As a leading bank for business with strong wealth management and retail capabilities, our tenured colleagues deliver value-added expertise to our impressive customer base. Our highly regarded approach to credit continues to perform well and has historically outperformed our peers. Tailored products are designed to meet the needs of our customers, enhancing revenue and retention. Our deposit profile has long been a strength, and investments in products and small business are expected to make this core funding source even more compelling.

We expect noninterest income to grow 6% on a reported basis, which should be relatively flat year to year when adjusting for notable items.

James J. Herzog: We expect Onyx's income to grow 6% on a reported basis, which will be relatively flat year to year when adjusting for notable items.

James J. Herzog: We expect Onyx's income to grow 6% on a reported basis, which will be relatively flat year to year when adjusting for notable items. As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges, and BOLI to decline from elevated levels. Customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures on card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat.

James J. Herzog: Our highly regarded approach to credit continued to perform well and has historically outperformed our peers. Tailored products are designed to meet the needs of our customers, enhancing revenue and retention. Our deposit profile has long been a strength, and investments in products and small businesses are expected to make this core funding source even more compelling.

James J. Herzog: As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges and BOLI to decline from elevated levels.

As we signaled last quarter, we expect <unk> dividends price alignment income from hedges and bully to decline from elevated levels.

James J. Herzog: Customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures in card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat.

Customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures in card commercial lending fees and the assumption of favorable mark to market derivative adjustments do not repeat.

James J. Herzog: We expect a small uptick in the second quarter and more pronounced growth in the second half of the year.

James J. Herzog: Actions to recalibrate our expense base are designed to benefit our future, and at well over 10% of our strategic capital target, we believe we have a strong foundation. In August, we will celebrate our 175th anniversary. You cannot achieve that kind of longevity without proving time and time again that you can successfully navigate disruptions.

James J. Herzog: Four-year non-existent expenses are expected to decline 4% on a reported basis, but grow 3% after adjudicating for notable lives.

James J. Herzog: Four-year non-existent expenses are expected to decline 4% on a reported basis but grow 3% after adjudicating for notable lives. Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework. Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework.

Full year noninterest expenses are expected to decline, 4% on a reported basis, but growth 3% after adjusting for notable items.

James J. Herzog: Through successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as risk management framework.

Through successful execution of our expense Recalibration efforts. We believe we have created capacity to prioritize investments designed to further enhance our funding base revenue mix and capital efficiency as well as risk management framework.

James J. Herzog: In 2023, our model proved resilient. Our colleagues rallied to support our customers through an uncertain time, and we delivered record results. As we look forward to this milestone anniversary year for our company, I'm confident in our ability to deliver for our customers, colleagues, and shareholders. We appreciate your time this morning, and we'd be happy to take some questions.

James J. Herzog: Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target.

James J. Herzog: Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target. We will continue to monitor AOCI volatility in the evolving regulatory environment as we evaluate the right time to resume share recruitment. We will continue to monitor AOCI volatility in the evolving regulatory environment as we evaluate the right time to resume share recruitment.

Even with 5% projected point to point loan growth, we expect to maintain capital well in excess of our 10% target.

James J. Herzog: We will continue to monitor AOCI volatility in the evolving regulatory environment as we evaluate the right time to resume share recruitment.

We will continue to monitor a OCI volatility in the evolving regulatory environment as we evaluate the right time to resume share repurchases.

James J. Herzog: [Operator Instructions] Our first question is coming from Peter Winter of D.A. Davis. So there's been a lot of focus this earnings season on kind of a normalized margin range. I'm just wondering what you -- as some of these swaps mature, what the margin could get back to. Do you think it could get back to those pre-COVID levels in the [ 350 ] range? So there's been a lot of focus this earnings season on kind of a normalized margin range. I'm just wondering what you think the margin could get back to as some of these swaps mature. Do you think it could get back to those pre-COVID levels in the [ 350 ] range?

In all we are proud of our year and we feel we've taken the right actions to support the future of our business now I will turn the call back to Kurt.

James J. Herzog: In all, we are proud of our year and we feel we have taken the right actions to support the future of our business.

James J. Herzog: Overall, we are proud of our year, and we feel we have taken the right actions to support the future of our business.

James J. Herzog: Now I'll turn and call back to prayer.

Prayer: Thank you, Jim. Despite the industry's volatility in 2023...

Prayer: Thank you, Jim. Despite the industry's volatility in 2023... We think it is important to take a step back and reinforce that our core business remains unchanged, as shown on slide 19. As you may know and recall, I don't like to get real specific on margin. I think this quarter is a great example of that, where we actually had a decrease in net interest income, but we had an increase in NIM. So a bank with our business model, where we have some lumpiness, you can get those correlations that don't match up. But I do see NIM trending in a very good direction.

Thank you Jim despite the industry volatility in 2023.

Prayer: We think it is important to take a step back and reinforce that our core business remains unchanged as shown on slide 19.

We think it is important to take a step back and reinforce that our core business remained unchanged as shown on slide 19.

Prayer: As you may know and recall, I don't like to get real specific on margin. I think this quarter is a great example of that, where we actually had a decrease in net interest income, but we had an increase in NIM. So a bank with our business model, where we have some lumpiness, you can get those correlations that don't match up. But I do see NIM trending in a very good direction. We ticked up this quarter. We will have a little bit of a tick down next quarter as the first quarter guidance would imply based on the percentage growth that we put in the outlook.

Prayer: As a leading bank for business with strong wealth management and retail capabilities, you can find us on Facebook, Twitter, or wherever you get your podcasts.

Prayer: As a leading bank for business with strong wealth management and retail capabilities, you can find us on Facebook, Twitter, or wherever you get your podcasts. Our tenured colleagues deliver value-added expertise to our impressive customer base. Our highly regarded approach to credit continues to perform well and has historically outperformed our peers. Tailored products are designed to meet the needs of our customers, enhancing revenue and retention.

As a leading bank for business with strong wealth management and retail capabilities are tenured colleagues deliver value added expertise to our impressive customer base.

Prayer: Our tenured colleagues deliver value-added expertise to our impressive customer base.

Prayer: Our highly regarded approach to credit continues to perform well and has historically outperformed our peers.

Our highly regarded approach to credit continues to perform well and has historically outperformed our peers.

Prayer: Tailored products are designed to meet the needs of our customers, enhancing revenue and retention.

<unk> products are designed to meet the needs of our customers enhancing revenue and retention.

Prayer: Our tenured colleagues deliver value-added expertise to our impressive customer base. Our highly regarded approach to credit continues to perform well and has historically outperformed our peers. Tailored products are designed to meet the needs of our customers, enhancing revenue and retention.

Prayer: Our deposit profile has long been a strain.

Prayer: Our deposit profile has long been a strain. Investments in products and small businesses are expected to make this core funding source even more compelling. Actions to recalibrate our expense base are designed to benefit our future, and at well over 10% strategic capital target, we believe we have a strong foundation. Investments in products and small business are expected to make this core funding source even more compelling. Actions to recalibrate our expense base are designed to benefit our future, and at well over 10% of our strategic capital target, we believe we have a strong foundation.

Our deposit profile has long been a strength.

Prayer: Investments in products and small business are expected to make this core funding source even more compelling.

Prayer: We ticked up this quarter. We will have a little bit of a tick down next quarter as the first quarter guidance would imply based on the percentage growth that we put in the outlook. But then we see a steady climb from there. I do see us by the end of 2024, actually getting above where this past fourth quarter was, and then we continue to project up from there throughout 2025 as we have swaps and securities roll off, and we get into a more normalized environment.

And investments in products and small business are expected to make this core funding towards even more compelling.

Prayer: Actions to recalibrate our expense base are designed to benefit our future, and at well over 10% strategic capital target, we believe we have a strong foundation.

Actions to recalibrate, our expense base are designed to benefit our future.

Well over 10% strategic capital target, we believe we have a strong foundation.

Prayer: But then we see a steady climb from there. I do see us by the end of 2024, actually getting above where this past fourth quarter was, and then we continue to project up from there throughout 2025 as we have swaps and securities roll off, and we get into a more normalized environment.

In August we will celebrate our 175th anniversary.

Prayer: In August, we will celebrate our 175th anniversary.

Prayer: In August, we will celebrate our 175th anniversary. You cannot achieve that kind of longevity without proving time and time again that you can successfully navigate disruption. You cannot achieve that kind of longevity without proving time and time again that you can successfully navigate disruption.

Prayer: Do not achieve that kind of longevity without proving time and time again that you can successfully navigate disruption.

You do not achieve that kind of longevity without proving time and time again that you can successfully navigate disruptions.

Prayer: The 2023 model food resilience.

Prayer: The 2023 model for food resilience

In 2023, our model proved resilient.

Prayer: Our colleagues rallied to support our customers through an uncertain time, and we delivered record results.

Prayer: So I do see a lot of momentum building for us in the second half of this year, and I see that momentum actually accelerating as we move through 2025. And, of course, that's exclusive of the BSBY hedge accounting impact, where we're actually going to have significant income added in 2025 on top of the factors that I just talked about.

Prayer: Our colleagues rallied to support our customers through an uncertain time, and we delivered record results.

Colleagues rally to support our customers through an uncertain time, and we delivered record results.

Prayer: We think it is important to take a step back and reinforce that our core business remains unchanged, as shown on slide 19.

Prayer: As we look forward into this milestone anniversary year for our company, I'm confident in our ability to deliver for our customers, colleagues, and shareholders.

Prayer: As we look forward to this milestone anniversary year for our company, I'm confident in our ability to deliver for our customers, colleagues, and shareholders. We appreciate your time this morning and would be happy to take some questions.

As we look forward into this milestone anniversary year for our company I'm confident in our ability to deliver for our customers colleagues and shareholders.

Prayer: We appreciate your time this morning and would be happy to take some questions.

We appreciate your time this morning would be happy to take some questions.

Speaker Change: Thank you. We're now conducting a question and answer session. If you'd like to be placed into question two, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question two. You may press star two if you'd like to move your question from your...

Speaker Change: Thank you. We're now conducting a question and answer session. If you'd like to be placed into question two, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question two. You may press star two if you'd like to move your question from your...

Thank you, we'll now be conducting a question and answer session if you'd like to be placed with the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from a Q1 moment. Please while we poll for questions and once again that's star.

Speaker Change: Got it. And then, just a follow-up, you had a really nice growth in the CET1 ratio. And even adjusted for AOCI, you're above the minimum 7% threshold. I'm just wondering, you mentioned in the prepared remarks looking at AOCI, but what are some of the parameters you're looking for to resume share buybacks? And then how much capital do you accrete on a quarterly basis?

Speaker Change: One moment, please, while we poll for questions, and once again, that's star 1 to be placed in the question.

Speaker Change: One moment, please, while we poll for questions, and once again, that's star 1 to be placed in the question. Our first question is from Peter Winter from DA Davis Higginwater, now live. Good morning. Good morning. Good morning. So there's been a lot of focus this earnings season on kind of a normalized margin range. I'm just wondering, as some of these swaps mature, what the margin could get back to. Do you think it could get back to those pre-COVID levels in the 350 range? Yes, Peter #1. I do think we're on a very good track to comply with [indiscernible] rules should they end up applying to us.

One to be placed in the question queue.

Speaker Change: Our first question is from Peter Winter from DA Davis Higginwater, now live. Good morning. Good morning. Good morning. So there's been a lot of focus this earnings season on kind of a normalized margin range. I'm just wondering, as some of these swaps mature, what the margin could get back to. Do you think it could get back to those pre-COVID levels in the 350 range? Peter, #1, I do think we're on a very good track to comply with [indiscernible] rules should they end up applying to us. But with that said, we do have a little bit of flexibility based on the fact that we are in pretty good shape there.

Our first question is coming from Peter Winter from D. A Davidson your line is now live.

Good morning.

Morning.

So there's been a lot of focus this earnings season, I'm kind of a normalized margin range.

I'm just wondering what you as some of these swaps mature what the margin could get back to you do you think it could get back to those pre COVID-19 levels in the $3 50 range.

Peter J. Winter: Yeah, good morning, Peter. You know, as you may know and recall, you know, I don't like to get real specific on margin. I think this quarter is a great example of that where we actually had a decrease in net interest income, but we had an increase in NIM. So, you know, a bank with our business model, we have some lumpiness. You can get those correlations that don't match up.

Peter J. Winter: Yeah, good morning, Peter. You know, as you may know and recall, I don't like to get real specific on margin. I think this quarter is a great example of that, where we actually had a decrease in net interest income, but we had an increase in NIM. So, you know, a bank with our business model, we have some lumpiness. You can get those correlations that don't match up.

Yes, good morning, Peter.

You know as you may know and recall I don't like to get real specific on margin I think this quarter is a great example of that where we actually had a decrease in net interest income, but we had an increase in NIM. So you know our bank with our business model, where you have some lumpiness.

Speaker Change: But with that said, we do have a little bit of flexibility based on the fact that we are in pretty good shape there. The #1 thing that I continue to keep an eye on is the OCI. It did come down significantly this quarter, but let's keep in mind it came down after a number of quarters being more elevated. And then, since then, rates have ticked back up again. So I don't want to declare victory yet on the OCI front for us or the whole industry. I mean, it looks like things are going in a good direction, and we're certainly going to be in very solid shape to comply with any capital rules.

Speaker Change: The #1 thing that I continue to keep an eye on is the OCI. It did come down significantly this quarter. But let's keep in mind that it came down after a number of quarters being more elevated. And then, since then, rates have ticked back up again. So I don't want to declare victory yet on the OCI front for us or the whole industry. I mean, it looks like things are going in a good direction, and we're certainly going to be in very solid shape to comply with any capital rules. But before we start to share repurchase again, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't tick in the other direction again, a little more line of sight into what the overall economic environment is from an interest rate standpoint and just overall uncertainty.

Can get those.

Correlations don't match up.

Peter: But I do see them trending in a very good direction. You know, we ticked up this quarter. You know, we will have a little bit of a tick down next quarter, as the first quarter guidance would imply based on the percentage growth that we put in the outlook. But then we see a steady climb from there. You know, I do see us by the end of 2024 actually getting above where this past fourth quarter was. And then we continue to check up from there throughout 2025 as we have swaps and securities roll off and we get into a more normalized environment. So I do see a lot of momentum building for us in the second half of this year. And I see that momentum actually accelerating as we move through 2025. And, of course, that's exclusive of the FISB hedge accounting impact where we're actually going to have significant income added to 2025 on top of the factors that I just talked about.

But I do see NIM trending in a very good direction, we ticked up this quarter.

We will have a little bit of a tick down next quarter as the first quarter guidance would imply based on the percentage growth that we put in the outlook, but then we see a steady climb from there I do see us by the end of 2024 actually getting above with this past fourth quarter was and then we continue to traject up from there throughout 2020.

Five as we have swaps and securities roll off and we get into a more normalized environment. So I do see a lot of momentum building for us in the second half of this year and I see that momentum actually accelerating as we move through 2025 and of course, that's exclusive of the Busby hedge accounting.

Speaker Change: But before we start to share repurchase again, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't tick in the other direction again, a little more line of sight into what the overall economic environment is from an interest rate standpoint and just overall uncertainty.

Peter: So I do see a lot of momentum building for us in the second half of this year, and I see that momentum actually accelerating as we move through 2025. And, of course, that's exclusive of the FISB hedge accounting impact, where we're actually going to have significant income added in 2025 on top of the factors that I just talked about.

Impact, where we're actually going to have significant income out into 2025 on top of the factors that I just talked about.

Speaker Change: Got it. Thanks, Jim. And then, just to follow up,

Speaker Change: Got it. Thanks, Jim. And then, just to follow up, you had really nice growth in the CET1 ratio, and even adjusted for AOCI, you're above the minimum 7% threshold. And how much capital do you accrete roughly on a quarterly basis? You had really nice growth in the CET1 ratio, and even adjusted for AOCI, you're above the minimum 7% threshold. And how much capital do you accrete roughly on a quarterly basis?

Got it thanks, Jim and then just a follow up.

Peter: But it does appear we are going to be in shape at some point to start the share repurchase, but we want to be cautious, and we will be cautious this year. Certainly, in the first half of the year, we won't be active in share repurchases. We'll keep our options open in the second half of the year, but I'll say that even there, we will likely be cautious unless we get a better line of sight in terms of interest rates and overall economic stability.

You had really nice growth in the CET, one ratio and even adjusted for OCI you are above the minimum 7% threshold.

Speaker Change: You had really nice growth in the CET1 ratio, and even adjusted for AOCI, you're above the minimum 7% threshold.

Speaker Change: I'm just wondering, you mentioned in the prepared remarks, you know, looking at AOCI, but what are some of the parameters you're looking for to resume share buybacks and how much capital do you accrete on a quarterly basis?

Speaker Change: I'm just wondering, you mentioned in the prepared remarks that you were looking at AOCI, but what are some of the parameters you're looking for to resume share buybacks and how much capital do you accrete on a quarterly basis? Well, it's going to depend on the quarter and the year and what's going on in the economy. I can tell you that, in 2024, we will likely not accrete a lot of capital, maybe a tad bit above where we ended the year. But with 5% point-to-point growth, even though we're going to have, I think, strong earnings next year. I don't think you're going to see us significantly above where we ended the fourth quarter. But I think as you move into 2025, you're going to start seeing some nice accretion from that point on.

I'm just wondering you mentioned in the prepared remarks, you know looking at Aoc I, but what what are some of the parameters you're looking for to resume share buybacks and then how much capital do you accrete on a quarterly basis.

Yes, Peter number one I do think run a very good track to comply with Basel III end game rules should they end up applying to us.

Speaker Change: Yeah, Peter, number one, I do think we're on a very good track to comply with the following grand game rules, should they end up applying to us.

Speaker Change: Yeah, Peter, number one, I do think we're on a very good track to comply with the following grand game rules, should they end up applying to us. But with that said, we do have a little bit of flexibility based on the fact that we are in pretty good shape there. The number one thing that I continue to keep an eye on is the OCI. It did come down consistently this quarter. Let's keep in mind that it came down after a number of quarters being more elevated. And then, since then, it's picked back up again. So I don't want to declare victory yet on the OCI front for us or the whole industry.

Speaker Change: But with that said, we do have a little bit of flexibility based on the fact that we are in pretty good shape there. The number one thing that I continue to keep an eye on is the OCI. It did come down consistently this quarter. Let's keep in mind it came down after a number of quarters being more elevated. And then since then, it's picked back up again. So I don't want to declare a victory yet on the OCI front for us or the whole industry. I mean, it looks like things are going in a good direction. And we're certainly in being very followed shape to comply with any capital rules. But before we start the share repurchase stuff again, you know, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't take the other direction again. You know, a little more line of sight into what the overall economic environment is from an interest rate standpoint and just overall uncertainty standpoint. But it does appear we are going to be in shape at some point to start the share repurchase. But we want to be cautious. And we will be cautious this year. You know, certainly in the first half. In the second half of the year, we won't be active in share repurchase. You know, we'll keep our options open in the second half of the year. But I'll say that even there, we will likely be cautious unless we get a better line of sight in terms of interest rates and overall economic stability.

But with that said.

We do have a little bit of flexibility based on the fact that we are in pretty good shape there.

One thing that I continue to keep an eye on OCI. It did come down significantly this quarter, but let's keep in mind that came down after a number of quarters being more elevated and then since then rates have ticked back up again, so I don't want to declare victory yet on the OCI front for us where the whole industry I mean, it looks like things are going into good.

Speaker Change: Our next question today is coming from Manan Gosalia from Morgan Stanley. I wanted to ask you about your loan-to-deposit ratio. It ticked down again in the quarter to about 78%. I get that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, why pay up for deposits now? Why not bring in the deposits later as the loan growth comes in? And what is the right loan-to-deposit ratio to consider as we look out into the end of 2024?

Speaker Change: I mean, it looks like things are going in a good direction, and we're certainly in very good shape to comply with any capital rules. But before we start the share repurchase stuff again, you know, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't take the other direction again.

Speaker Change: I wanted to ask about your loan-to-deposit ratio. It ticked down again in the quarter to about 78%. I get that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, why pay up for deposits now? Why not bring in deposits later as the loan growth comes in? And what is the right loan-to-deposit ratio to consider as we look out into the end of 2024? I might -- this is Curt. I might start and then ask Jim or Peter to add in.

Speaker Change: And we're certainly in very good shape to comply with any capital rules. But before we start the share repurchase stuff again, you know, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't take the other direction again.

Correction and we're certainly going to be very solid shape to comply with any capital rules, but before we start the share repurchase up again I would put a OCI at the top of the list that we want to keep our eye on to make sure that doesn't take the other direction again.

Speaker Change: Well, it's going to depend on the quarter and the year and what's going on in the economy. But I can tell you that, in 2024, we will likely not accumulate a lot of capital, maybe a tad bit above where we ended the year. But with 5% point-to-point growth, even though we're going to have, I think, strong earnings next year, I don't think you're going to see us significantly above where we ended the fourth quarter. But I think as you move into 2025, you're going to start seeing some nice accretion from that point on.

Speaker Change: You know, a little more line of sight into what the overall economic environment is from an interest rate standpoint and just overall uncertainty. But it does appear we are going to be in shape at some point to start the share repurchase. But we want to be cautious, and we will be cautious this year. You know, certainly in the first half. In the second half of the year, we won't be active in share repurchase. You know, we'll keep our options open in the second half of the year, but I'll say that even there, we will likely be cautious unless we get a better line of sight in terms of interest rates and overall economic stability.

A little more light.

Your line of sight into what the overall economic environment is from an interest rate standpoint, and just overall uncertainty standpoint.

But it does appear we are going to be in shape at some point to start the share repurchase, but we want to be cautious and we will be cautious. This year certainly in the first half of the year, we won't be active in share repurchase we will keep our options open in the second half of the year, but I will say that even there we will likely be cautious unless we get a better line of sight in terms of interest rates and overall economic.

Speaker Change: I might -- this is Curt. I might start and then ask Jim or Peter to add in. But on the deposit front, maybe just to keep the perspective here is that we consider deposits as part of full relationships with clients. And we have clients for whom we have lending relationships and clients from them; we have deposit relationships and clients for, and we have both. But in the case of growing deposits, we're going to grow deposits [indiscernible] in line with taking care of our customers. And having lived through what the whole industry lived through last spring, I don't believe this is an environment where we're going to look for any deposits, turning the deposits away for lack of a better definition. We do believe that the loan-to-deposit ratio will go up some, but we should be able to comfortably stay within our target, we believe, kind of in the mid-80s, even with the point-to-point growth that we're expecting in 2024.

Speaker Change: But on the deposit front, maybe just to keep the perspective here is that we consider deposits as part of full relationships with clients. And we have clients for whom we have lending relationships and clients from them; we have deposit relationships and clients for, and we have both. But in the case of growing deposits, we're going to grow deposits [indiscernible] in line with taking care of our customers. And having lived through what the whole industry lived through last spring, I don't believe this is an environment where we're going to look for any deposits, turning the deposits away for lack of a better definition. We do believe that the loan-to-deposit ratio will go up some, but we should be able to comfortably stay within our target, we believe, kind of in the mid-80s, even with the point-to-point growth that we're expecting in 2024.

<unk> stability.

Speaker Change: And how much capital do you create roughly on a quarterly basis?

Speaker Change: And how much capital do you create roughly on a quarterly basis? Well, it's going to depend on the quarter and the year and what's going on in the economy. I can tell you that in 2024, we will likely not accrete a lot of capital, maybe a tad bit above where we ended the year, but with 5% point-to-point growth, even though we're going to have, I think, strong earnings next year, I don't think you're going to see us significantly above where we ended the fourth quarter. But I think as you move into 2025, you're going to start seeing some nice accretion from that point on.

And how much capital do you accrete roughly on a quarterly basis.

Well, it's going to depend on the quarter and the year and what's going on in the economy. I can tell you that in 2024, we will likely not accrete a lot of capital maybe a tad bit above where we ended the year with 5% point to point growth.

Speaker Change: Well, it's going to depend on the quarter and the year and what's going on in the economy. I can tell you that in 2024, we will likely not accrete a lot of capital, maybe a tad bit above where we ended the year, but with 5% point-to-point growth, even though we're going to have, I think, strong earnings next year, I don't think you're going to see us significantly above where we ended the fourth quarter. But I think as you move into 2025, you're going to start seeing some nice accretion from that point on.

Even though we're going to have I think strong earnings next year, I don't think youre going to see a significantly above where we ended the fourth quarter, but I think as you move into 2025 youre going to start seeing some nice accretion from that point on.

Speaker Change: Thanks, Jim.

Thanks, Jim.

James J. Herzog: Thank you.

Thanks, Peter Peter.

Speaker Change: Thank you. Our next question today is from Manan Gosalia, from Morgan Stanley. Your line is now live.

Speaker Change: Thank you. Our next question today is from Manan Gosalia, from Morgan Stanley. Your line is now live. Yes. Two points I would add to that, Manan. I mean, we love deposits and regardless of loans. I mean, we're making money on these deposits, but we're not holding capital on them. we love deposits just for what they represent amongst themselves. But having said that, we certainly don't want to operate in a just-in-time funding capacity for loans. I mean, we want to make sure we're prepared for when that loan comes. You can't necessarily turn deposits on on a dime, but we welcome them. We're not going to turn them away. We're making money on them, and they continue to add to the stability of the overall franchise.

Thank you. Our next question today is coming from <unk> <unk> from Morgan Stanley. Your line is now live.

Manan Gosalia: Good morning, Manan. Hey, good morning.

Manan Gosalia: Good morning, Manan. Hey, good morning. I wanted to ask about your loan-to-deposit ratio, you know, it ticked down again in the quarter to about 78%. I understand that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, you know, why pay out for deposits now? You know, why not bring in the deposits later as the loan growth comes in. And, you know, what is the right loan-to-deposit ratio to consider as we look out into the end of 2024?

Good morning Banana.

Hey, good morning.

Manan Gosalia: I wanted to ask on your loan-to-deposit ratio, you know, it ticked down again in the quarter to about 78%. You know, I get that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, you know, why pay out for deposits now? You know, why not bring in the deposits later as the loan growth comes in? And, you know, what is the right loan-to-deposit ratio to consider as we look out into the end of 2024?

Manan Gosalia: I wanted to ask about your loan-to-deposit ratio, you know, it ticked down again in the quarter to about 78%. I understand that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, you know, why pay out for deposits now? You know, why not bring in the deposits later as the loan growth comes in. And, you know, what is the right loan-to-deposit ratio to consider as we look out into the end of 2024? This is Kurt. I might start and then ask Jim or Peter to add in, but on the deposit front, maybe just to keep the perspective here, we consider deposits part of full relationships with clients.

I wanted to ask on <unk>.

Your loan to deposit ratio tick down again in the quarter to about 78%.

I get that.

You are looking for a 5% loan growth point to point next year and you might be bringing.

Bringing in deposits ahead of that but I guess, if if the loan growth is contingent on rates coming down.

Why pay up for deposits now you know why not bring in the deposits as late as loan growth comes in.

And you know what is it right right loan to deposit ratio to consider as we look out into the end of 2024.

Manan Gosalia: This is Kurt. I might start and then ask Jim or Peter to add in, but on the deposit front, maybe just to keep the perspective here, we consider deposits part of full relationships with clients. Great. And maybe a follow-up on deposits. As rates start to go down, given your skew to commercial, how should we think about those deposit betas on the way down? If we do get fixed rate cuts or even more than that as we get into 2025, do you think the first few rate cuts are more beneficial given your skew to commercial? Or should you start to see more momentum in deposit costs coming down as you get into rate cuts numbers 4, 5 and 6?

Why don't I might this is Curt I might start and then ask Jim repeater or two up to add in but on the deposit front, maybe just to keep the perspective here is that we consider deposit as part of full relationships with clients and we have clients for whom we have lending relationships and clients for whom we have deposit relationships.

Manan Gosalia: This is Kurt. I might start and then ask Jim or Peter to add in, but on the deposit front, maybe just to keep the perspective here, is that we consider deposits part of full relationships with clients.

Speaker Change: Yes. There are two points I would add to that, Manan. I mean, we love deposits, and regardless of loans. I mean, we're making money on these deposits. We're not holding capital on them; we love deposits just for what they represent amongst themselves. But having said that, we certainly don't want to operate in a just-in-time funding capacity for loans. I mean, we want to make sure we're prepared for when that loan comes. You can't necessarily turn deposits on on a dime, but we welcome the deposits. We're not going to turn them away. We're making money on them, and they continue to add to the stability of the overall franchise.

Manan Gosalia: Great. And maybe a follow-up on deposits. As rates start to go down, given your skew to commercial, how should we think about those deposit betas on the way down? If we do get fixed rate cuts or even more than that as we get into 2025, do you think the first few rate cuts are more beneficial given your skew to commercial? Or should you start to see more momentum in deposit costs coming down as you get into rate cuts numbers 4, 5 and 6?

Curtis Chatman Farmer: And we have clients for whom we have lending relationships and clients for whom we have deposit relationships and clients for whom we have both. But in the case of growing deposits, we're going to grow deposits sort of in line of taking care of our customers. And having lived through what the whole industry lived through last spring, I don't believe this is an environment where we're going to look any deposits, you know, turn any deposits away, for lack of a better definition. We do believe that that lot of deposit ratio will go up some, but we should be able to comfortably stay within our target, we believe, kind of in the mid-80s, even with the point-to-point growth that we're expecting in 2024.

Curtis Chatman Farmer: And we have clients for whom we have lending relationships and clients for whom we have deposit relationships, and clients for whom we have both. But in the case of growing deposits, we're going to grow deposits sort of in line with taking care of our customers. And having lived through what the whole industry lived through last spring, I don't believe this is an environment where we're going to look for any deposits, you know, turn any deposits away, for lack of a better definition.

So we have both.

But in the case of growing deposits, we're gonna grow deposits sort of been lot of taking care of our customers and having lived through what the whole industry lived through last spring I don't believe this in an environment, where we're gonna look any deposits.

Curtis Chatman Farmer: Yes, every cycle is different, so it's hard to say for sure. But I think, in this particular cycle, we could see a little bit of symmetry or what I might call a LIFO approach, last in, first out. I mean, certainly, we saw betas accelerate towards the end of the cycle, and even in the last couple of quarters without Fed hikes, we've seen deposits continue to tick up. And so just as we've seen them more accelerated in the second half of the cycle, I think those might be the most sensitive deposits that we can take back down early in the following rate cycle.

Turning to deposits away for lack of a better definition.

Curtis Chatman Farmer: We do believe that that lot of deposit ratio will go up some, but we should be able to comfortably stay within our target, we believe, kind of in the mid-80s, even with the point-to-point growth that we're expecting in 2024.

We do believe that that loan to deposit ratio will go up some but we should be able to comfortably stay within our target. We believe kind of in the mid eighties, even with the point to point growth that we're expecting in 2024.

Speaker Change: Yeah, two points I would add on to that, Manan, I mean, we love deposits, regardless of loans, I mean, we're making money on these deposits, we're not holding capital on them, we love deposits just for what they represent amongst themselves, but having said that, we certainly don't want to operate in a just-in-time funding capacity for loans, I mean, we want to make sure we're prepared for when that loan comes, you can't necessarily turn deposits on on a dime, but we welcome the deposits, we're not going to turn them away, we're making money on them, and they continue to add to the stability of the overall franchise.

Yes, two points I would add onto that I mean wed love deposit regardless of loans I mean, we're making money on these deposits were not holding capital on them.

We love cap, we love deposits just for what they represent amongst themselves but.

But having said that we certainly don't want to operate an adjusted time funding capacity for loans I mean, we want to make sure. We're prepared for when that loan comes you can't necessarily turn deposits on a dime.

Speaker Change: So I am somewhat cautiously optimistic. We are assuming in the outlook that about a 60% beta was not too big of a lag following the first rate cut. Having said that, every cycle is different, and I do recall back in 2019, the Fed cut 50 bps, I believe, in July '19. And I didn't see a lot of falling rates in the industry overall. That was a very controlled environment where the economy was still relatively strong. And I continue to think that the reason for the Fed cuts is really going to drive that beta. If it's a very orderly takedown of rates and the economy continues to be very strong, it may be a little stickier to bring them down. But if the Fed reduces rates because there is a little weakening in the economy, I think it will give more leverage.

But we welcome the deposits were not going to turn them away, we're making money on them and they continue to add to the stability of the overall franchise.

Speaker Change: Great. And, you know, maybe a follow-up there on deposits. As rates start to go down, given your skew to commercial, how should we think about those deposit betas on the way down? You know, if we do get the fixed rate cuts or even, you know, more than that as we get into 2025, do you think the first few rate cuts are more beneficial given your skew to commercial? Or should you start to see more momentum in deposit costs coming down as you get into rate cut numbers, you know, 4, 5, and 6?

Speaker Change: Great. And, you know, maybe a follow-up on deposits. As rates start to go down, given your skew to commercial, how should we think about those deposit betas on the way down? You know, if we do get the fixed rate cuts or even, you know, more than that as we get into 2025, do you think the first few rate cuts are more beneficial given your skew to commercial? Or should you start to see more momentum in deposit costs coming down as you get into rate cut numbers, you know, 4, 5, and 6?

Great.

A follow up there on deposits as rates start to go down.

Speaker Change: We are assuming in the outlook that about a 60% beta was not too big of a lag following the first rate cut. Having said that, every cycle is different. And I do recall back in 2019, the Fed cut 50 bps, I believe, in July '19, and I didn't see a lot of falling rates in the industry overall. That was a very controlled environment where the economy was still relatively strong. And I continue to think that the reason for the Fed cuts is really going to drive that beta. If it's a very orderly takedown of rates and the economy continues to be very strong, it may be a little stickier to bring them down. But if the Fed reduces rates because there is a little weakening in the economy, I think it will have more leverage. So I would just emphasize that every cycle is different, but we do think there is the potential for some significant beta in those first few cuts.

Given your SKU to commercial how should we think about those deposit betas on the way down.

If we do get this fixed rate two or even more than that as we as we get into 2025 do you think that <unk> got some more beneficial given you're skewed a commercial or should you start to see more momentum and deposit costs coming down as you get into a rate cut number is four five and six.

Speaker Change: Yeah, every cycle is different, so it's hard to say for sure, but I think in this particular cycle, we could see a little bit of symmetry, or what I might call a LIFO approach, last in, first out. I mean, certainly we saw betas accelerate towards the end of this cycle, and even in the last couple of quarters, without set highs, we've seen deposits continue to pick up. And so just as we've seen them more accelerated in the second half of this cycle, I think those might be the most sensitive deposits that we can take back down early in the falling rate cycle. So I am somewhat cautiously optimistic. You know, we are assuming, in the outlook, about a 60% beta. It was not too big of a delay following the first rate cut. Having said that, every cycle is different, and I do recall back in 2019, the side cut 50% I believe in July of 19, and I didn't see a lot of, you know, falling rates in the industry overall. You know, that was a very controlled environment where the economy was still relatively strong, and I continue to think, that the reason for the Fed cuts is really going to drive that beta. You know, if it's a very orderly takedown of rates, and the economy continues to be very strong, it may be a little stickier to bring them down. But if the Fed reduces rates because there is a whole weakening in the economy, I think it's thankful for a bit more leverage. So I would just emphasize that every cycle is different, but we do think there is that potential for some significant beta in those first few cuts.

Yeah every cycle is different so it's hard to say for sure, but I think in this particular cycle, we could see a little bit of cemetery or what I might call LIFO approach last in first out I mean, certainly we saw betas accelerate towards the end of the cycle even in the last couple of quarters without fed hikes, we've seen deposits continue to tick up and so just as we've seen them.

Speaker Change: So I would just emphasize that every cycle is different, but we do think there is the potential for some significant beta in those first few cuts.

Speaker Change: Great. And do you have what percentage of your deposits are directly indexed to the Fed contract? Most of our deposits are not. We're very much a relationship-based bank, and many of those were one-on-one conversations with customers. So we do have some reciprocal deposits that're -- you consider to be somewhat indexed. Obviously, the broker deposits, their time deposits are somewhat indexed, you can see. But the vast majority of our deposits are not.

More accelerated in the second half of the cycle.

Operator: Hello, and welcome to the Comerica 4th Quarter 2023 Earnings Conference Forum webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad.

I think those might be the most sensitive deposits that we can take back down early in the falling rate cycle. So I am somewhat cautiously optimistic.

We are assuming in the outlook about a 60% beta.

Not too big of a lag following most rate cut having said that every cycle is different and I do recall back in 2019, the fed cut 50 bps I believe in July 19, and I didn't see a lot of falling rates in the industry overall, no that was a very controlled environment, where the economy was still relatively.

Speaker Change: Having said that, every cycle is different, and I do recall back in 2019, the Fed cut 50%, I believe in July 19, and I didn't see a lot of falling rates in the industry overall. You know, that was a very controlled environment where the economy was still relatively strong, and I continue to think that the reason for the Fed cuts is really going to drive that beta. You know, if it's a very orderly takedown of rates and the economy continues to be very strong, it may be a little stickier to bring them down.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Kelly Gates, Director of Investor Relations. Please go ahead, Kelly.

Speaker Change: Most of our deposits are not. We're very much a relationship-based bank, and many of those were one-on-one conversations with customers. So we do have some reciprocal deposits that're -- you consider to be somewhat indexed. Obviously, the broker deposits, their time deposits are somewhat indexed, you can see. But the vast majority of our deposits are not.

Speaker Change: Our next question is coming from John Pancari for Evercore ISI. First question, just around the loan growth expectation, the 5% point-to-point expectation, can you give us a little bit of color on where you see the loan growth drivers coming from? And when do you really see an acceleration there in overall loan growth as you look through 2024? John, this is Peter. So it's actually pretty broad. I mean, we mentioned this morning, we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year.

Really strong and I continue to think that the reason for the fed cuts is really going to drive that data. If it's a very orderly take down of rates and the economy continues to be very strong it may be a little stickier to bring them down, but if the fed reduces rates because there is a whole weakening in the economy I think Nick as banks hold that for leverage.

Speaker Change: John, this is Peter. So it's actually pretty broad. I mean, we mentioned this morning, we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year. But then across the rest of our businesses, it's pretty broad-based. I do think -- I think dealer probably has some sort of momentum going into 2024 that will continue throughout the year. Our EFS business, I think, is a business that, if you kind of look in the appendix, we've shown has dropped a couple of quarters. I think it will probably drop in the first quarter, but we think it will pick up quite a bit going into '24, but really broad-based across the middle market.

Speaker Change: But if the Fed reduces rates because there is a whole weakening in the economy, I think it will be thankful for a bit more leverage. So I would just emphasize that every cycle is different, but we do think there is that potential for some significant beta in those first few cuts.

So I would just emphasize that every cycle is different but we do think there is that potential for some significant beta in those first few cuts.

Kelly Gates: This conference call contains forward-looking statements, and in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. Please refer to the Safe Harbor Statement in today's earnings presentation on slide 2, which is incorporated into this call, as well as the SEC filings for factors that can cause actual results to differ. Also, this conference call will reference non-GAAP measures, and in that regard, I direct you to the reconciliation of these measures in our earnings materials that are available on our website. With that, I'll turn the call to Kirk.

Speaker Change: But then across the rest of our businesses, it's pretty broad-based. I do think -- I think dealer probably has some sort of momentum going into 2024 that will continue throughout the year. Our EFS business, I think, is a business that, if you kind of look in the appendix, we've shown has dropped a couple of quarters. I think it will probably drop in the first quarter, but we think it will pick up quite a bit going into '24, but really broad-based across the middle market. First question, just around the loan growth expectation, the 5% point-to-point expectation, can you give us a little bit of color on where you see the loan growth drivers coming from? And when do you really see an acceleration there in overall loan growth as you look through 2024?

Great and then do you have what percentage of your deposits are directly indexed to the fed contract.

Speaker Change: Brayden, do you have what percentage of your deposits are directly indexed to the Fed Funds rate?

Brayden: Most of our deposits are not, you know, we're very much a relationship-based bank, and, you know, many of those are one-on-one conversations with customers, so, you know, we do have some reciprocal deposits that are considered somewhat indexed. Obviously, the broker deposits, their time deposits, are somewhat indexed, you can see, but the vast majority of our deposits are not. Obviously, the broker deposits, their time deposits, are somewhat indexed, as you can see, but the vast majority of our deposits are not.

Most of our deposits are not we're very much a relationship based bank and many of those are one on one conversations with customers. So.

We do have some reciprocal deposits there you can consider to be somewhat index.

Brayden: Obviously, the broker deposits, their time deposits are somewhat indexed, you can consider, but the vast majority of our deposits are not.

Obviously, the broker deposits other time deposits are somewhat index, you can consider but the vast majority of our deposits are not.

Speaker Change: Great, thank you.

Brayden: We feel like we've got some really good momentum. I would tell you that we feel like customer sentiment changed a little bit in the fourth quarter in the right direction. And sort of our informal surveys that we do internally with everything seems to indicate that there's going to be some more demand as we get into what I would really say the second quarter. To answer your question, probably the second and third quarters are where I think we'll start to see that pick up. But as we talk about today, our outlook for the first quarter is pretty flat to down a little bit. But I think as we get into the middle of the year, we're getting indications that we'll start to see some really good loan growth that results in that 5% point to point.

Speaker Change: Great, thank you.

Great. Thank you.

Speaker Change: Thank you.

Thank you.

Speaker Change: Thank you. Next question is coming from John Pancari from ISI. Your line is now live.

Speaker Change: Thank you. The next question is coming from John Pancari from ISI. Your line is now active.

Curtis Chatman Farmer: Thank you, Kelly, and good morning everyone. Thank you for joining our call. Although 2023 was challenging for our industry, we felt it was a year of achievement. Following industry disruption, we protected relationships, stabilized deposits, maintained strong credit quality, enhanced our capital, and took steps to position our business for future success. In fact, we delivered record average loans and record net interest income.

Thank you. Your next question is coming from John Van carrier.

Our ISI your line is now live.

John Pancari: Morning, Jon. Morning. Morning. First question is just around the loan growth expectation, the 5% point-to-point expectation. Can you give us a little bit of color? Where do you see the loan growth drivers coming from, and when do you really see acceleration?

John Pancari: Morning, Jon. Good morning. Morning. The first question is just around the loan growth expectation, the 5% point-to-point expectation. Can you give us a little bit of color? Where do you see the loan growth drivers coming from, and when do you really see acceleration? and overall loan growth, you know, as you look through it.

Good morning, John Good morning, good morning.

First question just around the loan growth expectation of 5% point to point expectation could you give us a little bit of color, where do you see the loan growth drivers coming from and when do you really see an acceleration there.

John Pancari: and overall loan growth, you know, as you look through.

And overall loan growth.

John Pancari: 2024. Thank you.

2024, thank you.

Curtis Chatman Farmer: Despite the marketplace instability, we advanced key strategic initiatives and received impressive recognition for our results. Small business is a highlight as we initiated a national expansion effort, delivered award-winning products, and achieved our three-year lending goal ahead of schedule. Non-interest income remains a priority as we launch targeted initiatives aimed at enhancing our products and increasing our mix of capital and sufficient income.

John This is Peter so.

John Pancari: Jon, this is Peter. So, it's actually pretty broad-based. I mean, we mentioned this morning, we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year, but then across the rest of our businesses, it's pretty broad-based. I do think, I think Beeler probably has sort of momentum going into 2024 that will continue throughout the year. Our EFS business, I think, is a business that, if you kind of look in the appendix we've shown, has dropped a couple of quarters. I think it'll probably drop first quarter, but we think it'll pick up quite a bit going into 2024. But really broad-based across middle market, we feel like we've got some really good momentum. I would tell you that we feel like customer sentiment. I think that changed a little bit in the fourth quarter in the right direction, and sort of our informal surveys that we do internally with everything seems to indicate that there's going to be some more demand as we get into what I would really say the second quarter, to answer your question, probably second, third quarter, is where I think we'll start to see that pick up. I don't, as we talk about today, our outlook on first quarter is pretty flat to down a little bit, but I think as we get into the middle of the year, we're getting indications that we'll start to see some real good loan growth. Yeah. Results from that 5% point-to-point.

John Pancari: Jon, this is Peter. So, it's actually pretty broad-based. I mean, we mentioned this morning that we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year, but then across the rest of our businesses, it's pretty broad-based. I do think Beeler probably has some momentum going into 2024 that will continue throughout the year. Our EFS business, I think, is a business that, if you kind of look at the appendix we've shown, has dropped a couple of quarters. I think it'll probably drop again in the first quarter, but we think it'll pick up quite a bit going into 2024.

It's actually pretty broad based I mean, we mentioned this morning, we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year, but then across the rest of our businesses. It's pretty broad based I do think I think dealer probably has a sort of momentum going into two.

John Pancari: Great. Okay. That's helpful. And then separately, your guidance implies, call it, ballpark about 90 basis points or so of core negative operating leverage based upon the midpoints of the guide. And I'm just wondering if the revenue picture ends up being more pressured than you currently forecast, do you have expense flexibility to improve that operating leverage? I know you set out the $45 million in expense reduction from the recalibration in 2024. Can that recalibration benefit, that $45 million cannot go up if revenue is pressured to a greater degree? John, as Jim said in his prepared remarks, $45 million becomes $55 million on a run rate basis in 2025.

24 that will continue throughout the year or <unk> business I think is a business that if you kind of look in the in the appendix. We've shown has dropped a couple of quarters I think it'll probably drop first quarter, but we think it'll pick up quite a bit going into 'twenty, four but really broad based across middle market, we feel like we've got some.

Curtis Chatman Farmer: Although the economic environment remains uncertain, we observe a cautiously more optimistic trend in customer sentiment at year-end, as we believe many expect less rate pressure in 2024. We remain committed to supporting our customers and feel we are positioned to grow alongside them as the economy strengthens. For your financial highlights, you're on cloud four. With 7% growth, we produced our highest level of average annual loans despite the impacts of deliberate optimization efforts in the second half of the year. Deposits remain the targeted focus, and we were pleased to see stabilization following industry events and ongoing quantitative tightening. We delivered record net interest income, aided by higher rates and loan balances. Credit card remains strong, with net charge-offs well below the historical average.

John Pancari: But really broad-based across the middle market, we feel like we've got some really good momentum. I would tell you that we feel about customer sentiment. I think that changed a little bit in the fourth quarter in the right direction, and sort of our informal surveys that we do internally with everything seems to indicate that there's going to be some more demand as we get into what I would really say the second quarter, to answer your question, probably the second or third quarter. I don't, as we talk about today, our outlook for the first quarter is pretty flat to down a little bit, but I think as we get Yeah, results from that 5% point-to-point.

Good momentum I would tell you that we feel like customer sentiment changed a little bit in the fourth quarter in the right direction and sort of our informal surveys that we do internally with everything seems to indicate that there's going to be some more demand as we get into what I would really say the second quarter to answer your question, probably second third quarter, because we're I think we will start to see.

John Pancari: John, as Jim said in his prepared remarks, $45 million becomes $55 million on a run rate basis in 2025. And this is an interesting period of time. The whole industry has gone through an inflection point in 2023 and somewhat of a recalibration, to use your words. We've tried to be thoughtful in terms of balancing the things that we believe are driving revenue for us and will drive revenue for us going forward. That includes some of the products that we've invested in, especially in treasury management, payments, capital markets, and wealth management. It also includes a focus on small business, and expansion into new markets into the Southeast and into the Mountain West, Colorado region. And so we want to stay focused on those because we're trying to really play the long game here and try to get beyond sort of the immediate environment that we're operating in.

John Pancari: And this is an interesting period of time. The whole industry has gone through an inflection point in 2023, and somewhat of a recalibration, to use your words. We've tried to be thoughtful in terms of balancing the things that we believe are driving revenue for us and will drive revenue for us going forward. That includes some of the products that we've invested in, especially in treasury management, payments, capital markets, and wealth management. It also includes a focus on small business, and expansion into new markets into the Southeast and into the Mountain West, Colorado region. And so we want to stay focused on those because we're trying to really play the long game here and try to get beyond sort of the immediate environment that we're operating in.

I would pick up I don't because we talked about today our outlook on the first quarter is pretty flat to down a little bit, but I think as we get into the middle of the year, we're getting indications that we will start to see some some real good loan growth that results from that 5% point to point.

Yes.

Great. Okay. Thank you that's helpful and then separately your your.

Jon: Great. Okay, thank you. That's helpful. And then separately, your guidance implies...

Jon: Great. Okay. Thank you. That's helpful. And then separately, your guidance implies...

Curtis Chatman Farmer: It was a strong quarter for the company, and we ended with a good fourth quarter. Since there are a number of notable items in this quarter's results, I'm going to hand the call to Jim to discuss those up front and provide context for the remainder of the presentation.

Your guidance implies.

Jon: Call it ballpark about...

Jon: Call it the ballpark about...

Call it ballpark about 900 basis points or so of core negative operating leverage based upon the midpoint of the guide and you know.

Speaker Change: Thank you for joining us, and we'll see you next time.

Speaker Change: Thank you for joining us, and we'll see you next time. Ends up being more pressured than you currently forecast. Do you have expense flexibility to improve that operating leverage? I may use, you know, you set out the $45 million in expense reduction from the recalibration in 2024. Can that recalibration benefit that $45? Can that go up if revenue is pressured to a greater degree?

James J. Herzog: Thanks, Kurt, and good morning, everyone. Slide 5 details the notable items Kurt referenced, most of which were furnished in an 8K earlier this month. As previously announced, we recorded $109 million in non-interest expenses related to the one-time special FDIC assessment. This was unchanged from the indications provided in our December update. Next was the accounting impact from the pending cessation of BISB since approximately $7 billion of our swap portfolio was designated to BISB loans. The announcement impacted our ability to maintain hedge accounting for that portion of the portfolio and resulted in a net non-cash loss of $88 million. The key message is that cessation does not result in an economic impact, only a change in the timed recognition of earnings.

Just wondering if revenue.

Revenue picture.

Speaker Change: ends up being more pressured than you currently forecast. Do you have expense flexibility to improve that operating leverage? I may use, you know, you set out the $45 million in expense reduction from the recalibration in 2024. Can that recalibration benefit that $45? Can that go up if revenue is pressured to a greater degree?

Its up being more pressured than you currently forecast do you have expense flexibility to improve that operating leverage I know you.

John Pancari: And then secondly, I would say, while we did have some expense initiatives in the quarter, we're always thinking about additional efficiency opportunities. And again, it's all about sort of balancing between those 2. And so my hope is that we will see positive operating leverage really based on overall revenue growth and a return to a more normalized interest rate environment and, hopefully, a soft landing on the economy and a lack of further credit deterioration, et cetera.

You set out the $45 million.

<unk> expense reduction from the Recalibration in 2024 could that Recalibration benefit that 45 cannot go up if revenue was pressured to a greater degree.

Speaker Change: Well, John, as Jim said in his prepared remarks, that $45 million becomes $55 million on a run rate basis in 2025. And, you know, this is an interesting period of time. The whole industry has gone through an inflection in 2023 and somewhat of a recalibration, to use your words. We've tried to be thoughtful in terms of balancing the things that we believe are driving revenue for us and will drive revenue for us going forward. That includes for the products that we've invested in, especially in treasury management, payments, capital markets, wealth management. It also includes the focus on small business, expansion into new markets, into the southeast and into the Mountain West, Colorado region. And so we want to stay focused on those because we're trying to really play the long game here and try to get beyond sort of the immediate environment that we're operating in. And then secondly, I would say, while we did have some expense initiatives in the quarter, we're always thinking about additional efficiency opportunities. Again, it's all about sort of balancing between those two. And so my hope is that we would see positive operating leverage really based on overall revenue growth and a return to a more normalized interest rate environment and hopefully a soft landing on the economy and a lack of further credit deterioration, et cetera. If we don't see that, then obviously we need to think about what else we can do from an efficiency standpoint.

John as Jim said in his prepared remarks that 45.

Becomes $55 million on a run rate basis in 2025.

This is an interesting period of time the whole industry has gone through an inflection in 2023 and somewhat of a recalibration to use your words.

Speaker Change: If we don't see that, then obviously, we need to think about what else we can do from an efficiency standpoint. Just regarding that, when do you expect you could break into more of a positive operating leverage trajectory? Yes, John, it's Jim. I mean, #1, just to build on Curt's comments, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls too. We're in this kind of tweener stage where interest rates continue to pay rates, and deposits continue to edge up a little bit, yet the Fed isn't raising rates.

James J. Herzog: These recognized losses will creep back, and the normal course of paid-in cash settlements and earnings recognition on the swaps remain uninterrupted. While the realization of losses spoke through to our regulatory capital ratios, they did not further impact tangible common equity or tangible book value. Also note, operationally and from a customer perspective, we feel well prepared for a seamless transition. Third on the list were $25 million in government charges, which elevated fourth quarter non-existent expenses and were intended to enhance future earnings power and create capacity for investment. We previously signaled such efforts were being considered, and we will discuss them in more detail later in the presentation. The last item does not impact bottom-line results but creates line item geography changes within our income statement.

Speaker Change: Just regarding that, when do you expect you could break into more of a positive operating leverage trajectory? Yes, John. It's Jim. I mean, #1, just to build on Curt's comments, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls too. We're in this kind of tweener stage where interest rates continue to pay rates, and deposits continue to edge up a little bit, yet the Fed isn't raising rates. So that makes it a really challenging year. But I do think things will start to move in the positive operating leverage structure in 2025. We don't have a complete line of sight into that yet, but I mentioned how we expect net interest income to really have some great momentum as we enter into 2025.

We've tried to be thoughtful in terms of balancing the things that we believe are driving revenue for us.

Speaker Change: Yes, John, it's Jim. I mean, #1, just to build on Curt's comments, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls too. We're in this kind of tweener stage where interest rates continue to pay rates, and deposits continue to edge up a little bit, yet the Fed isn't raising rates. So that makes it a really challenging year. I do think things will start to move in the positive operating leverage structure in 2025. We don't have a complete line of sight into that yet, but I mentioned how we expect net interest income to really have some great momentum as we enter into 2025.

And we will drive revenue for us going forward that that includes where the product that we've invested in especially in treasury management payments capital markets wealth management.

It also includes the focus on small business expansion into new markets into the southeast and into the mountain West Colorado region. So we want to stay focused on those because we were trying to really play the long game here and try to get beyond sort of the immediate.

Speaker Change: And so we want to stay focused on those because we're trying to really play the long game here and try to get beyond sort of the immediate environment that we're operating in. And then, secondly, I would say, while we did have some expense initiatives in the quarter, we're always thinking about additional efficiency opportunities. Again, it's all about sort of balancing between those two. And so my hope is that we would see positive operating leverage really based on overall revenue growth and a return to a more normalized interest rate environment and, hopefully, a soft landing on the economy and a lack of further credit deterioration, et cetera. If we don't see that, then obviously, we need to think about what else we can do from an efficiency standpoint.

Speaker Change: So that makes it a really challenging year. But I do think things will start to move in the positive operating leverage structure in 2025. We don't have a complete line of sight into that yet, but I mentioned how we expect net interest income to really have some great momentum as we enter into 2025.

<unk> that were operating in.

James J. Herzog: The finalization of our agreement with Ameriprise to serve as our new investment platform provider causes a decline in non-interest income, offsetting a decline in non-interest expenses. While a relatively small impact in late 2023, we note it here because we expect a larger impact in 2024. Slide 6 summarizes our fourth quarter results. Overall, the quarter performed in line with expectations, including those aligned.

It really based on overall revenue growth and a rich.

Speaker Change: And of course, that's always the goal to have positive operating leverage. And on the topic of expenses, I'll just add that I think that really is a journey, not a destination. We always have to be looking at expenses. I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really having a purpose twofold. One is to create capacity for investment, which continues to be critically important, probably more so now than ever. And then, secondly, to make sure we get that positive operating leverage.

Speaker Change: And of course, that's always the goal to have positive operating leverage. And on the topic of expenses, I'll just add that I think that really is a journey, not a destination. We always have to be looking at expenses. I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really having a purpose twofold. One is to create capacity for investment, which continues to be critically important, probably more so now than ever. And then secondly, to make sure we get that positive operating leverage. So we will continue to keep an eye on not just normal budget hygiene but actually seeing what more significant steps we can take over time. So, as I said, it is a journey, not a destination.

Turn to a more normalized interest rate environment, and hopefully a soft landing on the economy and a lack of further credit deterioration et cetera. If we don't see that then obviously, we'd need to think about what else. We can do from an efficiency standpoint.

Speaker Change: Thank you. Just regarding that, when do you expect you could break into more of a positive operating leverage trajectory?

Speaker Change: Thank you. Regarding that, when do you expect you could break into more of a positive operating leverage trajectory? Yeah, Jon, it's Jim. I mean, everyone just goes on and makes comments. You know, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls, too. You know, we're in this kind of tweener stage where interest rates continue to, or pay rates, and deposits continue to edge up a little bit. Yeah, the Fed isn't raising rates. That makes it a really challenging year.

Alright, Thank you and just regarding that when do you expect you could break into more of a positive operating leverage trajectory.

Yeah.

Speaker Change: Yeah, Jon, it's Jim. I mean, everyone just goes on and puts comments. You know, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls, too. You know, we're in this kind of tweener stage where interest rates continue, or pay rates and deposits continue to edge up a little bit. Yeah, the Fed isn't raising rates. That makes it a really challenging year. I do think things will start to move in the positive operating leverage direction in 2025. You don't have a complete line of sight into that yet, but I mentioned how we expect interest income to really have some great momentum as we enter into 2025. And, of course, that's always the goal, to have a positive operating leverage. And, you know, on the topic of expenses, I'll just add that I think that really is a journey, not a destination. We always have to be looking at expenses. I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really, you know, having a purpose for twofold. One is to create capacity for investment, which continues to be critically important, probably more so now than ever. And then secondly, to make sure we get that positive operating leverage. So we will continue to kind of keep an eye on not just normal budget hygiene, but actually seeing what more significant steps we can take. over time. So they've got a journey, not a destination. And I think 2025 should have things moving in a better direction. But again, not a complete line of sight into that.

Speaker Change: Yeah, Jon, it's Jim. I mean, everyone just goes on and makes comments. You know, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls, too. You know, we're in this kind of tweener stage where interest rates continue to, or pay rates, and deposits continue to edge up a little bit. Yeah, the Fed isn't raising rates. That makes it a really challenging year. But I do think things will start to move in the positive operating leverage direction in 2025.

Yes, John it's Jim.

Number one just a thought on curt's comments.

Do you think 2024 is a bit of a transition year not just for us but for whole industry I think youre hearing that from some of the other calls too. We're in this kind of a tweener stage, where interest rates continue or pay rates and deposits continue to edge up a little bit.

Speaker Change: So we will continue to kind of keep an eye on not just normal budget hygiene but actually see what more significant steps we can take over time. As I said, it's a journey, not a destination. And I think '25 should have things moving in a better direction. But again, not a complete line of sight into that.

James J. Herzog: At year end, approximately $250 million in loans remain in that business. Muted customer demand due to elevated rates impacted general middle market balances, followed by increased productivity, prioritizing full relationships and higher returns, reduced loans and equity fund services, and corporate banking. Ongoing funding of multifamily and industrial construction projects continues to drive higher commercial real estate utilization, but commitments declined for the second consecutive quarter as we strategically manage pipeline and origination. The floating rate nature of our commercial loan portfolio benefited from higher rates, as loan yields continued to climb to 6.38% in the fourth quarter. Friday highlights disability with a positive.

Yes, the fed is in raising rates.

So that makes it a really challenging year.

Speaker Change: I do think things will start to move in the positive operating leverage direction in 2025. You don't have a complete line of sight into that yet, but I mentioned how we expect interest income to really have some great momentum as we enter into 2025. And, of course, that's always the goal, to have positive operating leverage.

Speaker Change: And I think '25 should have things moving in a better direction. But again, not a complete line of sight into that.

I do think things will start to move in the positive operating leverage Struction in 2025.

Speaker Change: You don't have a complete line of sight into that yet, but I mentioned how we expect interest income to really have some great momentum as we enter into 2025. And, of course, that's always the goal, to have positive operating leverage. And, you know, on the topic of expenses, I'll just add that I think that it really is a journey, not a destination. We always have to be looking at expenses. I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really, you know, having a purpose for twofold.

Speaker Change: [Operator Instructions] Our next question is coming from Joh Arfstrom from RBC Capital Markets, a question on your net interest income guide. What kind of rate assumptions do you have in that for any kind of rate scenario that you think derails that from what you're thinking today? Yes, we did assume the 12/31 forward curve, which has almost 6 rate cuts in it. You'll notice on our asset sensitivity page that for the first time, that I can recall at least, we have become liability sensitive. So I think this is a very fortuitous time for us to become liability sensitive with potentially 6 rate cuts in the future.

We don't have a complete line of sight into that yet, but I mentioned, how we expect net interest income to really have some great momentum as we enter into 2025 and of course, that's always the goal to have positive operating leverage and you know on.

Speaker Change: And, you know, on the topic of expenses, I'll just add that I think that it really is a journey, not a destination. We always have to be looking at expenses. I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really, you know, having a purpose for twofold. One is to create capacity for investment, which continues to be critically important, probably more so now than ever. And then, secondly, to make sure we get that positive operating leverage. So we will continue to kind of keep an eye on not just normal budget hygiene but actually see what more significant steps we can take over time. So they've got a journey, not a destination. And I think 2025 should have things moving in a better direction. But again, not a complete line of sight into that.

The topic of expenses I will just add that I think that really is a journey not a destination, we always have to be looking at expenses.

Speaker Change: Yes, we did assume the 12/31 forward curve, which has almost 6 rate cuts in it. You'll notice on our asset sensitivity page that, for the first time, that I can recall at least, we became liability sensitive. So I think this is a very fortuitous time for us to become liability sensitive with potentially 6 rate cuts out into the future. We do have the sensitivities there using a 60% beta. You can see that we do benefit from a fall in rates, assuming that we can reprice as expected without too much of a lag. So I would say if we get fewer cuts than that, that will put a little pressure on that outlook. But we are benefiting from the 12/31 curve if we really do get those 6 cuts. So that's the assumption, and we'll continue to monitor, and we'll see where the economy and where the FOMC go.

I don't think this will be the end of.

<unk> taken a really hard look at what we can do over time and I think of expense reduction is really you know having a purpose for twofold. One is to create capacity for investment which continues to be critically important and probably more so now than ever and then secondly to make sure we get that positive operating leverage so we will continue to.

James J. Herzog: Average deposit balances remain relatively flat to the third quarter at $66 billion, even with declines of $564 million in brokered time deposits and $176 million dollars related to the exit of Mortgage Banker Finance. Growth in general middle market and corporate banking reflects seasonal patterns, while retail benefited modestly from promotional campaigns. The National Bureau of Services deposits were attributed to operations consistent with inventory and utilization trends observed in that business. However, none of this bearing balance is performed in line with expectations, and the pace of decline continues to slide.

Speaker Change: One is to create capacity for investment, which continues to be critically important, probably more so now than ever. And then, secondly, to make sure we get that positive operating leverage. So we will continue to kind of keep an eye on not just normal budget hygiene but actually see what more significant steps we can take over time. So they've got a journey, not a destination, and I think 2025 should have things moving in a better direction. But again, not a complete line of sight into that.

Speaker Change: We do have the sensitivities there using a 60% beta, and you can see that we do benefit from a fall in rates, assuming that we can reprice as expected without too much of a lag. So I would say if we get fewer cuts than that, that will put a little pressure on that outlook. But we are benefiting from the 12/31 curve if we really do get those 6 cuts. So that's the assumption, and we'll continue to monitor, and we'll see where the economy and where the FOMC go.

Keep an eye on not just normal budget hygiene, but actually seen what.

More significant steps, we can take over time, so as I said, a journey not a destination and I think 25 should have things moving in a better direction, but again not a complete line of sight into that.

Speaker Change: Okay, great. Thanks, Sheriff.

Okay, great. Thanks chip.

Speaker Change: Thank you.

Thank you.

Speaker Change: Thank you. As a reminder, that's star one to be placed into question two. Our next question is coming from Jon Arfstrom from RBC Capital Markets. The line is now live. Hey, good morning, everyone. Hey, good morning.

Speaker Change: Thank you. As a reminder, that's star number one to be placed into question two. Our next question is coming from Jon Arfstrom from RBC Capital Markets. The line is now live. Hey, good morning, everyone. Hey, good morning. Okay. Yes, there was a lot going on this morning. I had to rub my eyes when I saw that slide. I guess my 1st follow-up question, and maybe you have already answered this, is, do you still consider yourself asset sensitive? And I guess the answer is no at this point. Okay. Yes, there was a lot going on this morning. I had to rub my eyes when I saw that slide. I guess my 1 follow-up question, and maybe you have already answered this, is, do you still consider yourself asset sensitive? And I guess the answer is no at this point.

Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from John Armstrong from RBC capital markets. Your line is now live.

James J. Herzog: I'm going to step into growing interest-bearing deposits through a probe of the 42% non-interest-bearing deposit mix, which we continue to view as a competitive advantage. Industry competition, the right environment, and successful promotional campaigns drove deposit costs higher to 312 basis points, resulting in a cumulative data of 58% in the fourth quarter. Our deposit profile has historically been a strength, and with our favorable mix, the operating nature of our accounts, and uninsured trends, we feel it is even more compelling. As shown in slide 9, we continue to normalize our liquidity positions using excess cash to repay wholesale funding while retaining significant capacity. We absorbed $1.2 billion in maturing FHLB advances and allowed over $500 billion in broker time deposits to mature in the quarter.

Speaker Change: Question on your net interest income guide. What kind of rate assumptions do you have in that for any kind of rate scenario that you think derails that from what you're thinking today?

Hey, good morning, everyone, Hey, good morning.

Yes.

Jon Arfstrom: Question on your...

Jon Arfstrom: Question on your... Net interest income guy, what kind of rate assumptions do you have in that for any kind of rate scenario that you think derails that from what you're thinking today?

Question on your.

Jon Arfstrom: Net interest income guy, what kind of rate assumptions do you have in that, in any kind of rate scenario that you think derails that from what you're thinking today?

Net interest income guide what kind of rate assumptions do you have in that.

Any kind of rate scenario that you think.

The rails that from what you're thinking today.

Speaker Change: Good morning, Jon. Yeah, we did assume the 1231 forward curve, which has almost, you know, six rate cuts in it. You'll notice on our asset sensitivity page that for the first time, that I can recall at least, we became liability sensitive. So I think this is a very fortuitous time to become liability sensitive with potentially six rate cuts out into the future. You know, we do have the sensitivities there using the 60% data. You can see that we do benefit from falling rates, assuming that we reprise as expected without too much of a lag. So I would say if we get fewer cuts than that, that will put a little pressure on that outlook. But we are benefiting from the 1231 curve if we really do get those six cuts. So that's the assumption, and we'll continue to monitor, and we'll see, you know, where the economy and where the FOMC goes.

Speaker Change: Good morning, Jon. Yeah, we did assume the 1231 forward curve, which has almost, you know, six rate cuts in it. You'll notice on our asset sensitivity page that for the first time, that I can recall at least, we became liability sensitive. So I think this is a very fortuitous time to become liability sensitive with potentially six rate cuts in the future. You know, we do have the sensitivities there using the 60% data, and you can see that we do benefit from falling rates, assuming that we reprise as expected without too much of a lag. So I would say if we get fewer cuts than that, that will put a little pressure on that outlook.

Yes, good morning, John Yeah, we did assume the 12 31 forward curve, which has almost six rate cuts in it.

Speaker Change: That's what our models would say. You never know how customers are going to react, and how the competition is going to react. But I would say we are a little more liability sensitive than we are asset sensitive. Now with that, we could have a little bit more of a lag in it than what we're projecting. We just don't know how customers and competition will react. But over the course of time, it does appear that we are a little more liability sensitive. Okay. One point of clarification on the expense piece of it. Is it $45 million in '24 and an incremental $55 million in '25 or an incremental $10 million in 2025? An incremental $10 million. Incremental $10 million.

You'll notice on our asset sensitivity page that for the first time that I can recall lease we became liability sensitive. So I think this is a very fortuitous time for us to become liability sensitive.

Essentially fixed rate cuts out into the future.

Do have the sensitivities there using a 60% beta you can see that we do benefit from.

Falling rates, assuming that we can reprice as expected without too much of a lag. So I would say if we get fewer cuts and that that will put a little pressure on that outlook, but we are benefiting from 12 31 curve. If we really do get those six cuts. So that's the assumption and we will continue to monitor and we'll see.

James J. Herzog: We expect decisions on future wholesale funding maturities to follow the normal course monitoring of balance sheet dynamics and funding needs. At 78%, our loan-to-deposit ratio remains favorable and positions us to prioritize high-return loan growth going forward. Period end balances in our securities portfolio on slide 10 increased approximately $550 million as paid down for maturities were more than offset by a $975 million positive market-to-market adjustment in rate movements late in the quarter. Treasury maturities and anticipated securities repayments are projected to benefit net interest income and AOCI, and we anticipate a 25% improvement in unrealized securities losses over the next two years. Turning to slide 11, Jennifer's income decreased from $17 million to $584 million, driven by higher rates in the deposit mix, as volume changes related to loans, deposits, and wholesale funding were largely offset by lower balances of the Fed.

Speaker Change: Okay. One point of clarification on the expense piece of it. Is it $45 million in '24 and an incremental $55 million in '25 or an incremental $10 million in 2025? An incremental $10 million.

Speaker Change: But we are benefiting from the 1231 curve if we really do get those six cuts. So that's the assumption, and we'll continue to monitor, and we'll see, you know, where the economy and where the FOMC go. That's what our models would say. You never know how customers are going to react, and how the competition is going to react. But I would say we are a little more liability sensitive than we are asset sensitive.

Speaker Change: Okay. Okay. Good. And then, one, Melinda, I thought you'd get it passed, but I just -- I wanted to ask a 1 credit question.

Where the economy and where the <unk> <unk>.

Okay.

Jon Arfstrom: Okay. Yeah, a lot going on this morning. I had to rub my eyes when I saw that slide. I guess one of my follow-up questions, and maybe you answered it, is do you still consider yourself as a tentative? And I guess the answer is no at this point.

Jon Arfstrom: Okay. Yeah, a lot going on this morning. I had to rub my eyes when I saw that slide. I guess one of my follow-up questions, and maybe you already answered it, is do you still consider yourself as a candidate? And I guess the answer is no at this point. On Slide 13, that bottom right corner where you show the percent criticized in TLS leverage than auto. Curious how elevated that is relative to normal. I don't know if there is a normal, but how elevated is that? And how long does it take for those levels to come back down?

A lot going on this morning that a rub my eyes, when I saw that slide.

Jon Arfstrom: Sure. On Slide 13, that bottom right corner where you show the percent criticized in TLS leverage than auto. Curious how elevated that is relative to normal. I don't know if there is a normal, but how elevated is that? And what does it take for those to come back down?

Hum.

I guess my one of my follow up questions and maybe you answered. It is do you still consider yourself asset sensitive and I guess the answer is no at this point.

That's what our models would say you never know how customers are going to react and the competition is going to react but I would say we are a little more liability sensitive and we are asset sensitive.

Speaker Change: That's what our models would say. You never know how customers are going to react and the competition is going to react, but I would say we are a little more liability sensitive than we are asset sensitive. Now, that liability sensitive could have a little bit more of a leg in it than what we're projecting. We just don't know how customers and competition will react, but over the course of time, it does appear that we are a little more liability sensitive.

Speaker Change: Now with that liability issue, it could have a little bit more of a lag in it than we're projecting. We just don't know how customers and competition will react. But over the course of time, it does appear that we are a little more liability-sensitive.

Speaker Change: That's what our models would say. You never know how customers are going to react and how the competition is going to react, but I would say we are a little more liability sensitive than we are asset sensitive. Now, that liability-sensitive could have a little bit more of a leg in it than we're projecting. We just don't know how customers and competition will react, but over the course of time, it does appear that we are a little more liability-sensitive.

Speaker Change: Yes. Thanks for the question. I mean -- not surprisingly, but a positive surprise this quarter was that we actually saw improvement in 3 of the 4 incremental monitoring portfolios. So we saw balances and criticized assets go down in TLS leverage and automotive production. I would say that a leveraged portfolio at 10% to 12% is about normal. That is an elevated, higher-risk portfolio by its very design. TLS, again, it's going to be elevated above the normal portfolio at 18%. But I would say that it's still above some sort of historical norm. But we are seeing positive momentum in TLS. Certainly, the rate environment, if it cooperates with the [indiscernible], is going to be a real positive for that segment as well as leverage.

The liability sensitive could have a little bit more of a lag in it than what we're projecting we just don't know how customers and competition will react.

But over the course of time it does appear that we are a little more liability sensitive.

Jon Arfstrom: On Slide 13, that bottom right corner where you show the percent criticized in TLS leverage than auto. Curious how elevated that is relative to normal. I don't know if there is a normal, but how elevated is that? And how long does it take for those levels to come back down?

Speaker Change: Okay.

Okay.

Speaker Change: Point of clarification on the expense piece of it. Is it $45 million in 2024 and an incremental $55 million in 2025 or an incremental $10 million in 2025?

Speaker Change: Point of clarification on the expense piece of it. Is it $45 million in 2024 and an incremental $55 million in 2025, or an incremental $10 million in 2025? Incremental 10 million.

Point of clarification on the expense piece of it.

Is it $45 million in 'twenty, four and an incremental $55 million and 25 or an incremental $10 million in 2025.

James J. Herzog: successful execution of our balance sheet optimization strategy has allowed us to reduce wholesale funding and enhance margins. As shown in 12, successful execution of our interest rate strategy and the composition of our balance sheet positions us favorably for a gradual 100 basis points or 50 basis points on average decline in interest rates. Of note, this disclosure did not impact the ongoing cash flow associated with the swaps listed on the slide.

Speaker Change: Incremental 10 million.

Incremental $10 million okay. Okay. Good.

Speaker Change: And then one, Melinda, I thought you'd get a pass, but I just wanted to ask one credit question on slide 13, that bottom right.

Speaker Change: And then one, Melinda, I thought you'd get a pass, but I just wanted to ask one credit question on slide 13, the bottom right.

And then one Melinda I thought you'd get a pass but I just.

I wanted to ask one credit question.

On slide 13 that bottom right.

Melinda Coffey: where you show that percent criticized

Melinda Coffey: Where you show that percent criticized in TOS, Leverage, then Auto. Curious, how elevated is that relative to normal? I don't know if there is a normal, but how elevated is that, and what does it take for those to come back down? In TOS, Leverage, then Auto. Curious, how elevated is that relative to normal? I don't know if there is a normal, but how elevated is that, and what does it take for those levels to come back down? You didn't ask about commercial real estate specifically, but we did see that one relatively flat in the fourth quarter.

Corner, where you show the percent criticized.

Melinda Coffey: in TOS, Leverage, then Auto. Curious, how elevated is that relative to normal? I don't know if there is a normal, but how elevated is that, and what does it take for those to come back down?

Tos leverage than auto.

Melinda Coffey: You didn't ask about commercial real estate specifically, but we did see that one relatively flat in the fourth quarter. So we've got some assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket, and they move out when they either pay off or we remargin them and get them back into a conforming state. So I feel really good about all of those portfolios that are listed there on the right and would expect that we should -- again, if the rate environment cooperates and we don't see a downturn in the economy, we'll continue to see these stable to potentially improve towards the back half of the year.

Curious how elevated is that relative to.

James J. Herzog: While we took a loss in the fourth quarter, we will accrue that loss back, with the majority coming back into net interest income in 2025 and 2026. We expect the impact in 2024 to be relatively useful, although there may be some market-to-market volatility until we fully re-designate remaining impacted swaps to SOFR. By strategically managing our SWOT and securities portfolio while considering balance sheet dynamics, we intend to maintain our insulated positions over time. Credit quality remains strong, as highlighted on slide 13. Although modest at charge-offs, the 15 basis points remained below our normal range, and the few we had were more concentrated in relatively higher-risk portfolios. We observe some normalization in general middle market and corporate banking as rates pressure customer profitability. These normalization trends drove a slight increase in the allowance for credit losses to 1.40% of total load.

Normal I don't know if there is a normal but how elevated is that and what does it take for those to come back down.

Yeah. Thanks for the question.

Speaker Change: Yeah, thanks for the question. I mean, not surprisingly, but a positive surprise this quarter was that we actually saw improvement in three of the four incremental monitoring portfolios. So we saw balances and criticized assets go down in TLS leverage and automotive production. I would say that that leverage portfolio at 10% to 12% is about normal. That is an elevated higher risk portfolio by its very design. TLS, again, is going to be elevated above the normal portfolio at 18%. I would say that's still above sort of historical norm. But we are seeing positive momentum in TLS. Certainly, the rate environment, if it cooperates with the fourth quarter, is going to be a real positive for that segment as well as leverage. You didn't ask about commercial real estate specifically, but we did see that one relatively flat in the fourth quarter. So we've got some assets. We have assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket. And they move out when they either pay off or we re-margin them and get them back into a conforming state. So I feel really good about all of those portfolios that are listed there on the right and would expect that we should, again, if the rate environment cooperates and we don't see a downturn in the economy, that we'll continue to see these stable to potentially improving towards the bottom. That's the back half of the year.

Speaker Change: Yeah, thanks for the question. Not surprisingly, but a positive surprise this quarter was that we actually saw improvement in three of the four incremental monitoring portfolios. So we saw balances and criticized assets go down in TLS leverage and automotive production. I would say that that leveraged portfolio at 10% to 12% is about normal. That is an elevated, higher-risk portfolio by its very design. TLS, again, is going to be elevated above the normal portfolio at 18%. I would say that it's still above some sort of historical norm, but we are seeing positive momentum in TLS.

Not surprisingly that a positive surprise this quarter was that we actually saw improvement in.

Three of the four incremental monitoring portfolio. So we saw balances.

And criticized assets go down and Tls leverage and automotive production.

Melinda Coffey: So we've got some assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket, and they move out when they either pay off, or we remargin them and get them back into a conforming state. So I feel really good about all of those portfolios that are listed there on the right and would expect that we should -- again, if the rate environment cooperates and we don't see a downturn in the economy, we'll continue to see these stable to potentially improve towards the back half of the year.

I would say that that leverage portfolio at 10% to 12% is about normal that is an elevated higher risk portfolio by its very design Tls again, it's going to be elevated above the normal portfolio at 18% I would say, that's still above sort of historical norm, but.

Speaker Change: Certainly, the rate environment, if it cooperates with the fourth quarter, is going to be a real positive for that segment as well as leverage. You didn't ask about commercial real estate specifically, but we did see that relatively flat in the fourth quarter. So we've got some assets. We have assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket. And they move out when they either pay off or we re-margin them and get them back into a conforming state. So I feel really good about all of those portfolios that are listed there on the right and would expect that we should, again, if the rate environment cooperates and we don't see a downturn in the economy, continue to see these stable to potentially improve towards the bottom. That's the back half of the year; the next question today is coming from Steven Alexopoulos from JPMorgan.

Speaker Change: So I want to start by going back to your answer to Peter's question, the first question on NIM. And it's funny. For all the years I've covered the company, I think you were the most asset sensitive. And if you look at the historical NIM range, it's literally all over the place. And Jim, what you've done now is you've basically restructured the balance sheet, so it's fairly neutral. Even if I look at this 100 basis point gradual and 60%, it's like 6 bps or so benefit to NIM. So assuming that we get here, let's say the forward curve plays out, we go to 100 basis points or so of steepness.

We are seeing positive momentum in Tls certainly the rate environment, if it cooperates with.

It's going to be a real positive.

Or that segment as well as leverage.

And that's about commercial real estate, specifically, but we did see that one relatively flat in the fourth quarter. So we've got some assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket and they moved out when they either pay off or re margin them and get them back into a conforming state so I feel real.

James J. Herzog: Non-performing assets increased, but they still remain historically low. Overall, our portfolio continues to perform as expected, and we believe migration will remain manageable. On slide 14, for a quarterly announcement, something $198 million, included $93 million in notable items. Excluding the impact of these items and an increase in deferred compensation, which is offset in expenses, non-interest income performed in line with guidance. While we continue to expect non-customer income in 2024 to come down from elevated 2023 levels, we remain committed to investments to drive capital-efficient fee growth over time. Expenses on slide 15 included $132 million in notable items.

Good about all of those portfolios that are listed there on the right and we would expect that we should again, if the if the rate environment cooperates and we don't see a downturn in the economy that will continue to see these stable to potentially improving towards the back half of the year.

Speaker Change: Does that imply your NIM? The new NIM for Comerica is like [indiscernible]. I mean, a year ago, you were [ 374 ] and I'm down a ton. And I'm trying to figure out what the hell does the margin look like at this company with this balance sheet in a normal rate environment that has actual steepness to the curve. And you are basically a 3% margin bank now because you've taken away asset sensitivity?

Speaker Change: Okay. Good. That's very helpful. Thank you, Melinda. Mm-hmm. Okay. Thanks, John.

That's very helpful. Thank you Fernando.

Thanks, Sean.

Speaker Change: Thank you. Next question today is coming from Steven Alexopoulos from J.P. Morgan. Your line is now live.

Speaker Change: Thank you. The next question today is coming from Steven Alexopoulos from J.P. Morgan. Your line is now active.

Thank you. Your next question today is coming from Steven Alexopoulos from Jpmorgan. Your line is now live.

Steven Alexopoulos: Morning, Steven. Morning.

James J. Herzog: Beyond those items, increases in salaries and benefits reflect the impact of higher deferred compensation, offset by non-interest income. Increased consulting expenses are attributed to advancing strategic and risk management initiatives, and a smaller gain on the sale of real estate in the fourth quarter had the net impact of increasing expenses. Moving to slide 16, we previously communicated an intention to address growing expense pressures and the structural impact on industry profitability from 2023. In addition to our normal efficiency efforts, this slide details incremental actions to recalibrate expenses in support of investments and enhanced earnings. Through this process, we are prioritizing customers and positioning the business for future success. Complimenting efforts already underway to rationalize real estate, we initiated a plan to further reduce our physical footprint, including the closure of 26 banking centers where we assess a nominal customer impact. In order to enhance college efficiency and keep decision makers close to our customers, we are streamlining our management structure and eliminating select roles. When combined with the impact of banking center closures, these actions have eliminated approximately 250 positions.

Good morning.

Steven Alexopoulos: So I want to start by going back.

Steven Alexopoulos: So I want to start by going back, and others too.

So I wanted to start by going back to your answer to Peter's question. The first question on NIM.

Steven Alexopoulos: and others.

Speaker Change: Thank you for your first question.

Speaker Change: Thank you for your first question, and it's funny, for all the years I've covered the company, I think we were the most asset-sensitive. And if you look at the historical record, it will never be the same. And it's funny, for all the years I've covered the company, I think we were the most asset-sensitive. And if you look at the historical record, it will never be the same. We have bounced around quite a bit over time, Steven, and we didn't necessarily think that was always a great thing. I do think stability is important, and the rate environment is 1 factor.

Speaker Change: and it's funny, for all the years I've covered the company, I think we were the most asset sensitive. And if you look at the historical record, it will never be the same.

And its funny for all the years I've covered the company I think you were the most asset sensitive and if you look at the historical NIM range, it's literally all over the place and Jimmy you've done now is <unk> basically restructured the balance sheet. So it's fairly neutral even if I look at this 100 basis point gradual at 60% beta it's like six bps.

Speaker Change: We have bounced around quite a bit over time, Steven, and we didn't necessarily think that was always a great thing. But I do think stability is important. The rate environment is 1 factor. Again, just the overall construction of the balance sheet and the lumpiness in the amount of cash we're carrying or securities we're carrying is also a factor. And just again, our business model creates a little bit of lumpiness in that regard, so we would like a little bit more stability. As I mentioned in Peter's question, I do see our trajectory going north of where we ended here, and I think we'll continue to go north as we move through 2025. So we're above 3% on a normalized basis. And I think we are going to have a much more stable NIM and net interest income earnings capacity going forward. I don't necessarily want to give an exact number, but it is north of 3% for sure.

Speaker Change: Literally all over.

Speaker Change: What you've done now is you've basically restructured the balance.

Speaker Change: Here we go.

Speaker Change: If I look at this 100 basis point gradual, if I look at this 100 basis point gradual,

Speaker Change: If I look at this 100 basis point gradual, If I look at this 100 basis point gradual,

Speaker Change: Death or No Death

Speaker Change: Death or No Death?

So benefit to NIM.

Speaker Change: So

Speaker Change: So And then we get here, let's say the forward curve plays out, we go to 100 basis points or so. Does that imply your NIMH, the new NIMH for American Life?

Assuming that we get here, let's say the forward curve plays out we go to a 100 basis points or so of steepness.

Speaker Change: And then we get here, let's say the forward curve plays out, we go to 100 basis points or so.

Speaker Change: Does that imply your NIMH, the new NIMH for American Life?

Does that imply your NIM, the new NIM for America's like three right.

Speaker Change: Again, just the overall construction of the balance sheet and the lumpiness in the amount of cash we're carrying or securities we're carrying is also a factor. And just again, our business model creates a little bit more lumpiness in that regard. So we would like a little bit more stability.

Speaker Change: Right as Barton. I mean, a year ago you were three.

Speaker Change: Right as Barton. I mean, a year ago, you were three.

To start I mean, a year ago, you were 374.

Speaker Change: For

Speaker Change: For I'm trying to figure out, like, what the hell does a margin look like at this company with this balance? In a normal rate environment that has actual... and many others. And you are basically a 3% margin bank now.

Speaker Change: I'm trying to figure out, like, what the hell does a margin look like at this company with this balance?

I'm trying to figure out like what the Hell does the margin look like at this company with this balance sheet.

Speaker Change: In a normal rate environment that has actual... Actually...

In a normal rate environment that has actual steepness of the curve.

Speaker Change: As I mentioned in Peter's question, I do see our trajectory going north of where we ended here, and I think we'll continue to go north as we move through 2025. So we're above 3% on a normalized basis. And I think we are going to have a much more stable NIM and net interest income earnings capacity going forward. I don't necessarily want to give an exact number, but it is north of 3% for sure.

Speaker Change: and many others.

Speaker Change: And you are basically a 3% margin bank now.

And I know you were basically a 3% margin bank now because you've taken away the asset sensitivity.

Speaker Change: Take it away, guys.

Speaker Change: Take it away, guys!

Speaker Change: You know, we have bounced around quite a bit over time, Steven, and we didn't necessarily think that was always a great thing. I do think stability is important. You know, the right environment is one factor. Again, just the overall construction of the balance sheet and the lumpiness and the amount of cash we're carrying or security we're carrying is also a factor. And just, again, our business model creates a little bit more lumpiness in that regard. So we would like a little bit more stability. As I mentioned in Peter's question, I do see our progressory going north of, you know, where we ended here, and I think we'll continue to go north as we move through 2025. So, you know, we're above 3% on a normalized basis, and I think we are going to have a much more stable net income earnings capacity going forward. Don't necessarily want to give an exact number, but it is north of 3% for sure.

Speaker Change: You know, we have bounced around quite a bit over time, Steven, and we didn't necessarily think that was always a great thing. But I do think stability is important. You know, the right environment is one factor. Again, just the overall construction of the balance sheet and the lumpiness and the amount of cash we're carrying or security we're carrying is also a factor. And just, again, our business model creates a little bit of lumpiness in that regard, so we would like a little bit more stability. As I mentioned in Peter's question, I do see our progression going north of, you know, where we ended here, and I think we'll continue to go north as we move through 2025. So, you know, we're above 3% on a normalized basis, and I think we are going to have a much more stable net income earnings capacity going forward. I don't necessarily want to give an exact number, but it is north of 3% for sure.

We have a bounce around quite a bit over time, Stephen and we didnt necessarily think that was always a great thing I do think stability is important.

Speaker Change: Okay. Okay. That's helpful. But keep in mind, that's why generalists don't put their money in regional banks because the black box said it didn't really help. Shed some light on what expectations are. I want to ask about expenses, too. So you guys are guiding to around 3% operating expense growth in 2024, and that's with the benefit of the new initiatives. From a bigger picture perspective, why is expense growth at the company so much higher than other regions? I'm sure you look at all the other regionals. It's higher. And then, if we think about 2025, if you don't announce another initiative, should we expect the growth rate to lift off of 3%?

The rate environment is one factor again, just the overall construction of the balance sheet and the lumpiness in the amount of cash we're carrying our securities. We're carrying is also a factor and just again our business model creates a little bit more lumpiness in that regard. So we would like a little bit more stability.

As I mentioned in the.

Peter's question I do see our trajectory going north of where we ended here and I think we will continue to go north as we move through 2025.

So we're above 3% on a normalized basis and I think we are going to have a much more stable NIM and net interest income our earnings capacity going forward.

Speaker Change: And then if we think about 2025, if you don't announce another initiative, should we expect the growth rate to lift off of 3%? Many of the expenses that we have in 2024, a lot of the investment we're making is not an ongoing run rate. A lot of it is a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in '24 all carry over to 2025. But we are in an investment mode.

Not necessarily want to give an exact number but it is north of 3% for sure.

Speaker Change: Many of the expenses that we have in 2024, a lot of the investment we're making is not an ongoing run rate. A lot of it is a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in '24 will all carry over to 2025. But we are in an investment mode. I mean, I think we may have been underinvested in certain years if you go back historically. So I do think there's a little bit of catch-up going on, but we are committed to making sure that we can compete in the years coming forward. And we do think a certain amount of investment is required there, and we feel comfortable that it's going to pay off.

Okay.

James J. Herzog: Great movement coupled with continuous pay-downs and maturities in our securities portfolio reduced losses within ALCI and increased tangible common equity to 6.30%. Based on the December 31st forward curve, we expect our unrealized losses to reduce by one-third by the end of 2025. Although the proposed capital changes do not apply to us based on our asset size, we favor a conservative approach to capital management and plan to monitor ongoing ALCI volatility and regulations as they evolve.

Okay.

Speaker Change: Thank you for watching.

Helpful, but keep in mind, that's why generally still put their money in regional banks, because the black box.

Speaker Change: Black Box

The management team don't really help shed some light on what expectations are.

Speaker Change: Don't really help shed some light on what expectations

Speaker Change: Don't really help shed some light on what expectations are.

Speaker Change: I want to add some expenses too. So you guys are guiding around 3% operating income.

Speaker Change: I want to add some expenses too. So you guys are guiding around 3% operating income. And that's with the benefit of the new initiative.

I wanted to ask on expenses too. So you guys are guiding to around 3% operating expense growth in 2024, and that's with the benefit of the new initiatives.

Speaker Change: And that's with the benefit of the new initiative.

Speaker Change: Thank you.

Just a big picture view why is expense growth at the company so much higher than other regionals I'm sure you look at all the other rebuilds its higher than if we think about 2025. If you don't announce another initiative should we expense the growth rate to lift off of three.

Speaker Change: Why is it?

Speaker Change: Rose.

Speaker Change: And then if we think about 2025,

Speaker Change: I mean, I think we may have been underinvested in certain years if you go back historically. So I do think there's a little bit of catch-up going on, but we are committed to making sure that we can compete in the years coming forward. And we do think a certain amount of investment is required there, and we feel comfortable that it's going to pay off.

Speaker Change: And then if we think about 2025, you don't announce another initiative, should we expense the growth rate to lift off? You know, many of the expenses that we have in 2024 and a lot of the investments we're making are not ongoing run rates. A lot of it is a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in 2024 all carry over to 2025. Can you expand on that, Jim, like where you underinvest and where are you catching up now?

James J. Herzog: Our outlook for 2024 is on slide 18. We project four-year average loans supplying 1% to 2% impacted by optimization trends late in 2023. While we expect some impact of selectivity to continue into the first quarter, we anticipate 5% loan growth from December to December with contributions from almost all businesses. Four-year average deposits are expected to be down 1-2% from 2023, but we project relative stability point-to-point. Following a seasonal decline in the first quarter, we expect customer deposits to stabilize and rebound in the second half of the year. Based on the 1231 forward curve, we expect 499% of homes to decline 11% from 2023, driven largely by year-over-year deposit measures.

Speaker Change: You don't announce another initiative, should we expense the growth rate to lift off?

Speaker Change: You don't announce another initiative; should we expense the growth rate to lift off? You know, many of the expenses that we have in 2024 and a lot of the investments we're making are not ongoing run rates. A lot of it is a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in 2024 all carry over to 2025. Can you expand on that, Jim, like where you underinvest and where are you catching up now?

Yeah.

Many of the expenses that we have in 2020 for a lot of the investment we're making is not ongoing run rate a lot of as more one time effort to get some of these initiatives up and running whether they are on the revenue side, the product side or the risk management framework side, So I wouldn't necessarily assume that the <unk>.

Speaker Change: You know, many of the expenses that we have in 2024 and a lot of the investments we're making is not ongoing run rates. A lot of it is more one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in 2024 all carry over to 2025.

Speaker Change: You know, many of the expenses that we have in 2024 and a lot of the investments we're making are not ongoing run rates. A lot of it is more of a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side. So I wouldn't necessarily assume that the expenses that we are incurring in 2024 all carry over to 2025. Can you expand on that, Jim, like where you underinvest and where you are catching up now? Well, I would say #1, some of it is just moving with the times with digitization and some of the online capabilities.

<unk> that we are incurring in 'twenty four all carryover to 2025.

Speaker Change: But we are in an investment mode. I mean, I think we may be underinvested in certain years if you go back historically. So I do think there's a little bit of catch-up going on, but we are committed to make sure that we can compete in years coming forward. We do think a certain amount of investment is required there, and we feel comfortable it's going to pay off.

Speaker Change: But we are in an investment mode. I mean, I think we may be underinvested in certain years if you go back historically. So I do think there's a little bit of catching-up going on, but we are committed to making sure that we can compete in the years ahead. We do think a certain amount of investment is required there, and we feel comfortable it's going to pay off.

But we are in an investment mode. I mean, I think we may be underinvested in certain years. If you go back historically, so I do think there is a little bit of catch up going on but we are committed to make sure that we can compete in the years coming forward and we do think a certain amount of investment is required there and we feel comfortable it's going to pay off.

Speaker Change: Well, I would say, #1, some of it is just moving with the times with digitization and some of the online capabilities. But I would also say, whether it be the risk management framework or some of the product innovation, I just don't think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we'd rather be leading. So we think the easier thing to do would be to hunker down and just start a company, and that's not something we want to do. So we feel like we're doing the right thing, and we do feel like it's going to pay off in positive operating leverage as we move forward.

Speaker Change: But I would also say that, whether it be the risk management framework or some of the product innovation, I just don't think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we'd rather be leading. So we think the easier thing to do would be to hunker down and just start the company, and that's not something we want to do. So we feel like we're doing the right thing, and we do feel like it's going to pay off in positive operating leverage as we move forward.

Can you expand on that Jim like where did you under invest in where you're catching up now.

Speaker Change: Can you expand on that, Jim? Like, where did you learn about it and where did you catch it?

Speaker Change: Can you expand on that, Jim? Like, where did you learn about it, and where did you catch it?

James J. Herzog: We expect positive seasonality and, to a lesser extent, less income from VisB redesignation, slightly higher deposit data, and a lower loan balance to impact first quarter net interest income. From there, we expect a small uptick in the second quarter and more pronounced growth in the second half of the year. As it relates to busy hedge accounting, interest rates and timing and redesignation could create volatility, but we expect to eliminate most or all of that potential volatility from the transition of indexes by the end of the first quarter. Credit quality remains strong, and we expect continued migration to humanity.

James J. Herzog: Well, I would say, number one, some of it is just moving with the times with the digitization and some of the online capabilities.

James J. Herzog: Well, I would say, number one, some of it is just moving with the times with digitization and some of the online capabilities. But I would also say, whether it be the risk management framework or some of the product innovation, I just don't think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we'd rather be leading. So we think the easier thing to do would be to hunker down and start a company, and that's not something we want to do. So we feel like we're doing the right thing, and we do feel like it's going to pay off with positive operating leverage as we move forward.

Well I would say number one some of it is just moving with the times with the Digitization and some of the online capabilities.

James J. Herzog: But I would also say that whether it be risk management framework or some of the product innovation, I just don't think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we'd rather be leading. So we think the easier thing to do would be to hunker down and start a company, and that's not something we want to do. So we feel like we're doing the right thing, and we do feel like it's going to pay off with positive operating leverage as we move forward.

James J. Herzog: But I would also say that, whether it be the risk management framework or some of the product innovation, I just don't think we necessarily always invested as much as we could have historically. And rather than trailing on that front, we'd rather be leading. So we think the easier thing to do would be to hunker down and start a company, and that's not something we want to do. So we feel like we're doing the right thing, and we do feel like it's going to pay off with positive operating leverage as we move forward. Got it. This is Curt.

But I would also say that whether it be risk management framework or some of the product innovation I. Just don't think we necessarily always invested as much as we could have historically and rather than trailing on that front, we'd rather be leading so.

We think the easier thing to do would be to hunker down and just start the company and Thats not something we want to do so we feel like we're doing the right thing and we do feel like it's going to pay off a positive operating leverage as we move forward.

Got it.

Speaker Change: You see this is, Kurt, I just would add that we, as I said earlier, we are focused on top line revenue growth. We believe we have opportunities on both the income side and with the long portfolio. But certainly if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don't move in the right direction, allowing us to get some relief on deposit basis, et cetera, then we'll continue to look at expensive opportunities. I'd also add that part of this, from a risk framework standpoint, is continued investment and preparation, potentially being over $100 billion, or if bonds will, through requirements, step down to banks of $100 billion, kind of in our category of $86 billion.

Speaker Change: You see this is, Kurt, I just would add that we are, as I said earlier, focused on top-line revenue growth. We believe we have opportunities on both the income side and with the long portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don't move in the right direction, allowing us to get some relief on the deposit basis, et cetera, then we'll continue to look at expensive opportunities. I'd also add that part of this, from a risk framework standpoint, is continued investment and preparation, potentially being over $100 billion, or if bonds will, through requirements, step down to banks of $100 billion, kind of in our category of $86 billion.

James J. Herzog: We forecast four-year net charge-offs to move into the lower half of our normal 20 to 40 basis point range. We expect Onyx's income to grow 6% on a reported basis, which will be relatively flat year to year when adjusting for notable items. As we signaled last quarter, we expect FHLB dividends, price alignment income from hedges, and BOLI to decline from elevated levels. However, customer income is expected to increase modestly with growth in fiduciary and capital markets and deposit service charges, partially offset by pressures in card, commercial lending fees, and the assumption that favorable mark-to-market derivative adjustments do not repeat. Four-year non-existent expenses are expected to decline 4% on a reported basis but grow 3% after accounting for notable lives.

So this is Curt I, just would add that we as I said earlier.

James J. Herzog: Got it. This is Curt. I just would add that we are, as I said earlier, focused on top line revenue growth. We believe we have opportunities on both the fee income side and with the loan portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates do not move in the right direction, allowing us to get some relief on deposit betas, et cetera, then we'll continue to look at expense opportunities. Got it. This is Curt. I just would add that we are, as I said earlier, focused on top line revenue growth.

James J. Herzog: I just would add that, as I said earlier, we are focused on top-line revenue growth. We believe we have opportunities on both the fee income side and with the loan portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don't move in the right direction, allowing us to get some relief on deposit betas, et cetera, then we'll continue to look at expense opportunities. Got it. This is Curt. I just would add that, as I said earlier, we are focused on top-line revenue growth.

Our focused on topline revenue growth, we believe we have opportunities on both the fee income side and with the loan portfolio.

But certainly if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don't move in the right direction, allowing us to get some relief on deposit betas et cetera that will continue to look at the expense of opportunities might also add that part of this from a risk framework standpoint is continued investment in <unk>.

Speaker Change: The next question is coming from Chris McGratty from KBW. On the expenses, Jim, I think you've talked historically about roughly $50 million for the $100 billion rules as you kind of know them today. How much -- I guess how much can you remind us how much you've accrued or is in the guide for 2024 related to that? On the expenses, Jim, I think you've talked historically about roughly $50 million for the $100 billion rules as you kind of know them today. How much -- I guess how much can you remind us how much you've accrued or is in the guide for 2024 related to that?

Separation from <unk>.

Being over $100 billion of Orient.

Basel III requirements stepped down to banks sub 100 billion kind of in our category at $86 million.

James J. Herzog: We believe we have opportunities on both the fee income side and with the loan portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates do not move in the right direction, allowing us to get some relief on deposit betas, et cetera, then we'll continue to look at expense opportunities.

Speaker Change: Thank you for watching!

Speaker Change: I'd also add that part of this, from a risk framework standpoint, is continued investment in preparation for potentially being over $100 billion or if Basel III requirements step down to banks sub $100 billion, kind of in our category at $86 billion. I'd also add that part of this, from a risk framework standpoint, is continued investment in preparation for potentially being over $100 billion or if Basel III requirements step down to banks sub $100 billion, kind of in our category at $86 billion.

Speaker Change: Thank you for watching!

Got it.

Okay. Thanks for taking my questions.

Speaker Change: I would say we have a small portion of that in the guide for 2024. The vast majority of that $50 billion is probably more likely to be in future years as we get closer to $100 billion. But there are several million dollars in there as we really try to address those things, a category for which we think we have a longer runway to get ready for.

Curtis Chatman Farmer: Through the successful execution of our expense recalibration efforts, we believe we have created capacity to prioritize investments designed to further enhance our funding base, revenue mix, and capital efficiency as well as our risk management framework. Even with 5% projected point-to-point loan growth, we expect to maintain capital well in excess of our 10% target. We will continue to monitor AOCI volatility in the evolving regulatory environment as we evaluate the right time to resume share recruitment. In all, we are proud of our year, and we feel we have taken the right actions to support the future of our business. Now I'll turn and call back to prayer.

Curtis Chatman Farmer: Thanks, Steve.

Thanks, Steve.

Speaker Change: Thank you. Next question is from Chris McGrady from KDW. Your line is now live.

Speaker Change: Thank you. The next question is from Chris McGrady from KDW. Your line is now active.

Thank you. Your next question is coming from Chris Mcgratty from Tw. Your line is now live.

Okay.

Chris McGrady: Morning, Chris.

Chris McGrady: Morning, Chris. Perhaps your phone is on mute, Chris. Good morning. Sorry about that.

Good morning, Chris.

Chris McGrady: Perhaps your phone is on mute, Chris.

Perhaps your phone is on mute Chris.

Chris McGrady: Good morning. Sorry about that.

Good morning, sorry about that.

On the.

Chris McGrady: On the Expanse

Chris McGrady: On The Expanse

On the expenses.

Speaker Change: Jim, I think you've talked historically about, you know, roughly $50 million for the $100 billion rules as you kind of know them today. How much, can you remind us how much you've accrued in the guide for 2024 related to that?

Speaker Change: So those items that we think would take, say, 2, 3, 4 years to really be ready, we're getting those things in motion now. There's a majority of the category 4 requirements we either already have, or if we don't have them, we think we could complete them within 1 to 2 years. And so we're holding off on that.

Speaker Change: Jim, I think you've talked historically about roughly $50 million for the $100 billion rules as you kind of know them today. How much, can you remind us how much you've accrued in the guide for 2024 related to that?

Jim I think you've talked historically about roughly $50 million for the.

$100 billion rules as you kind of know them today, how much I guess, how much can you remind us how much you've accrued in the guide for 2024 related to that.

Curtis Chatman Farmer: Thank you, Jim. Despite the industry's volatility in 2023... We think it is important to take a step back and reinforce that our core business remains unchanged, as shown on slide 19. As a leading bank for business with strong wealth management and retail capabilities, you can find us on Facebook, Twitter, or wherever you get your podcasts. Our tenured colleagues deliver value-added expertise to our impressive customer base. Our highly regarded approach to credit continues to perform well and has historically outperformed our peers. Tailored products are designed to meet the needs of our customers, enhancing revenue and retention.

James J. Herzog: You know, I would say we have a small portion of that in the guide for 2024. You know, the vast majority of that $50 billion is probably more likely to be, you know, future years as we get closer to $100 billion. But there are several million dollars in there. We really try to address those things, a Category 4 that we think have a longer runway to get ready for. You know, so those items that we think would take, you know, say two, three, four years to really be ready, we're getting those things in motion now. There's a, you know, the majority of the Category 4 requirements we either already have, or if we don't have them, we think we can complete them within one to two years. And so we're holding off on that. So, you know, the majority of the $50 billion is still out there in the future, but we do have some of that in the runway in 2023 and a little bit more in 2024.

James J. Herzog: You know, I would say we have a small portion of that in the guide for 2024. The vast majority of that $50 billion is probably more likely to be in future years as we get closer to $100 billion. But there are several million dollars in there. We really try to address those things, a Category 4 that we think has a longer runway to get ready for. You know, so those items that we think would take, you know, say two, three, four years to really be ready, we're getting those things in motion now. There are, you know, the majority of the Category 4 requirements we either already have, or if we don't have them, we think we can complete them within one to two years. And so we're holding off on that.

I would say we have a small portion of that in the guide for 2024.

The vast majority of that 50 billion is probably more likely to be.

James J. Herzog: So the majority of the [ $50 billion] is still out there in the future, but we do have some of that in the run rate in '23 and a little bit more in '24. Okay. Great. And then maybe 1 for Curt. I think the Street's got you roughly a low teens return on tangible common equity this year and next. Can you maybe elaborate on how you think of the return potential of this company? Obviously, you've got a much more stable margin over time, but you're also balancing some of the investments. I wouldn't, maybe, give a forecast exactly around returns or even multiples on the company.

Future years, as we get closer to a $100 billion.

But there are several million dollars in there is we really try to address those things.

Going forward that we think have a longer runway to get ready for those.

James J. Herzog: Okay. Great. And then maybe 1 for Curt. I think the Street's got you roughly a low teens return on tangible common equity this year and next. Can you maybe elaborate on how you think of the return potential of this company? Obviously, you've got a much more stable margin over time, but you're also balancing some of the investments. Yes. I wouldn't maybe give a forecast exactly around returns or even multiples on the company. But I would say that, based on the comments we made earlier, certainly '23 was a disruptive year, and a reset for the industry in '24, I think, is some recalibration.

Are those items that we think would take.

Two three or four years to really be ready, we're getting those things in motion now.

The majority of the category four requirements, we either already have or if we don't have them. We think we can complete them within one to two years and so we're holding off on that so.

Curtis Chatman Farmer: Our deposit profile has long been a strain. Investments in products and small businesses are expected to make this core funding source even more compelling. Actions to recalibrate our expense base are designed to benefit our future, and at well over 10% of our strategic capital target, we believe we have a strong foundation. In August, we will celebrate our 175th anniversary. Do not achieve that kind of longevity without proving time and time again that you can successfully navigate disruption. The 2023 model for food resilience.

James J. Herzog: So, you know, the majority of the $50 billion is still out there in the future, but we do have some of that on the runway in 2023 and a little bit more in 2024. So the majority of the [ $50 billion] is still out there in the future, but we do have some of that in the run rate in '23 and a little bit more in '24.

<unk> of the $50 billion is still out there in the future, but we do have some of that in the run rate in 'twenty, three and a little bit more in 'twenty four.

James J. Herzog: Yes. I wouldn't maybe give a forecast exactly around returns or even multiples on the company. But I would say that, based on the comments we made earlier, certainly '23 was a disruptive year, and a reset for the industry in '24, I think, is some recalibration. I believe that interest rates are going to come down. And when they do, I think it will have a positive impact on NII for us. And we believe, as we said earlier, that in the latter half or second half of the year, we will start seeing NII return.

James J. Herzog: But I would say that, based on the comments we made earlier, certainly '23 was a disruptive year, and a reset for the industry in '24, I think, is some recalibration. I believe that interest rates are going to come down. And when they do, I think it will have a positive impact on NII for us.

Okay, Great and then maybe one for Kurt.

Speaker Change: Okay, great. And then maybe one for Kurt. I think the street's got you roughly at a low teens return on payment for common equity in this year and next. Can you elaborate on how you think of the return potential of this company? Obviously, you've got a much more stable margin over time, but you're also balancing some of the investments.

Speaker Change: Okay, great. And then maybe one for Kurt. I think the street's got you roughly at a low teens return on payment for common equity this year and next. Can you elaborate on how you think of the return potential of this company? Obviously, you've got a much more stable margin over time, but you're also balancing some of the investments.

I think the Street's got you at roughly a low teens return on tangible common equity in this year and next.

James J. Herzog: I believe that interest rates are going to come down, and when they do, I think it will have a positive impact on NII for us. And we believe, as we said earlier, that in the latter half or second half of the year, we will start seeing NII return. We think we've got great opportunities on the fee income side, and we showed that in 2023. And we think we've got good growth opportunities in terms of the loan portfolio. And so our goal is to get to positive operating leverage and believe that we can either return at a level that's commensurate with the industry overall or better from a longer-term perspective. But '24 will be somewhat of a continued inflection year.

Can you maybe elaborate on how you think.

The return potential of this company, obviously, you've got a much more stable margins over time.

Operator: Our colleagues rallied to support our customers through an uncertain time, and we delivered record results. As we look forward into this milestone anniversary year for our company, I'm confident in our ability to deliver for our customers, colleagues, and shareholders. We appreciate your time this morning and would be happy to take some questions. Thank you. We're now conducting a question and answer session. If you'd like to be placed into question two, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question two.

James J. Herzog: And we believe, as we said earlier, that in the latter half or second half of the year, we will start seeing NII return. We think we've got great opportunities on the fee income side, and we showed that in 2023. And we think we've got good growth opportunities in terms of the loan portfolio. And so our goal is to get to positive operating leverage and believe that we can either return at a level that's commensurate with the industry overall or better from a longer-term perspective. But '24 will be somewhat of a continued inflection year.

But you're also balancing some of the investments.

Yes.

Curtis Chatman Farmer: Yeah, I wouldn't maybe give a forecast exactly around returns or even multiples on the company, but I would say that we believe that, based on the comments we made earlier, certainly 23 was a disruptive year and a reset for the industry, and 24 I think is some recalibration. I believe that interest rates are going to come down, and when they do, I think it will have a positive impact on NII for us, and we believe, as we said earlier, that in the latter half or second half of the year that we will start seeing NII return. We think we've got great opportunities on the seed income side, and we showed that in 2023, and we think we've got good growth opportunities in terms of the long portfolio. And so our goal is to get positive operating leverage, and I believe that we can return at a level that's commensurate with the industry overall or better for the longer term. But 24 will be somewhat of a continuous inflection year.

Yes, I Wouldnt, maybe give a forecast exactly around returns or even multiples on the company, but I would say that we believe that.

James J. Herzog: We think we've got great opportunities on the fee income side, and we showed that in 2023. And we think we've got good growth opportunities in terms of the loan portfolio. And so our goal is to get to positive operating leverage and believe that we can either return at a level that's commensurate with the industry overall or better from a longer-term perspective. But '24 will be somewhat of a continued inflection year.

Based on the comments, we made earlier certainly 23 was a disruptive year in a reset for the industry. In 24, I think is some recalibration I believe that interest rates are going to come down and when they do I think you will have a positive impact on NII for us and we believe as we said earlier that in the latter half of second half of the year that we will start seeing in.

Operator: You may press star two if you'd like to move your question from your... One moment, please, while we poll for questions, and once again, that's star 1 to be placed in the question. Our first question is from Peter Winter from DA Davis Higginwater, now live. Good morning. Good morning. Good morning.

Our return we think we've got great opportunities on the fee income side and we showed that in 2023, and we think we've got good growth opportunities in terms of the loan portfolio and so our goal is to get to positive operating leverage and I believe that we can return at a level that commensurate with.

Curtis Chatman Farmer: The next question today is coming from Brody Preston from UBS. Jim, I was hoping maybe you could help us nail down the cadence of the kind of BSBY swap amortization, the accretion in the NII. How much of that -- I think you said most of it's in '25 and then in mid-'26, but how much of it happens in 2024? And then how much happens in '25 and '26? we don't have a 100% clear line of sight into that because out of those $7 billion of BSBY hedges, or hedges dedicated to SBPY loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOFR loans to redesignate those particular hedges.

Curtis Chatman Farmer: We think we've got great opportunities on the seed income side, and we showed that in 2023, and we think we've got good growth opportunities in terms of the long portfolio. And so our goal is to get positive operating leverage, and I believe that we can return at a level that's commensurate with the industry overall or better in the longer term. But 24 will be somewhat of a continuous inflection year.

Curtis Chatman Farmer: Jim, I was hoping maybe you could help us nail down the cadence of the kind of BSBY swap amortization, the accretion in the NII. How much of that -- I think you said most of it's in '25 and then in mid-'26, but how much of it happens in 2024? And then how much happens in '25 and '26? We don't have a 100% clear line of sight into that because out of those $7 billion of BSBY hedges, or hedges dedicated to SBPY loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOFR loans to redesignate those particular hedges.

Peter J. Winter: So there's been a lot of focus this earnings season on kind of a normalized margin range. I'm just wondering, as some of these swaps mature, what the margin could get back to. Do you think it could get back to those pre-COVID levels in the 350 range? Yeah, good morning, Peter.

The industry overall are better off from a longer term perspective, but 24 will be somewhat of a continued inflection year.

James J. Herzog: You know, as you may know and recall, I don't like to get real specific on margin. I think this quarter is a great example of that, where we actually had a decrease in net interest income, but we had an increase in NIM. So, you know, a bank with our business model, we have some lumpiness. You can get those correlations that don't match up.

Speaker Change: Great, thanks for the call.

Okay, great. Thanks for the color.

Speaker Change: Thank you.

Speaker Change: Thank you. Next question today is coming from Brody Preston from UBS. Your line is now live.

Speaker Change: Thank you. The next question today is coming from Brody Preston from UBS. Your line is now active.

Thank you next question today is coming from Brody Preston from UBS. Your line is now live.

Brody Preston: Good morning, everyone. Good morning, Brian.

Good morning, everyone. Good morning, Brian.

Brody Preston: Jim, I was hoping maybe you could help me nail down the cadence of the...

Jim I was hoping maybe you could help me nail down the cadence of the of the.

Curtis Chatman Farmer: We do expect to have that complete or at least largely complete by the end of the first quarter. And I think at that point, we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now in the forward curve, and this is exclusive of what I offered in the guidance because, again, there's a lot of uncertainty there, there will likely be a very -- somewhat mild negative impact in 2024. But to the extent there is any kind of negative impact, you just accrete that back in later years.

James J. Herzog: What kind of did the swap amortization, you know, the accretion into NII, how much of that, I think you said most of this in 25 and then in the 26, but how much of it happens in 2024 and then how much happens in 25 and 2026?

James J. Herzog: What kind of did the swap amortization, you know, the accretion into NII, how much of that, I think you said most of this in 25 and then in 26, but how much of it happens in 2024, and then how much happens in 25 and 2026?

You know kind of busy.

So op amortization the accretion in NII, how much of that I think you said most of it's in 'twenty five 'twenty six but how much of it happens in 2024, and then how much of that how much happens in 'twenty five and 26.

James J. Herzog: But I do see them trending in a very good direction. You know, we ticked up this quarter. You know, we will have a little bit of a tick down next quarter, as the first quarter guidance would imply based on the percentage growth that we put in the outlook. But then we see a steady climb from there. You know, I do see us by the end of 2024 actually getting above where this past fourth quarter was.

Yes, good morning, Brody, Yes, we don't have a 100% clear line of sight into that because out of those $7 billion of <unk>.

Speaker Change: Good morning, Brody. Yeah, we don't have a 100% clear line of sight into that because out of those $7 billion of BISB hedges, or hedges dedicated to BISB loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOPR loans to redesignate those particular hedges. We do expect to have that complete, or at least largely complete, by the end of the first quarter, and I think at that point, we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now with the forward curve, you know, and this is independent of what I offer in the guidance, because, again, there's a lot of uncertainty there.

Does the hedges are hedges dedicated to bisbee loans, a little less than 3 billion of them are not re designated yet because we have not generated enough. So for loans to re designate those particular hedges.

James J. Herzog: And then we continue to check up from there throughout 2025 as we have swaps and securities roll off and we get into a more normalized environment. So I do see a lot of momentum building for us in the second half of this year. And I see that momentum actually accelerating as we move through 2025. And, of course, that's exclusive of the FISB hedge accounting impact where we're actually going to have significant income added in 2025 on top of the factors that I just talked about. I got it.

Curtis Chatman Farmer: So again, it's not an economic loss; we don't have a 100% clear line of sight into that because out of those $7 billion of BSBY hedges or hedges dedicated to SBPY loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOFR loans to redesignate those particular hedges. We do expect to have that complete or at least largely complete by the end of the first quarter. And I think at that point, we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now in the forward curve, and this is exclusive of what I offered in the guidance because, again, there's a lot of uncertainty there, there will likely be a very -- somewhat mild negative impact in 2024. To the extent there is any kind of negative impact, you just accrete that back in later years. So again, it's not an economic loss.

Speaker Change: We do expect to have that complete, or at least largely complete, by the end of the first quarter, and I think at that point we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now with the forward curve, you know, and this is exclusive of what I offer in the guidance, because, again, there's a lot of uncertainty there. You know, there was likely a very somewhat mild negative impact in 2024. To this end, there isn't any kind of negative impact, and just to creep that back in later years. So, again, it's not an economic loss. And then we are very likely to get the vast majority of it back in 2025. You know, I think of it as maybe, you know, north of 80% of that loss accreted back in 2025, and then most of the remaining after that will come in 2026.

Speaker Change: We do expect to have that complete, or at least largely complete, by the end of the first quarter, and I think at that point, we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now with the forward curve, you know, and this is independent of what I offer in the guidance, because, again, there's a lot of uncertainty there. You know, there will likely be a very somewhat mild negative impact in 2024. To this end, there won't be any kind of negative impact, and just to creep that back in later years. So, again, it's not an economic loss.

Speaker Change: And then we are very likely to get the vast majority of it back in 2025. Think of it as maybe north of 80% of that loss accreted back in 2025. And then most of the remaining after that would come in 2026.

We do expect to have that complete.

<unk> largely complete by the end of the first quarter and I think at that point, we actually have a fair amount of certainty as to how it plays out but in general the way it looks right now the forward curve and.

This is exclusive of what I offered in the guidance.

Speaker Change: Got it. That's helpful. I guess I can just ask 1 fine point just on the first quarter with the redesignation. Should we see something similar to what we saw this quarter, maybe not in terms of size, but just directionally, where there's a negative kind of nonoperating impact on fee income and maybe a small positive impact on NII? It really depends on the rate curve that's going to drive it, maybe to a lesser extent, the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter.

Again, there is a lot of uncertainty there.

Was likely a very.

Speaker Change: You know, there will likely be a very somewhat mild negative impact in 2024. To this end, there won't be any kind of negative impact, and just to creep that back in later years. So, again, it's not an economic loss, and we are very likely to get the vast majority of it back in 2025. You know, I think of it as maybe, you know, north of 80% of that loss will be accreted back in 2025, and then most of the remaining after that will come in 2026.

James J. Herzog: Thanks, Jim. And then, just to follow up, you had really nice growth in the CET1 ratio, and even adjusted for AOCI, you're above the minimum 7% threshold. I'm just wondering, you mentioned in the prepared remarks that you were looking at AOCI, but what are some of the parameters you're looking for to resume share buybacks and how much capital do you accrete on a quarterly basis? Yeah, Peter, number one, I do think we're on a very good track to comply with the following grand game rules, should they end up applying to us. But with that said, we do have a little bit of flexibility based on the fact that we are in pretty good shape there. The number one thing that I continue to keep an eye on is the OCI. It did come down consistently this quarter,

Somewhat mild negative impact in 2024 to the extent there is any kind of negative impact can you just accrete that back in later year. So again, it's not an economic loss.

And then we are very likely to get the vast majority of it back in 2025 think of it as maybe.

Speaker Change: And then we are very likely to get the vast majority of it back in 2025. You know, I think of it as maybe, you know, north of 80% of that loss accreted back in 2025, and then most of the remaining after that will come in 2026. And then we are very likely to get the vast majority of it back in 2025. Think of it as maybe north of 80% of that loss accreted back in 2025. And then most of the remaining after that would come in 2026.

North of 80% of that loss accreted back in 2025, and then most of the remaining after that would come in 2026.

Speaker Change: Got it. Thank you. That's helpful. I guess if I could just ask one fine point just on the first quarter with the redesignation.

Speaker Change: Got it. Thank you. That's helpful. I guess if I could just ask one fine point about the first quarter with the redesignation. Should we see something similar to what we saw this quarter? Maybe not in terms of size, but just directionally where there's a negative kind of non-operating impact on fee income and maybe a small positive impact? You know, it really depends on the rate curve that's going to drive it, maybe to a lesser extent the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter.

Got it. Thank you that's helpful. I guess, if I can just ask one fine point is on the first quarter with the re designation should we see something similar to what we saw this quarter and maybe not in terms of size, but just directionally, where there's a <unk>.

Speaker Change: And again, whatever you do see, we'll simply accrete back in future quarters. So I don't think there's -- I know there won't be any kind of economic surprise there. But from an accounting and recognition standpoint, there will be a little volatility in the first quarter. And again, we'll accrete that back in later quarters and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount, if not complete certainty after Q1, also, and we can lay out that exact guidance and cadence.

Speaker Change: Should we see something similar to what we saw this quarter? Maybe not in terms of size, but just directionally where there's a negative kind of non-operating impact on fee income and maybe a small positive impact? You know, it really depends on the rate curve that's going to drive it, maybe to a lesser extent the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter. And again, whatever you do see, we'll simply accrete back in future quarters. So, I know there won't be any kind of economic surprise there, but from an accounting and recognition standpoint, there will be some volatility in the first quarter.

Negative.

Non operating impact of fee income and maybe a small positive impact on NII.

James J. Herzog: Let's keep in mind it came down after a number of quarters being more elevated. And then since then, it's picked back up again. So I don't want to declare a victory yet on the OCI front for us or the whole industry. I mean, it looks like things are going in a good direction. And we're certainly in very good shape to comply with any capital rules.

Speaker Change: You know, it really depends on the rate curve that's going to drive it, maybe to a lesser extent the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter. And again, whatever you do see, we'll simply accrete back in future quarters. So, I know there won't be any kind of economic surprise there, but from an accounting and recognition standpoint, there will be a little volatility in the first quarter. And again, we'll accrete that back in later quarters, and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount of not complete certainty after Q1 also, and we can lay out that exact guidance and cadence.

It really depends on the rate curve, that's going to drive it maybe to a lesser extent the timing of when we re designate.

Certainly it's going to be a small fraction of what you saw in the fourth quarter and again, whatever you do see will simply accrete back in future quarters. So.

Speaker Change: And again, whatever you do see, we'll simply accrete back in future quarters. So, I know there won't be any kind of economic surprise there, but from an accounting and recognition standpoint, there will be some volatility in the first quarter. And again, we'll accrete that back in later quarters and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount of not complete certainty after Q1 also, and we can lay out that exact guidance and cadence. Got it. So you don't have the dollar impact for the first quarter yet -- an estimate for the dollar impact to NII for the first quarter yet from this -- from the BSBY stuff?

I don't think there is so I know that there won't be any kind of economic surprise, there, but from an accounting and recognition standpoint, there will be a little volatility in the first quarter and again, we will accrete that back in later quarters and likely mostly in 2025.

James J. Herzog: But before we start the share repurchase stuff again, you know, I would put AOCI at the top of the list that we want to keep our eye on to make sure that doesn't take the other direction again. You know, a little more line of sight into what the overall economic environment is from an interest rate standpoint and just overall uncertainty. But it does appear we are going to be in shape at some point to start the share repurchase, but we want to be cautious. And we will be cautious this year. You know, certainly in the first half.

Speaker Change: It really depends on the rate curve that's going to drive it, maybe to a lesser extent, the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter. And again, whatever you do see, we'll simply accrete back in future quarters. So I don't think there's -- I know there won't be any kind of economic surprise there. But from an accounting and recognition standpoint, there will be a little volatility in the first quarter. And again, we'll accrete that back in later quarters and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount, if not complete certainty after Q1, also, and we can lay out that exact guidance and cadence.

Speaker Change: And again, we'll accrete that back in later quarters and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount of not complete certainty after Q1 also, and we can lay out that exact guidance and cadence. Got it. So you don't have the dollar impact for the first quarter yet -- an estimate for the dollar impact to NII for the first quarter yet from this -- from the BSBY stuff? We don't. We need the dust to settle in terms of just getting the rest of these redesignated and where the rate curves will drive that. And again, we'll be made whole, ultimately, over the next couple of years.

Speaker Change: We don't. We need the dust to settle in terms of just getting the rest of these redesignated and where the rate curves will drive that. And again, we'll be made whole, ultimately, over the next couple of years.

But a little bit of volatility in Q1, but also a large amount if not complete certainty. After Q1 also and we can lay out that exact guidance and cadence.

Got it. So you don't you don't have the dollar impact for the first quarter, an estimate from the dollar impact to NII for the first quarter yet from this from the busy stuff we.

Speaker Change: Got it. So you don't have the dollar impact for the first quarter, an estimate for the dollar impact for NII for the first quarter.

Speaker Change: Got it. So you don't have the dollar impact for the first quarter, an estimate of the dollar impact for NII for the first quarter. Got it. Okay. If I could ask just another 1 on the NII guide for the year. I think you said it was a 60% beta that you were running through the guidance. Do you happen to have what the noninterest-bearing deposit mix that's underlying the guidance is for next year? Got it. Okay. If I could ask just another question on the NII guide for the year, I think you said it was a 60% beta that you were running through the guidance. Do you happen to have the noninterest-bearing deposit mix that's underlying the guidance for next year?

James J. Herzog: In the second half of the year, we won't be active in share repurchase. You know, we'll keep our options open in the second half of the year. But I'll say that even there, we will likely be cautious unless we get a better line of sight in terms of interest rates and overall economic stability. And how much capital do you create roughly on a quarterly basis? Well, it's going to depend on the quarter and the year and what's going on in the economy. I can tell you that in 2024, we will likely not accumulate a lot of capital, maybe a tad bit above where we ended the year, but with 5% point-to-point growth, even though we're going to have, I think, strong earnings next year, I don't think you're going to see us significantly But I think as you move into 2025, you're going to start seeing some nice accretion from that point on. Thanks, Jim.

Speaker Change: We don't. We need for the dust to settle in terms of just getting the rest of these re-designated and, you know, where the rate curves will drive that. And again, it will be made whole ultimately over the next couple of years.

Speaker Change: We don't. We need the dust to settle in terms of just getting the rest of these re-designated and, you know, where the rate curves will drive that. And again, it will be made whole ultimately over the next couple of years.

We don't we need for the dust to settle in terms of just getting the rest of these re designated and where the rate curves will drive that and again it won't be made whole ultimately over the next couple of years.

Speaker Change: Got it. Okay. If I could ask just another one on the NII guide for the year. I think you said it was a 60% beta that you were running through the guidance. Do you happen to have what the non-interest bearing deposit mix with underlying the guidance?

Speaker Change: Got it. Okay. If I could ask just another question on the NII guide for the year. I think you said it was a 60% beta that you were running through the guidance. Do you happen to have what the non-interest bearing deposit mix is underlying the guidance? Yes. We continue to think that we're going to bottom out in the low 40s or very near 40%. So we've been pretty consistent on that over the last 2 to 3 quarters. Of course, a big driver of that isn't so much even just noninterest-bearing deposits, but where interest-bearing goes. And we do plan on having great success with interest-bearing deposits as it relates to customers.

Got it okay.

If I could ask just another one on the NII guide for the year.

I think you said it was a 60% beta that you were running through the guidance do you have do you happen to know.

What the noninterest bearing deposit mix that's underlying the guidance is for next year, yes.

Speaker Change: Yeah, we continue to think that we're going to bottom out in the low 40s or, you know, very near 40%, so we've been pretty consistent on that over the last, you know, two to three quarters. Of course, the big driver of that isn't so much even just non-interest-bearing deposits but where interest-bearing goes. You know, we do plan on having great success with interest-bearing deposits in relation to customers. On the other hand, at some point, we probably will pay down some of these broker deposits that we have because it's really, you know, a form of wholesale funding that all banks make some degree of use of. So, the overall level of interest-bearing will, of course, play some optical games with that percentage, but our base case is to be in the low 40s, nearing that 40% point.

Yes, we continue to think that we are going to bottom out in the low 40, <unk> or very near 40%. So we've been pretty consistent on that over the last.

Two to three quarters of course, a big driver of that isn't so much even just noninterest bearing deposits, but where interest bearing goes in.

James J. Herzog: Our next question today is from Manan Gosalia, from Morgan Stanley. Your line is now live. Good morning, Manan.

Speaker Change: You know, we do plan on having great success with interest-bearing deposits in relation to customers. On the other hand, at some point, we probably will pay down some of these broker deposits that we have because it's really, you know, a form of wholesale funding that all banks make some degree of use of. So, the overall level of interest-bearing will, of course, play some optical games with that percentage, but our base case is to be in the low 40s towards, you know, nearing that 40% point.

We do plan on having great success with interest bearing deposits as it relates to customers on the other hand at some point, we probably will pay down some of these broker deposits that we have because it's really a form of wholesale funding that all banks make some degree of <unk>. So the overall level of interest bearing will of course play some optical games with that percentage, but our base.

Speaker Change: On the other hand, at some point, we probably will pay down some of these broker deposits that we have because it's really a form of wholesale funding that all banks make some degree of use of. So the overall level of interest-bearing debt will, of course, play some optical games with that percentage, but our base case is to be in the low 40s, nearing that 40% point.

Hey, good morning. I wanted to ask about your loan-to-deposit ratio. You know, it ticked down again in the quarter to about 78%. You know, I get that you're looking for 5% loan growth point-to-point next year, and you might be bringing in deposits ahead of that. But I guess if the loan growth is contingent on rates coming down, why pay out for deposits now? Why not bring in deposits later as the loan growth comes in? And, you know, what is the right loan-to-deposit ratio to consider as we look out into the end of 2024? This is Kurt.

Cases to be in the low forties towards nearing that 40% point.

Speaker Change: Okay. And then I did just want to ask about the liability-sensitive disclosure. Could you maybe help me think about the moving parts that make you liability sensitive just because, like, if I just simply looked at you versus a lot of your peers with 40%, 41%, 42%, whatever it is right now, NIB and still effectively 60%, I think, floating rate loans, like both of those items -- 60% might be closer to what I would call a regional bank on average for floating rate loans, but the 42% NIB is So I would holistically think about you as being mildly asset-sensitive, but what are the moving parts elsewhere on the balance sheet that push you towards liability sensitivity?

Speaker Change: Okay, and then I did just want to ask on the liability-sensitive disclosure, could you maybe help me think about, you know, the moving parts that make you liability-sensitive, just as, you know, like if I just simply looked at, you know, you versus a lot of your peers, you know, 40, 41, 42%, whatever it is right now, NIB, and still effectively 60%, I think, floating rate loans, like both of those items, you know, 60% might be closer to, you know, what I call regional banks on average for floating rate loans, but the 40%, 42% NIB is

Speaker Change: Okay, and then I did just want to ask on the liability-sensitive disclosure, could you maybe help me think about, you know, the moving parts that make you liability-sensitive, just as, you know, like if I just simply looked at, you versus a lot of your peers, you know, 40, 41, 42%, whatever it is right now, NIB, and still effectively 60%, I think, floating rate loans, like both of those items, you know, 60% might be closer to, you know, what I call regional banks on average for floating rate loans, but the 40%, 42% NIB is Still above average, so I would holistically think about you as being mildly asset sensitive, but what are the moving parts elsewhere on the balance sheet?

Okay, and then I did just wanted to ask on the liability sensitive disclosure.

Could you maybe help me think about the moving parts that make your liability sensitive just because like if I just simply looked at.

Speaker Change: Yes. We continue to think that we're going to bottom out in the low 40s or very near 40%. So we've been pretty consistent on that over the last 2 to 3 quarters. Of course, a big driver of that isn't so much even just noninterest-bearing deposits but where interest rates go. And we do plan on having great success with interest-bearing deposits as it relates to customers. On the other hand, at some point, we probably will pay down some of these broker deposits that we have because it's really a form of wholesale funding that all banks make some degree of use of. So the overall level of interest-bearing capacity will, of course, play some optical games with that percentage, but our base case is to be in the low 40s, approaching that 40% point.

You know you versus a lot of your peers, you know with 40 41, 42% or whatever it is right now.

And still effectively 60% I think floating rate loans like both of those items.

Curtis Chatman Farmer: I might start and then ask Jim or Peter to add in, but on the deposit front, maybe just to keep the perspective here, we consider deposits part of full relationships with clients. And we have clients for whom we have lending relationships and clients for whom we have deposit relationships, and clients for whom we have both. But in the case of growing deposits, we're going to grow deposits sort of in line with taking care of our customers. And having lived through what the whole industry lived through last spring, I don't believe this is an environment where we're going to look for any deposits, you know, turn any deposits away, for lack of a better definition. We do believe that that lot of deposit ratio will go up some, but we should be able to comfortably stay within our target, we believe, kind of in the mid-80s, even with the point-to-point growth that we're expecting in 2024.

60% might be closer to you know what I would call regional bank kind of average for floating rate loans, but the 40%, 42% and I B is still above average so I would I would holistically think about us being mildly asset sensitive, but one of the moving parts elsewhere on the balance sheet.

Speaker Change: Still above average, so I would holistically think about you as being mildly asset sensitive, but what are the moving parts elsewhere on the balance sheet?

Speaker Change: Still above average, so I would holistically think about you as being mildly asset sensitive, but what are the moving parts elsewhere on the balance sheet? Yes, that's a good point, and we do stick out in a very good way with our high level of noninterest-bearing deposits in the mix. Where we also stand out, and because we have that higher level of noninterest-bearing deposits, we did put more swaps and securities on the book to manage to a more interest-neutral position over the last year.

Speaker Change: Yes, that's a good point, and we do stick out in a very good way with our high level of noninterest-bearing deposits in the mix. Where we also stand out, and because we have that higher level of noninterest-bearing deposits, we did put more swaps and securities on the book to manage to a more interest-neutral position over the last year. And so that's exactly why we added those hedges, and that's what's offering us protection in a down rate environment.

Speaker Change: Pushed you toward viability, something.

Push you towards liability sensitivity.

Speaker Change: Yeah, that's a good point, and we do stick out in a very good way with our high-level non-suspirant deposits in the mix.

Speaker Change: Yeah, that's a good point, and we stand out in a very good way with our high-level non-suspirant deposits in the mix, where we all stand out, and because we have that higher level of non-transparent deposits, we did put more swaps on the book to manage to a more interest-neutral position over the last year. That's exactly why we added those hedges, and that's what's offering Okay. So it's mostly the hedges then, I guess, combined with [indiscernible] securities balances? Securities on the book to manage to a more interest-neutral position over the last year. That's exactly why we added those hedges, and that's what's offering us protection in a downgrade environment. Okay. So it's mostly the hedges then, I guess, combined with [indiscernible] securities balances?

Yes, that's a good point and we do stick out in a very good way with our high level of noninterest bearing deposits in the mix.

Speaker Change: where we all stand out and because we have that higher level of non-transparent deposits we did put more swaps

We also stand out and because we have that higher level of noninterest bearing deposits. We did put more swaps and securities on the book to manage to a more interest neutral position over the last year.

Speaker Change: Securities on the book to manage to a more interest-neutral position over the last year. That's exactly why we added those hedges, and that's what's offering us the protection in a downgrade environment.

Speaker Change: And so that's exactly why we added those hedges, and that's what's offering us protection in a down rate environment.

That's exactly why we added those hedges and Thats whats the offering us the protection in a down rate environment.

Curtis Chatman Farmer: Yeah, two points I would add on to that, Manan, I mean, we love deposits, regardless of loans, I mean, we're making money on these deposits, we're not holding capital on them, we love deposits just for what they represent amongst themselves, but having said that, we certainly don't want to operate in a just-in-time funding capacity for loans, I mean, we want to make sure we're prepared for when that loan comes, you can't necessarily turn deposits on on a dime, but we welcome the deposits, we're not going to turn them away, we're making money on them, and they continue to add to the stability of the overall franchise. Great.

Okay.

Speaker Change: Okay, so it's mostly the edges then, I guess, combined with the security balance.

Speaker Change: Okay, so it's mostly the edges then, I guess, combined with the security balance. Yes. I mean, we always look at it holistically between the hedges we put on in the form of both swaps and securities. But that's the balancing X factor in your equation there. Yes. I mean, we always look at it holistically between the hedges we put on in the form of both swaps and securities. But that's the balancing x factor to your equation there.

It's mostly the hedge and then I guess combined with it in securities balances yes.

Speaker Change: Yeah, I mean, we always look at it holistically between both the edges we put on in the form of both swaps and securities. But that's the balancing X factor to your equation there.

Speaker Change: Yeah, I mean, we always look at it holistically between both the edges we put on in the form of both swaps and securities. But that's the balancing X factor in your equation there.

We always look at it holistically between both the hedges we put on in the form of both swaps and securities, but thats the balancing X factor into your equation there.

Speaker Change: Got it. And then the last 1 for me is just around the brokered deposits. I think the guidance assumes flat brokered deposits moving forward. I guess, would you look to use the securities maturities kind of exclusively to pay down borrowings? Or is there the opportunity to kind of run off broker deposits next year, even though it's not contemplated in the guide?

Got it and then last one for me was just around the broker deposits I think the guidance assumes.

Speaker Change: got it and the last one for me was just around the the broker deposits I think the guidance assumes flat broker deposits moving forward I guess you know

Speaker Change: Got it, and the last one for me was just around broker deposits. I think the guidance assumes flat broker deposits moving forward. I guess you know. Would you look to use the securities maturity kind of exclusively to pay off borrowings, or is there an opportunity to kind of run off broker deposits next year even though it's not? Yes. I would say the runoff of securities will be used for a combination of funding loan growth and reducing wholesale funding. And I think of wholesale funding as some of the debt borrowings like FHLB, any security maturities we might have or bond maturities we might have, and broker deposit maturities.

Flat brokered deposits moving forward.

I guess you know.

Would you would you look to use the securities maturities kind of exclusively to pay down borrowings or is there opportunity to kind of run off broker deposits next year, even though it's not contemplated in the guide.

Speaker Change: Would you look to use the securities maturity kind of exclusively to pay off borrowings or is there opportunity to kind of run off broker deposits next year even though it's not?

James J. Herzog: And, you know, maybe a follow-up there on deposits. As rates start to go down, given your skew to commercial banks, how should we think about those deposit betas on the way down? You know, if we do get the fixed rate cuts or even, you know, more than that as we get into 2025, do you think the first few rate cuts are more beneficial given your skew to commercial banks, or should you start to see more momentum in deposit costs coming down as you get into rate cut numbers, you know, 4, 5, and 6? Yeah, every cycle is different, so it's hard to say for sure, but I think in this particular cycle, we could see a little bit of symmetry, or what I might call a LIFO approach, last in, first out.

Speaker Change: Yes. I would say the runoff of securities will be used for a combination of funding loan growth and reducing wholesale funding. And I think of wholesale funding as some of the debt borrowings like FHLB, any security maturities we might have or bond maturities we might have, and broker deposit maturities. So -- there is still a mixture that goes on there in terms of the overall formula. But I suspect, over time, and it's actually a goal of ours, to reduce bundled deposits over time. So at some point, you will see a reduction there. And securities maturities will be 1 of the inputs to that equation.

Speaker Change: Yeah, I would say the runoff securities will, you know, be used for a combination of funding loan growth and reducing wholesale funding. And I think a wholesale funding is both being, you know, some of the debt borrowings like FHLB, any security maturities we might have or bond maturities we might have, and broker deposit maturity. So there'll be some mixture that goes on there in terms of, you know, the overall formula. But I suspect over time, and it's actually a goal of ours to reduce broker deposits over time. So at some point you will see a reduction there. And security maturities will be, you know, one of the inputs for that equation.

Speaker Change: Yeah, I would say the runoff securities will, you know, be used for a combination of funding loan growth and reducing wholesale funding. And I think wholesale funding is both some of the debt borrowings like FHLB, any security maturities we might have or bond maturities we might have, and broker deposit maturity. So there'll be some mixing that goes on there in terms of, you know, the overall formula. But I suspect, over time, and it's actually a goal of ours to reduce broker deposits over time.

Yes, I would say the runoff securities will be used for a combination of funding loan growth and reducing wholesale funding and I think of wholesale funding is both being some of the debt borrowings like FHL B any security maturities, we might have or bond maturities, we might have and broker deposit maturities. So there will be some mixture that goes on there.

Speaker Change: So -- but we still have a mixture that goes on there in terms of the overall formula. But I suspect, over time, and it's actually a goal of ours, to reduce brokered deposits over time. So at some point, you will see a reduction there, and securities maturities will be 1 of the inputs to that equation.

Of the overall formula, but I suspect over time, and it's actually a goal of ours to reduce broker deposits overtime. So at some point you will see a reduction there and securities maturities will be one of the inputs to that equation.

Speaker Change: So at some point, you will see a reduction there, and security maturities will be, you know, one of the inputs into that equation.

James J. Herzog: I mean, certainly, we saw betas accelerate towards the end of this cycle, and even in the last couple of quarters, without setting highs, we've seen deposits continue to pick up. And so just as we've seen them more accelerated in the second half of this cycle, I think those might be the most sensitive deposits that we can take back down early in the falling rate cycle. So I am somewhat cautiously optimistic. You know, we are assuming, in the outlook, about a 60% beta. It was not too big of a delay following the first rate cut.

Got it. Thank you very much for taking my questions everyone I appreciate it.

Speaker Change: Thank you very much for taking my questions everyone.

Speaker Change: Thank you very much for taking my questions, everyone. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to President, Chairman, and Chief Executive Officer, Curt. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to President, Chairman, and Chief Executive Officer, Curt.

Speaker Change: Would you look to use the securities maturity kind of exclusively to pay off borrowings, or is there an opportunity to kind of run off broker deposits next year even though it's not?

Speaker Change: Thanks, Brody.

Thanks Brody.

Brody Preston: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to President, Chairman, and Chief Executive Officer Kirk.

Brody Preston: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to President, Chairman, and Chief Executive Officer Kirk. Let me again thank everyone for joining us today. As always, thank you for your interest in our company, in Comerica, and I hope you have a nice day. Let me again thank everyone for joining us today. As always, thank you for your interest in our company, in Comerica, and I hope you have a nice day.

Thank you we've reached end of our question and answer session I would like to turn the floor back over to President Chairman and Chief Executive Officer Curt Farmer.

Let me again, thank everyone for joining us today as always thank you for your interest in our company in Comerica and I Hope you have a nice day.

Kirk: Let me again thank everyone for joining us today. As always, thank you for your interest in our company and for America, and I hope you have a nice day.

Kirk: Let me again thank everyone for joining us today. As always, thank you for your interest in our company and in America, and I hope you have a nice day. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day.

Speaker Change: Thank you. That does conclude today's teleconference webcast. We disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change: Thank you. That does conclude today's teleconference webcast. We will disconnect your line at this time and have a wonderful day. We thank you for your participation today.

James J. Herzog: Having said that, every cycle is different, and I do recall back in 2019, the Fed cut 50%, I believe in July 19, and I didn't see a lot of falling rates in the industry overall. You know, that was a very controlled environment where the economy was still relatively strong, and I continue to think that the reason for the Fed cuts is really going to drive that beta. You know, if it's a very orderly takedown of rates and the economy continues to be very strong, it may be a little stickier to bring them down. But if the Fed reduces rates because there is a whole weakening in the economy, I think it will be thankful for a bit more leverage.

For your participation today.

Yeah.

James J. Herzog: So I would just emphasize that every cycle is different, but we do think there is the potential for some significant beta in those first few cuts. Brayden, what percentage of your deposits are directly indexed to the Fed Funds rate? Most of our deposits are not, you know, we're very much a relationship-based bank, and, you know, many of those are one-on-one conversations with customers, so, you know, we do have some reciprocal deposits that are considered somewhat indexed. Obviously, the broker deposits, their time deposits are somewhat indexed, you can see, but the vast majority of our deposits are not. Great, thank you.

Operator: Thank you. Thank you. The next question is coming from John Pancari from ISI. Your line is now live. Good morning, Jon.

John Pancari: My first question is just around the loan growth expectation, the 5% point-to-point expectation. Can you give us a little bit of color?

Where do you see the loan growth drivers coming from, and when do you really see acceleration? And overall loan growth, you know, as you look through 2024? Thank you. Jon, this is Peter.

So, it's actually pretty broad-based. I mean, we mentioned this morning, we still have a little bit of mortgage banker finance at the end of December that will be working against us a little bit through the year, but then across the rest of our businesses, it's pretty broad-based. I do think Beeler probably has some sort of momentum going into 2024 that will continue throughout the year. Our EFS business, I think, is a business that, if you kind of look at the appendix we've shown, has dropped a couple of quarters. I think it'll probably drop in the first quarter, but we think it'll pick up quite a bit going into 2024. But really, across the middle market, we feel like we've got some really good momentum. I would tell you that we feel like customer sentiment.

I think that changed a little bit in the fourth quarter in the right direction, and sort of our informal surveys that we do internally with everything seems to indicate that there's going to be some more demand as we get into what I would really say the second quarter. To answer your question, probably the second or third quarter is where I think we'll start to see that pick up. I don't, as we talk about today, our outlook for the first quarter is pretty flat to down a little bit, but I think as we get into the middle of the year, we're getting indications that we'll start to see some really good loan growth. Yeah,

James J. Herzog: Results from that 5% point-to-point. Great. Okay, thank you. That's helpful. And then separately, your guidance implies... Call it a ballpark about...

James J. Herzog: Thank you for joining us, and we'll see you next time. Ends up being more pressured than you currently forecast. Do you have expense flexibility to improve that operating leverage? I may use, you know, you set out the $45 million in expense reduction from the recalibration in 2024. Can that recalibration benefit that $45?

James J. Herzog: Can that go up if revenue is pressured to a greater degree? Well, John, as Jim said in his prepared remarks, that $45 million becomes $55 million on a run rate basis in 2025. And, you know, this is an interesting period of time.

Curtis Chatman Farmer: The whole industry has gone through an inflection point in 2023 and somewhat of a recalibration, to use your words. We've tried to be thoughtful in terms of balancing the things that we believe are driving revenue for us and will drive revenue for us going forward. That includes the products that we've invested in, especially in treasury management, payments, capital markets, and wealth management. It also includes the focus on small business, and expansion into new markets, into the southeast and into the Mountain West, Colorado region.

Curtis Chatman Farmer: And so we want to stay focused on those because we're trying to really play the long game here and try to get beyond sort of the immediate environment that we're operating in. And then, secondly, I would say, while we did have some expense initiatives in the quarter, we're always thinking about additional efficiency opportunities. Again, it's all about sort of balancing between those two.

James J. Herzog: And so my hope is that we would see positive operating leverage really based on overall revenue growth and a return to a more normalized interest rate environment and, hopefully, a soft landing on the economy and a lack of further credit deterioration, et cetera. If we don't see that, then obviously, we need to think about what else we can do from an efficiency standpoint. Thank you. Regarding that, when do you expect you could break into more of a positive operating leverage trajectory? Yeah, Jon. It's Jim.

James J. Herzog: I mean, everyone just goes on and makes comments. You know, I do think 2024 is a bit of a transition year, not just for us, but for the whole industry. I think you're hearing that from some of the other calls, too. You know, we're in this kind of tweener stage where interest rates continue to rise, or pay rates and deposits continue to edge up a little bit. Yeah, the Fed isn't raising rates. That makes it a really challenging year. I do think things will start to move in the positive operating leverage direction in 2025. You don't have a complete line of sight into that yet, but I mentioned how we expect interest income to really have some great momentum as we enter into 2025. And, of course, that's always the goal, to have positive operating leverage. And, you know, on the topic of expenses, I'll just add that I think that really is a journey, not a destination. We always have to be looking at expenses.

James J. Herzog: I don't think this will be the end of taking a really hard look at what we can do over time. And I think expense reduction is really, you know, having a purpose of twofold. One is to create capacity for investment, which continues to be critically important, probably more so now than ever.

James J. Herzog: And then secondly, to make sure we get that positive operating leverage. So we will continue to kind of keep an eye on not just normal budget hygiene but actually seeing what more significant steps we can take over time.

James J. Herzog: And I think 2025 should have things moving in a better direction. But again, not a complete line of sight into that. Okay, great. Thanks, Sheriff. Thank you. Thank you. As a reminder, that's star number one to be placed into question two. Our next question is coming from Jon Arfstrom from RBC Capital Markets. The line is now live. Hey, good morning, everyone. Hey, good morning. Question on your... net interest income guy, what kind of rate assumptions do you have in that for any kind of rate scenario that you think derails that from what you're thinking today? Good morning, Jon.

James J. Herzog: Yeah, we did assume the 1231 forward curve, which has almost, you know, six rate cuts in it. You'll notice on our asset sensitivity page that, for the first time, that I can recall at least, we became liability sensitive. So I think this is a very fortuitous time to become liability sensitive with potentially six rate cuts out into the future. We do have the sensitivities there using the 60% data.

James J. Herzog: You can see that we do benefit from falling rates, assuming that we repeat as expected without too much of a lag. So I would say if we get fewer cuts than that, that will put a little pressure on that outlook. But we are benefiting from the 1231 curve if we really do get those six cuts. So that's the assumption, and we'll continue to monitor, and we'll see, you know, where the economy and where the FOMC go. Okay. Yeah, a lot going on this morning. I had to rub my eyes when I saw that slide.

James J. Herzog: I guess one of my follow-up questions, and maybe you answered it, is do you still consider yourself a candidate? And I guess the answer is no at this point. That's what our models would say. You never know how customers are going to react and how the competition is going to react, but I would say we are a little more liability sensitive than we are asset sensitive. Now, that liability issue could have a little bit more of a leg in it than what we're projecting.

James J. Herzog: We just don't know how customers and competition will react, but over the course of time, it does appear that we are a little more liability sensitive. Point of clarification on the expense piece of it. Is it $45 million in 2024 and an incremental $55 million in 2025, or an incremental $10 million in 2025? Incremental 10 million. And then one, Melinda, I thought you'd get a pass, but I just wanted to ask one credit question on slide 13, that bottom right, where you show that percent criticized in TOS, Leverage, then Auto. Curious, how elevated is that relative to normal? I don't know if there is a normal, but how elevated is that, and what does it take for those levels to come back down?

Melinda Coffey: Yeah, thanks for the question. Not surprisingly, but a positive surprise this quarter was that we actually saw improvement in three of the four incremental monitoring portfolios. So we saw balances and criticized assets go down in TLS leverage and automotive production. I would say that that leverage portfolio at 10% to 12% is about normal.

Melinda Coffey: That is an elevated, higher-risk portfolio by its very design. TLS, again, is going to be elevated above the normal portfolio at 18%. I would say that's still above sort of the historical norm.

Melinda Coffey: But we are seeing positive momentum in TLS. Certainly, the rate environment, if it cooperates with the fourth quarter, is going to be a real positive for that segment as well as leverage. You didn't ask about commercial real estate specifically, but we did see that relatively flat in the fourth quarter.

Melinda Coffey: So we've got some assets. We have assets that are moving into the criticized bucket, but we also have assets that are moving out of the criticized bucket. And they move out when they either pay off or we re-margin them and get them back into a conforming state. So I feel really good about all of those portfolios that are listed there on the right and would expect that we should, again, if the rate environment cooperates and we don't see a downturn in the economy, continue to see these stable to potentially improve towards the bottom. That's the back half of the year.

Melinda Coffey: Okay. Good. That's very helpful.

Melinda Coffey: Thank you, Melinda. Mm-hmm. Okay. Thanks, John.

Operator: Thank you. The next question today is coming from Steven Alexopoulos from J.P. Morgan. Your line is now live. Good morning, Steven.

Steven Alexopoulos: Morning. So I want to start by going back, and others. Thank you for your first question, and it's funny, for all the years I've covered the company, I think we were the most asset sensitive. And if you look at the historical record, it will never be the same. Literally everywhere.

James J. Herzog: What you've done now is you've basically restructured the balance. Here we go. If I look at this 100 basis point gradual, if I look at this 100 basis point gradual, Death or No Death. So, And then we get here, let's say the forward curve plays out, we go to 100 basis points or so. Does that imply your NIMH, the new NIMH for American Life? Right as Barton. I mean, a year ago, you were three.

James J. Herzog: For, I'm trying to figure out, like, what the hell does a margin look like at this company with this balance? In a normal rate environment that has actual... Actually..., and many others. And you are basically a 3% margin bank now. Take it away, guys.

James J. Herzog: You know, we have bounced around quite a bit over time, Steven, and we didn't necessarily think that was always a great thing. I do think stability is important.

James J. Herzog: Again, just the overall construction of the balance sheet and the lumpiness and the amount of cash we're carrying or security we're carrying is also a factor. And just, again, our business model creates a little bit more lumpiness in that regard. So we would like a little bit more stability. As I mentioned in Peter's question, I do see our progression going north of, you know, where we ended here, and I think we'll continue to go north as we move through 2025. So, you know, we're above 3% on a normalized basis, and I think we are going to have a much more stable net income earnings capacity going forward. Don't necessarily want to give an exact number, but it is north of 3% for sure. Thank you for watching.

James J. Herzog: Black Box, doesn't really help shed some light on what expectations we have. I want to add some expenses too. So you guys are guiding around 3% operating income. And that's with the benefit of the new initiative. Thank you. Why is that? Rose.

James J. Herzog: And then if we think about 2025, you don't announce another initiative, should we expense the growth rate to lift off? You know, many of the expenses that we have in 2024 and a lot of the investments we're making are not ongoing run rates. A lot of it is a one-time effort to get some of these initiatives up and running, whether they're on the revenue side, the product side, or the risk management framework side.

James J. Herzog: So I wouldn't necessarily assume that the expenses that we are incurring in 2024 all carry over to 2025. But we are in an investment mode. I mean, I think we may be underinvested in certain years if you go back historically.

James J. Herzog: So I do think there's a little bit of catching-up going on, but we are committed to making sure that we can compete in the years ahead. We do think a certain amount of investment is required there, and we feel comfortable it's going to pay off. Can you expand on that, Jim? Like, where did you learn about it, and where did you catch it?

Curtis Chatman Farmer: So we feel like we're doing the right thing, and we do feel like it's going to pay off with positive operating leverage as we move forward. You see this is, Kurt, I just would add that we are, as I said earlier, focused on top-line revenue growth. We believe we have opportunities on both the income side and with the long portfolio. But certainly, if we do not see growth materializing, if the economy does not move in the right direction, if interest rates don't move in the right direction, allowing us to get some relief on the deposit basis, et cetera, then we'll continue to look at expensive opportunities. I'd also add that part of this, from a risk framework standpoint, is continued investment and preparation, potentially being over $100 billion, or if bonds will, through requirements, step down to banks of $100 billion, kind of in our category of $86 billion. Thank you for watching!

Steven Alexopoulos: Thanks, Steve. Thank you. The next question is from Chris McGrady from KDW. Your line is now live. Morning, Chris. Perhaps your phone is on mute, Chris.

Chris McGrady: Good morning. Sorry about that. On the Expanse, Jim, I think you've talked historically about roughly $50 million for the $100 billion rules as you kind of know them today. How much, can you remind us how much you've accrued in the guide for 2024 related to that? You know, I would say we have a small portion of that in the guide for 2024. The vast majority of that $50 billion is probably more likely to be in future years as we get closer to $100 billion. But there are several million dollars in it.

James J. Herzog: We really try to address those things, Category 4 that we think has a longer runway to get ready for. You know, so those items that we think would take, you know, say two, three, four years to really be ready, we're getting those things in motion now. There's a majority of the Category 4 requirements we either already have, or if we don't have them, we think we can complete them within one to two years.

James J. Herzog: And so we're holding off on that. So, you know, the majority of the $50 billion is still out there in the future, but we do have some of that on the runway in 2023 and a little bit more in 2024. Okay, great. And then maybe one for Kurt.

Curtis Chatman Farmer: I think the street's got you roughly at a low teens return on payment for common equity this year and next. Can you elaborate on how you think of the return potential of this company? Obviously, you've got a much more stable margin over time, but you're also balancing some of the investments.

Curtis Chatman Farmer: Yeah, I wouldn't maybe give a forecast exactly around returns or even multiples on the company, but I would say that, based on the comments we made earlier, certainly 23, was a disruptive year and a reset for the industry, and 24, I think is some recalibration. I believe that interest rates are going to come down, and when they do, I think it will have a positive impact on NII for us, and we believe, as we said earlier, that in the latter half or second half of the year, we will start seeing NII return. We think we've got great opportunities on the seed income side, and we showed that in 2023, and we think we've got good growth opportunities in terms of the long portfolio. And so our goal is to get positive operating leverage, and I believe that we can return to a level that's commensurate with the industry overall or better in the longer term. But 24 will be somewhat of a continuous inflection year. Great, thanks for the call.

Chris McGrady: Thank you. Thank you. The next question today is coming from Brody Preston from UBS. Your line is now live. Good morning, everyone. Good morning, Brian. Jim, I was hoping maybe you could help me nail down the cadence of the swap amortization, you know, the accretion into NII, how much of that, I think you said most of this in 25 and then in 26, but how much of that happens in 2024 and then how much happens in 25 and 2026? Good morning, Brody.

Brody Preston: Yeah, we don't have a 100% clear line of sight into that because out of those $7 billion of BISB hedges, or hedges dedicated to BISB loans, a little less than $3 billion of them are not redesignated yet because we have not generated enough SOPR loans to redesignate those particular hedges. We do expect to have that complete, or at least largely complete, by the end of the first quarter, and I think at that point, we'll actually have a fair amount of certainty as to how it lays out. But in general, the way it looks right now with the forward curve, you know, and this is independent of what I offer in the guidance because, again, there's a lot of uncertainty there.

Brody Preston: You know, there will likely be a very somewhat mild negative impact in 2024. To this end, there won't be any kind of negative impact, and just to creep that back in later years. So, again, it's not an economic loss, and we are very likely to get the vast majority of it back in 2025. You know, I think of it as maybe, you know, north of 80% of that loss accrued back in 2025, and then most of the remaining after that will come in 2026. Got it. Thank you. That's very helpful.

James J. Herzog: I guess if I could just ask one fine point about the first quarter with the redesignation. Should we see something similar to what we saw this quarter? Maybe not in terms of size, but just directionally where there's a negative kind of non-operating impact on fee income and maybe a small positive impact. You know, it really depends on the rate curve that's going to drive it, maybe to a lesser extent the timing of when we redesignate. Certainly, it's going to be a small fraction of what you saw in the fourth quarter.

James J. Herzog: And again, whatever you do see, we'll simply accrete back in future quarters. So, I know there won't be any kind of economic surprise there, but from an accounting and recognition standpoint, there will be some volatility in the first quarter. And again, we'll accrete that back in later quarters and likely mostly in 2025. But a little bit of volatility in Q1, but also a large amount of not complete certainty after Q1 also, and we can lay out that exact guidance and cadence. Got it. So you don't have the dollar impact for the first quarter, an estimate of the dollar impact for NII for the first quarter. We don't.

James J. Herzog: We need for the dust to settle in terms of just getting the rest of these re-designated and, you know, where the rate curves will drive that. And again, it will be made whole, ultimately, over the next couple of years.

James J. Herzog: Okay. If I could ask you just another one on the NII guide for the year, I think you said it was a 60% beta that you were running through the guidance. Do you happen to have the non-interest bearing deposit mix with underlying the guidance? Yeah, we continue to think that we're going to bottom out in the low 40s or, you know, very near 40%, so we've been pretty consistent on that over the last, you know, two to three quarters. Of course, the big driver of that isn't so much even just non-interest-bearing deposits but where interest-bearing goes.

James J. Herzog: You know, we do plan on having great success with interest-bearing deposits in relation to customers. On the other hand, at some point, we probably will pay down some of these broker deposits that we have because it's really, you know, a form of wholesale funding that all banks make some degree of use of. So, the overall level of interest-bearing will, of course, play some optical games with that percentage, but our base case is to be in the low 40s, nearing that 40% point. Okay, and then I did just want to ask on the liability-sensitive disclosure, could you maybe help me think about, you know, the moving parts that make you liability-sensitive, just as, you know, if I just simply looked at, you versus a lot of your peers, 40, 41, 42%, whatever it is right now, NIB, and still effectively 60%, I think, floating rate loans, both of those items, 60% might be closer Pushed you toward viability, something.

James J. Herzog: Yeah, that's a good point, and we do stick out in a very good way with our high-level non-conspiring deposits in the mix, where we all stand out, and because we have that higher level of non-transparent deposits, we did put more swaps, and securities on the book to manage to a more interest-neutral position over the last year. That's exactly why we added those hedges, and that's what's offering us protection in a downgrade environment. Okay, so it's mostly the edges then, I guess, combined with the security balance. Yeah, I mean, we always look at it holistically between both the edges we put on in the form of both swaps and securities. But that's the balancing X factor in your equation there, got it, and the last one for me was just around the broker deposits. I think the guidance assumes flat broker deposits moving forward. I guess you know, would you look to use the securities maturity kind of exclusively to pay off borrowings, or is there an opportunity to kind of run off broker deposits next year even though it's not?

James J. Herzog: Yeah, I would say the runoff securities will, you know, be used for a combination of funding loan growth and reducing wholesale funding. And I think wholesale funding is both some of the debt borrowings like FHLB, any security maturities we might have or bond maturities we might have, and broker deposit maturity. So there'll be some mixing that goes on there in terms of, you know, the overall formula.

James J. Herzog: But I suspect over time, and it's actually a goal of ours to reduce broker deposits over time, so at some point, you will see a reduction there. And security maturities will be, you know, one of the inputs for that equation.

Brody Preston: Thank you very much for taking my questions, everyone. Thanks, Brody. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to President, Chairman, and Chief Executive Officer Kirk. Let me again thank everyone for joining us today. As always, thank you for your interest in our company and in America, and I hope you have a nice day. Thank you. That does conclude today's teleconference webcast. We will disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Q4 2023 Comerica Inc Earnings Call

Request a DemoDemo

CMA

Comerica

Earnings