Regions Financial Corp (RF) — Q2 2018 Earnings Call Transcript

Thank you, Shelby. Welcome to Regions Second Quarter 2018 Earnings Conference Call. John Turner, our Chief Executive Officer, will provide highlights of our financial performance; and David Turner, our Chief Financial Officer, will take you through an overview of the quarter. A copy of the slide presentation as well as our earnings release and earnings supplement are available under the Investor Relations section of regions.com. Our forward-looking statements disclosure and non-GAAP reconciliations are included in the appendix of today's presentation and within our SEC filings. These cover our presentation materials, prepared comments as well as the question-and-answer segment of today's call. With that, I will now turn the call over to John.

Thank you, Dana. Good morning and thank you for joining our call today. Let me begin by saying that we are pleased with our second quarter results. Our performance clearly demonstrates that we are continuing to successfully execute our strategic plans, building long-term sustainable growth while delivering value to our customers, communities, and shareholders. Our reported earnings from continuing operations of $362 million reflected an increase of 21% compared to the second quarter of the prior year. Importantly, we delivered solid revenue growth while maintaining a focus on disciplined expense management. Of note, adjusted pre-tax pre-provision income increased to the highest level in 10 years. In addition, this marks another very strong quarter with respect to asset quality, as virtually every credit metric improved. In terms of the overall environment, we remained encouraged by improving economic conditions as well as continued improvement in customer sentiment. We remain focused on generating prudent and softer loan growth, while also meeting the evolving expectations of our customers. Once again, we are proud of our robust capital planning process. Our plan of capital actions received no objection in the recent CCAR results, and we're set to deliver a robust return of capital to our shareholders, while maintaining appropriate levels to meet customer needs and support organic growth. With respect to our business strategy, we are committed to the diligent execution of our plan and are making notable progress with respect to our Simplify and Grow strategic initiative, while much has been accomplished, the process is ongoing, and we currently have approximately 40 initiatives underway that are aimed at accelerating revenue growth, driving operational efficiencies, expanding the use of technology, and ultimately further improving the customer experience. Through this continuous improvement process, we aim to deliver consistent and reliable results over the long-term. For a while now, we've been speaking about four key strengths we believe provide considerable momentum for Regions. First is our asset sensitivity and funding advantage, driven by our low cost and lower deposit base. This provides significant franchise value and a competitive advantage, particularly in a rising rate environment. Second relates to asset quality. We experienced another quarter of broad-based improvements in credit quality and expect modest improvement throughout the remainder of the year. Further, we believe the de-risking and portfolio shaping activities we have completed, combined with our sound risk management practices, position us well for the next credit cycle. Third, our capital position supports additional capital returns as we move towards our target Common Equity Tier 1 ratio, the execution of which was again validated through the recent CCAR process. Finally, we expect additional improvements in core performance over time through our Simplify and Grow strategic initiative, which is well underway as evidenced by our actions today. As we look ahead, Regions is well positioned and we're building momentum every day. We have clear plans and a strong team, and our focus on effectively executing our plans while adapting to the ever-changing environment remains steadfast. We do not anticipate major changes to the Company's strategic direction. Going forward, we will build on the solid foundation already established, delivering consistent and reliable financial results, and creating a culture of continuous improvement. Our priorities of providing best-in-class customer service and unwavering commitment to our associates and communities will not change. Grayson Hall led the Company through one of the most challenging periods in our industry's history. His leadership and commitment have positioned the Company well for the future. On behalf of our associates, we thank Grayson for his 38 years of dedicated service, and I personally want to thank him for his guidance, counsel, and support. With that, I'll now turn it over to David.

Thank you, John, and good morning. Let's begin with average loans. Adjusted average loan balances increased $382 million over the prior quarter, driven by modest growth in both the consumer and business portfolios. Growth in the consumer portfolio was driven primarily by our expanded point of sale partnerships as well as residential mortgage and indirect vehicle lending. Average loan growth in the business lending portfolio was again driven by C&I lending, primarily from our specialized lending areas. Consumer lending should continue to produce consistent loan growth across most categories, and C&I should continue to lead growth within business lending. Headwinds associated with previous de-risking efforts in our investor real estate portfolio have slowed, and as a result, we have begun to see loan growth on an ending basis largely in our term real estate product. Let's move onto deposits. We continue to execute a deliberate strategy to optimize our deposit base by focusing on valuable, low cost consumer, and business services relationship deposits while reducing certain higher cost brokered and collateralized deposits. As a result, total average deposits declined modestly during the quarter; however, average consumer segment deposits experienced solid growth of over $1 billion consistent with our relationship banking focus. Our deposit advantage has been generated from our granular and loyal deposit base. During the second quarter, interest-bearing deposit costs totaled 38 basis points while total funding costs remain low at 52 basis points illustrating the strength of our deposit franchise. Cumulative deposit betas through the current rising rate cycle are only 14%, and importantly, consumer retail deposit betas remained low at approximately 1%. As expected, commercial deposits have been more reactive with a cumulative beta of approximately 44%, driven primarily by large corporate and brokered deposits. We believe our large retail deposit franchise differentiates us in the marketplace. As such, we are in a position to maintain a lower deposit beta relative to peers. Our customer base is also highly engaged, with over 55% of consumer checking customers utilizing multiple channels and more than 75% of all interactions now being digital. The number of active mobile banking customers has increased 12% compared to the prior year, and active mobile deposit customers have more than doubled. We continue to focus on being our customers' primary bank as 93% of our consumer checking households include a high-quality primary checking account. So, now let's look at how this impacted our results. Net interest income increased 2% over the prior quarter and net interest margin increased 3 basis points to 3.49%. These increases were driven primarily by higher market interest rates and prudent deposit cost management. With respect to full year 2018, the current market expectation for the Fed to continue increasing rates combined with better than forecasted deposit pricing will likely push NII towards the upper end of our 4% to 6% guidance on a non-fully taxable equivalent basis. Specific to the third quarter of 2018, current market expectations for our rate increase in September along with similar deposit betas to what we have experienced in recent quarters are expected to result in another solid quarter of growth in net interest income along with modest net interest margin expansion. Remember, the third quarter will have one additional day that will benefit net interest income but reduce net interest margin. We also experienced a good quarter as it relates to fee revenue. Adjusted non-interest income increased 2% with growth across most non-interest revenue categories during the quarter. Keep in mind, the first quarter benefited from net gains associated with the sale of certain low-income housing investments, and a positive valuation adjustment associated with a private equity investment totaling $13 million that did not repeat this quarter. These gains were included in other non-interest income. With respect to corporate fee revenue categories, the Company's investments in capital markets continue to pay off as a business delivered another record quarter. Revenues totaled $57 million with all businesses within capital markets contributing. The second quarter increase was led by merger and acquisition advisory services and customer derivative activity. Consumer categories remain an important component of fee revenue. To that point, service charges and card and ATM fees grew by 2% and 8% respectively. This growth has been aided by year-to-date checking account growth of approximately 1.2%. In addition, revenue growth was supported by an increase in debit transactions of 9% and an increase in credit card spending of 10% during the second quarter. Mortgage income remained stable during the quarter despite seasonally higher production due primarily to a 25 basis point reduction in gain on sale. While production is lower across the industry, we continue to expect better performance relative to peers due to our historically higher mix of purchase versus refinance volume. We continue to evaluate opportunities to grow our residential mortgage servicing portfolio, and during the quarter, we reached an agreement to purchase the rights to service approximately $3.6 billion of mortgage loans, with an expected close date of July 31, 2018, subject to customary closing conditions. Increasing servicing income is expected to help offset the impact of lower mortgage production. Wealth management income was up modestly in the quarter driven by a 12% increase in investment services fee income. Let's move on to expenses. On an adjusted basis, non-interest expense increased approximately 2%, attributable primarily to increases in professional fees and expenses associated with Visa Class B shares sold in the prior year. Excluding the impact of severance charges, salaries and benefits decreased approximately 1%, reflecting staffing reductions and lower payroll taxes, partially offset by annual merit increases. As a result of our efforts to rationalize and streamline our organization, staffing levels declined by 340 full-time equivalent positions compared to the prior quarter and approximately 1,100 full-time equivalent positions compared to the second quarter of the prior year. Year-to-date, full-time equivalent positions have declined by approximately 700 positions. Further salaries and benefits expense reductions are expected in the third and fourth quarters as approximately 500 additional position reductions will benefit the run rate. Keep in mind, these numbers do not include the 644 position reductions associated with Regions Insurance. In addition, we continue to take a hard look at occupancy expense and will exit approximately 500,000 square feet this year benefiting 2019 and beyond. The adjusted efficiency ratio was 60.4%, down slightly from the prior quarter, and through the first six months of 2018, the Company has generated 2.7% of adjusted positive operating leverage. For the full year 2018, we continue to expect adjusted positive operating leverage of 3% to 5%, relatively stable adjusted expenses, and an adjusted efficiency ratio of less than 60%. Let's shift to asset quality. Broad-based asset quality improvement continued during the quarter. Non-performing, criticized, and troubled debt restructured loans, as well as total delinquencies, all declined. Non-performing loans excluding loans held for sale decreased to 0.74% of loans outstanding, the lowest level since 2007. Net charge-offs totaled 32 basis points of average loans, an 8 basis point decline from the prior quarter's adjusted ratio. The provision for loan losses approximated net charge-offs during the quarter and included the release of our remaining hurricane-specific loan loss allowance of $10 million. The allowance for loan losses totaled 1.4% of total loans outstanding and 141% of total non-accrual loans. Let me give you some brief comments related to capital and liquidity. As John mentioned, we are pleased with our CCAR results and remain committed to maintaining prudent capital ratios while possibly investing in our businesses for future growth and delivering a solid return of capital to our shareholders. On July 2nd, we completed the sale of our Regions interest subsidiary; the after-tax gain associated with the transaction was approximately $200 million and Common Equity Tier 1 capital generated was approximately $300 million. Our capital plan incorporates the capital generated from this transaction, and it is included in our board-authorized share repurchase program for up to $2.03 billion in common shares over the next four quarters. Subject to our board's approval, the plan also includes a 56% increase in Region's quarterly common stock dividend to $0.14 per share beginning in the third quarter. Regarding 2018 expectations, our full-year expectations remain unchanged and are summarized again on this slide for your reference. So in conclusion, we are pleased with our second quarter results and believe our Simplify and Grow strategic initiative along with other opportunities and competitive advantages position us well for the remainder of 2018 and beyond. With that, we thank you for your time and attention this morning, and I'll turn it back over to Dana for instructions on the Q&A portion of the call.

Thank you, David. As it relates to Q&A, please limit your questions to one primary and one follow-up to accommodate as many participants as possible. We will now open the line for your questions.

On the loan growth front, I want to see if you can give us a bit more color on where you see the shift of the drivers of loan growth through the back half coming from, and your full-year outlook of low single-digits seems like at this point you might be trending at the lower end of that. Do you see it that way? Or do you think you can break to the upside a little bit through the back half?

Well, I would say first of all, we are affirming our current guidance for low single-digit loan growth excluding the runoff of this targeted indirect portfolio. By focusing on the consumer side of the business, we feel pretty good about our forecast. We look at mortgage and expect it generally to be flat. I think we see growth in the HELOC portfolio, and the balance of our consumer business should grow modestly, we believe, across most of the sectors for the remaining part of the year. On the corporate side of the business, our pipelines have improved since the first quarter and continue to be solid. Our customers are optimistic, but I would say there is still a bit of caution. We're seeing customers use a lot of their liquidity to fund their additional borrowing needs, or what would have traditionally been additional borrowing needs. And you can see that in some of our deposit balances. But generally, if you think about our business in the three segments that we think about them: the corporate banking business, I think will grow modestly through the balance of the year largely as a result of activity within our specialized industries group and more targeted focus by our diversified industry's bankers, and we've seen both of those teams have success in the first part of the year. In the traditional middle market commercial banking and small business banking, we have renewed focus there that we are beginning to see really get some traction. Owner-occupied real estate, which has been running off rapidly over the last 10 years, has really begun to slow, and that will help us see some additional loan growth through the balance of the year. Finally, in real estate, we indicated we thought in the second quarter we would begin to see some modest growth. You remember that we have been de-risking that portfolio exiting many of the multifamily construction loans that we have on the books. That has been successful, and term lending has become more competitive, which has begun to have a positive impact on our portfolio. So, we saw some nice loan growth at the end of the quarter in real estate banking, and so all in all, I think our guidance is solid. I would not say that at this point we guide towards the upper end of the range; I think it would be the lower end to the middle of the range. But we do believe that we will achieve those objectives, and if we do, we will meet all of our other targets as a result of that.

Then in terms of your margins, I saw some pretty good expansion again this quarter and probably would have even been higher if not for the leverage lease transaction. But just wondering about your updated thoughts on sensitivity to the ongoing Fed moves, but also rising betas? What's your updated sensitivity to each incremental 25 basis points hike?

I think so our beta thus far is 14%. We do think that will pick up in the back half of the year, but if we look at 2018, we believe the beta in the 30% range is what's baked into the guidance we've given. Thus far, we've outperformed our expectation on beta, and rates have come in faster than we had anticipated as well. And so, we are reiterating our guidance on net interest income growth this year to the higher end of that 4% to 6% range. We think we can get to the higher end of that. As it relates to next quarter, we think we'll have another solid quarter of growth in NII, and we think our margin will grow modestly.

Just wondering if you could clarify what your M&A interest and capacity is at this point?

Sure. We have an M&A team that is charged with finding both bank and non-bank opportunities, and we've had some success acquiring non-bank businesses, mortgage servicing rights, and other loan portfolios. We will continue to look for those kinds of opportunities because non-bank opportunities help us fill gaps in our capabilities, meet customer needs, and importantly, grow and diversify revenue. Bank M&A is a bit more challenging. We think about where Regions trades relative to our peers. We are trading at a discount, and as a result, the economics just don't work for us. We look at our plans and our opportunities, and we think they are significant. We benefit from rising rates. We have a good plan to return capital to our shareholders, which should generate outsized returns. So, we’re not going to do a transaction that would be significantly dilutive to our shareholders in this environment. That said, we’re not going to stop looking; we will do that. We learn as we do. We’re going to be very conservative, very thoughtful. We will seek to build relationships with potential sellers and we will watch the market. But we’re going to be very disciplined in that regard.

In terms of the balance sheet mix, you haven’t had a lot of earning asset growth, which has allowed you to be disciplined on the deposit side. How much more shrinkage do you think you could see in terms of non-interest-bearing deposits, and at what point do you think you might have to just go out into the market and keep up with, hopefully, a better trajectory on the loan growth side?

Again, this is David. So you mentioned us being disciplined on pricing on the deposit side, but I would tell you we've been very disciplined on the left side of the balance sheet. We want to grow loans. We did grow loans this quarter, but we’re going to remain very disciplined, making sure that when we layout capital to our customers to serve their needs that we have an appropriate return on capital. We have a low loan-to-deposit ratio relative to our peers, and staying disciplined on the left side of the balance sheet lets us be even more disciplined on the right side. You are correct in saying that non-interest-bearing deposits have been under pressure; a lot of that has been on the corporate banking side where corporate banking customers are looking for alternatives to generate yield. Some of that's gone into interest-bearing accounts, and some has been utilized, as John mentioned earlier, to fund capital expenditures and put the excess cash to work, but at some point we believe those actions will dissipate and we'll be able to grow loans. We are constantly looking for relationship deposits, whether on the consumer side or the business service side. That will always be important to us. But we don't see any need in the near term to have to go out and bid up deposits from a cost standpoint.

Yes, I will just make another couple of points, Ken. One is, if you look at growth in consumer deposits, we grew demand deposits in the consumer business by 6.4% year-over-year and continue to see good growth in checking accounts and households. So, we believe that we will see nice steady growth in consumer deposits. The second thing I would say is that we are again reiterating our guidance for low single-digit deposit growth through the end of the year. And so, we do expect to continue to grow deposits and finish the year with little growth.

On the commercial real estate growth, I was just wondering, we’ve heard more comments around competition and tighter spreads. Wondering what you are seeing as it relates to that? And what types of properties are driving growth?

Yes, so that's a great question. We are seeing competition, particularly in that term lending product. Spreads have compressed 50 basis points or more since the beginning of the year. We've had to be very selective in seeking out opportunities in the space. The growth we've had, though modest, has been in multifamily and office primarily where I believe we have good expertise. We have been managing that portfolio very actively for quite some time, and today it represents about 7% of our total loan portfolio down from, at one time, about 30% during the financial crisis. So, we believe it's a business that we can and will continue to grow modestly and provide really nice fee income opportunities for us. And you see that improving in our capital markets business. So, we will grow it modestly, but carefully and manage it very judiciously.

And then on the securities portfolio, I'm wondering what your thoughts are on the balances going forward as the yield curve has narrowed? And what are your thoughts if they could convert in the next couple of quarters?

In terms of the level of securities or the percentage for earnings assets, we don’t anticipate any significant change there. If we do get liquidity coverage ratio relief, we may change out some Fannie Mae securities and put them to work more effectively. But right now, we think we just continue to manage the book with the same duration. We have a lift coming from fixed-price lending and our securities book, even if rates stay flat to where they are right now, as we re-rate some $12 to $14 billion worth of assets over a given year. So, an inversion, as you mentioned, we think would be more central bank driven than a precursor to a downturn. And even with that, if rates shift up and re-pricing comes through, we still have a significant tailwind in helping us to continue to grow NII.

I wanted to ask about loan yields. Your C&I yield obviously picked up with the higher rates, but significantly less than many other banks that benefited from the blowout of LIBOR relative to the Fed funds rate, and maybe the leverage lease transaction had some impact on the margin. But I'm curious, why you're not seeing a bit more of a yield pickup as some competitors have? Does it have to do with hedging strategy or the structure? It seems like there's been a disconnect versus what we've seen from other banks' reported results.

I'll take a shot, and maybe David can follow. Our C&I business has generally been a relationship-oriented business that has been focused on our core markets in Alabama, Mississippi, and Tennessee, where we have long and deep relationships. We enjoy a significant amount of demand deposits associated with those relationships. Therefore, while we may not get the same yield on the loan side as our peers, we enjoy more demand deposits, and we view that as a fair trade-off. Another part is that we have been seeking to grow both our government and institutional banking business, which can be more competitive and yield narrower. Separately, we have been actively managing the runoff in our owner-occupied real estate portfolio, where yields have been compressed somewhat as well.

One other thing to mention is looking at the whole relationship; you can't compare the loan side isolated. While we did have the leverage lease impairment you pointed out, that's about three basis points of the change as well. So that plays into this situation.

It's just kind of hard to triangulate if some of your peers are having 30 basis points or more yield pickup sequentially pointing to the higher LIBOR, and you guys have been pretty consistent at 10 basis points every quarter despite the rate hikes. Is there anything else in play here?

You have to look at mix and everybody's hedging strategy. If you look at our asset sensitivity, 25% of it is on the short term, 25% is on the middle term, and 50% is on the long end. That has a dampening effect in terms of rate increases.

If I could just get in a quick one, the indirect other consumer obviously growing quite well with Green Sky. But where do you think that book can grow to in terms of absolute size over the next year or two?

Our indirect other consumer is about $7 billion. We are looking at that number to be in the $2 billion range. So, some growth there, but not extraordinary growth.

Maybe following up on the earlier discussion on M&A. Can you outline both on the non-bank side and the bank side of either product or geography areas where you'd be particularly interested from a strategic perspective?

With respect to non-banks, I think our focus has been on adding capabilities to meet customer needs. We have been acquiring loan portfolios, mortgage servicing rights, and will continue to do so as it's supportive of filling gaps in our offerings. On the bank side, typically our interest lies in expanding our footprint. Size preference ranges from $3 billion to $15 billion, but we won't pursue a transaction that would significantly dilute our shareholder value or earnings.

I was wondering if you can talk about the relationship of provision expense to charge-offs, looking at the next few quarters, obviously this quarter, it was very close, but with loans starting to grow again here, could you give some color on that?

Yes, I think you will continue to see a match of provision to charge-offs, and there could be a slight build relative to the loan growth, as one would expect.

In terms of the loans you are adding now, the indirect consumer which is in that bag, but the growth that you are getting there in terms of some of the other portfolios. Are they given the lost content of what's being added higher than what's lending off, or is it still some kind of underlying de-risking holding back?

I think we're going to see some modest improvement in our numbers across all of our portfolios over the balance of the year, definitely, and what we're seeing with those loans is that they are performing very well, and we would expect them to continue to perform well, including better than those that are paying off.

I understand that you've briefly mentioned the trajectory of Simplify and Grow. Can you provide more details about the actions taken in the past quarter? How do you anticipate the operating leverage trajectory will change from here, given the run rate we've experienced over the last year? Do you think we might enter a period with greater acceleration in that trajectory?

John Owen is leading that work. I asked him to answer your question, and maybe David could follow up.

Good morning everyone. We’re making good progress on the Simplify and Grow initiative. We started this about seven months ago, and have about 40 initiatives underway. I think we're off to a really good start. Let me give you a couple of examples of products we have underway. First, let’s focus on our consumer lending space; we’ve got a team working on making all of our consumer lending categories fully 100% digital, meaning a customer can come in and start a digital channel whether it's a mobile device, iPad, or laptop, and complete their loan fully digitally. We expect to have the majority of that work done by the end of 2018. A specific example is our mortgage application process, where we've streamlined the process and cut the application time from over 15 minutes to under 5 minutes. We've also seen a huge shift in digital adoption, with about 60% of our applications now being completed online. The second initiative involves our commercial lending process, where we’ve focused on reengineering that process to provide faster responses to customers. We dropped the time for applications to get answers back to customers by about 70%, which is a significant win. Additionally, we’ve implemented IBM Watson in our contact centers to provide assistance to our reps, allowing them to better serve our customers. We had about 700,000 calls this year that Watson has handled, equivalent to about 55 contact center representatives. This is a great start, and we expect to see similar improvements in headcount as we continue these initiatives.

So, Betsy, operating leverage today is 2.7%. We are reiterating our guidance of 3.5% for the year, which includes improvements from revenue growth whether it comes from rates, balance sheet growth, or our Simplify and Grow initiatives.

Got it. That was a really helpful color. On the capital front, I know we talked a little bit about capital and capital return already. Just especially since the insurance acquisition or sale is happening this year, is there any opportunity to do a mid-quarter task or a de minimis as well in terms of capital return?

We had baked into our submission the extent we generate the capital that we would also be able to include that, and that is in the numbers that you see. So, there is no need to go back. There is always an opportunity to do back on the de minimis, which is a small number now, but it's always an option.

I just wanted to follow up on the efficiency ratio looking out longer-term. Are you still targeting bringing it down to the mid-50s? And over what timeframe do you think you can get there?

We have been pretty focused on our '18 to ensure we meet that. It’s the third year of our three-year plan that we laid out at Investor Day in November of '15. We will have our Investor Day in February of '19, where we will have our scorecard on what we said we would do and lay out expectations for the next three years. I think our industry is going to have to become more efficient over time, and I believe we can target something in the mid-50s or even better going forward. You will see benefits from our Simplify and Grow initiatives to improve efficiency in the coming quarters.

Yes, I would just reiterate that. We are focused on continuously improving the efficiency of our operations. Our Simplify and Grow initiative is about making a cultural shift and developing a culture of continuous improvement. We're committed to seeking ways to make things easier for customers and drive operational efficiency.

Just a follow up, if I look last year, the share buyback coming out of CCAR was frontend loaded. Should we expect a similar trend this year?

We haven’t laid out our timing just yet, Peter, but we have a goal to get that done as soon as possible since we are carrying excess capital right now, which from a return standpoint, we would like to rectify sooner rather than later.

Just one follow-up question for me. You've mentioned that 93% of your consumer deposits have high-quality checking accounts tied to them. The consumer beta stands at 1% on a cumulative basis. Is it fair to say that a lot of your consumer retail accounts are transactional and don’t have excess cash that could potentially rotate away from Regions into some of these online offerings?

That’s a big piece of our deposits base, and that’s why it's been fairly stable, which is why our beta was low last time. We think it will be low this time as well since we have a core checking account for our consumer base, and that is really, really important and very granular with an average deposit of about $3,500 in account. That’s what makes us unique.

Thanks, David. I had a similar question as Erika, but just wanted to look at it from the angle of the non-metro markets. To what extent does that keep working for you as we get further along in the rate cycle? Is that still a benefit that you have?

Yes, absolutely. We think it's foundational to who we are. Non-metro markets are a big part of our deposit base. It's not just deposits but the relationship that we have with our customers. We dominate in those markets, and it’s imperative that we continue to deliver good solid customer service for retention. We see that as foundational and a differentiator, and we expect to see strong returns as rates rise.

Is there a way to pinpoint the rate advantage between metro versus non-metro even in just on a big picture context?

We can get back to you on that, Chris.

David, can you share with us if approximately $12 billion to $14 billion is reinvested annually in the securities portfolio? Did I hear that correctly?

That's total assets, Gerard. It's probably $2 billion to $3 billion in the securities book and about $10 billion to $11 billion in the loan book.

In the securities book, what yields are you giving up when it rolls off? And where do you reinvest? And what is the duration in that portfolio as well?

Yes, so our duration really can't change over time. We are at 4 to 4.5 years in terms of duration. What's rolling off is in the 250 range, and what's going on is about in the 315 range. That was one of the benefits of our operations; staying here that reinvest on the maturities is a big benefit to us.

And then, circling back to deposits, one of your peer banks talked about how they’re seeing their commercial customers using their cash for capital expenditures, which is why they felt their commercial loan growth was a bit modest. Is there evidence with your corporate and commercial loan book that they are drawing down on their deposits for capital expenditures? Might that let the loan growth increase as they use up those excess deposits?

Gerard, this is John. Yes, we think that is exactly the case; we would point to about $500 million in deposit decline that we believe has been directly related to customers using that cash to invest in their businesses. We think at some point that will translate into additional loan growth.

Lastly, David, you mentioned that you're outperforming on the beta. Have you guys figured out why the beta's moved so slowly this year? Is it just the nominal rate of interest rates being so low or is there another factor?

I believe if you look at our retail base, deposit betas of 1% get back to the makeup of our deposit base and who our customers are. On the business side, we've had a cumulative beta of about 44%. Those are often large corporate customers looking for yield, and I think we need to be prepared for that just as we are from a loan pricing standpoint. But what differentiates us is our focus on relationship banking, whether on the consumer side or the business side. We think that keeps our beta down as well.

Just thank you all for participating today. I appreciate your time and interest in Regions.