Regions Financial Corp (RF) — Q3 2022 Earnings Call Transcript

Thank you, Christine. Welcome to Regions' third quarter 2022 earnings call. John and David will provide high-level commentary regarding the quarter. Earnings documents, which include our forward-looking statements disclaimer and non-GAAP information are available on the Investor Relations section of our website. These disclosures cover our presentation materials, prepared comments and Q&A. I will now turn the call over to John.

Thank you, Dana, and good morning, everyone. We appreciate you joining our call today. Once again, Regions delivered another strong quarter underscoring our commitment to generating consistent, sustainable long-term performance. We generated earnings of $404 million, resulting in earnings per share of $0.43. Our results include the resolution of a previously disclosed regulatory matter, the establishment of an incremental $20 million reserve for potential losses associated with Hurricane Ian and a strategic sale of $1.2 billion of unsecured consumer loans. Excluding the regulatory matter and other adjusted items, we once again generated record adjusted pretax pre-provision income. This quarter's results reflect strong revenue growth driven by higher rates, robust loan growth, low deposit cost and well-controlled operating expenses. Asset quality remains broadly stable with credit metrics in line to slightly better than pre-pandemic levels. In general, we feel good about the health of both our corporate and consumer customers. Many of our business customers have adopted operating models capable of thriving in uncertain operating environments and remain cautiously optimistic about opportunities to grow and expand their businesses. Consumers continue to maintain strong liquidity levels, and unemployment in our footprint remains at historical lows. This quarter's results are further evidence of the investments we made in talent, technology and strategic acquisitions continue to pay off. As expanded products, capabilities and expertise are helping us to meet customer needs and deepen relationships. Before wrapping up, I want to take a moment to speak about Hurricane Ian. This was an incredibly powerful storm and communities in Florida and South Carolina all face difficult challenges as they began the recovery process. I'm extremely proud of the way our teams are responding to meet the needs of our customers, fellow associates and communities affected. Regions has a long history of helping communities through difficult times and will continue to support the recovery efforts. In closing, we have a strong balance sheet that is well positioned to perform in any economic environment. We have a solid strategic plan, an outstanding team and a proven track record of successful execution. While sentiment across both business and consumers remains generally positive, we will continue to monitor our portfolios for indicators of stress. We have robust credit and interest rate risk management frameworks and a disciplined and dynamic approach to managing concentration risk, which has positioned us well to continue to deliver consistent, sustainable long-term performance. Now, David will provide some highlights regarding the quarter.

Thank you, John. Let's start with the balance sheet. Average loans grew 4% while ending loans grew 1% during the quarter. Ending loans reflect the impact of the strategic sale of $1.2 billion of consumer loans on the last day of the quarter and represents another example of our disciplined approach to capital allocation. Average business loans increased 5%, reflecting high-quality, broad-based growth across all businesses and industries, specifically financial services, wholesale durables, transportation, information services and multifamily. Approximately 70% of the growth again this quarter was driven by existing clients accessing and expanding their credit lines to rebuild inventories and expand their businesses. Commercial line utilization levels ended the quarter at approximately 43.1%, modestly lower versus the prior quarter. However, loan production remained strong with linked quarter commitments up $4.4 billion. Unfavorable capital market pricing continues to augment loan growth. However, we believe improved market conditions will eventually lead to clients refinancing off our balance sheet through the debt markets. Average consumer loans grew 3%, while ending loans declined 1%, driven primarily by the previously mentioned loan sale. Growth in average mortgage, credit card and other consumer categories was offset by declines in other categories. Within other consumer, EnerBank loans, which are primarily prime and super prime, grew 14% compared to the prior quarter. We expect full year 2022 average loan growth of approximately 9%. This assumes a slowing rate of growth compared to the third quarter. Let's turn to deposits. As expected, deposits continued to normalize in the quarter. Average total consumer balances were modestly lower quarter-over-quarter, largely consistent with typical pre-pandemic seasonal effects. Despite inflationary pressures, consumer balances have remained relatively stable, supported by wage increases and prudent spending. Additionally, new customers and additional account acquisition remains healthy. Normalization has been more evident in average corporate and commercial deposits, which are down $2.9 billion quarter-over-quarter. However, overall liquidity managed by the corporate bank on- and off-balance sheet is relatively stable compared to year-end levels, reflecting the movement of some customer funds to off-balance sheet treasury management options. The movement to these products and the remixing out of noninterest-bearing checking accounts into higher-yielding money market and savings accounts is as expected and is reflected in our overall deposit beta assumptions for this cycle. Ending balances have declined approximately $3.7 billion year-to-date, in line with our full year expectation for overall deposit reduction of between $5 billion and $10 billion. A rapidly rising rate environment is a significant competitive advantage for Regions, based on the combination of our legacy deposit base and the more resilient components of surge deposits. Let's shift to net interest income and margin. Reflecting our asset-sensitive profile, net interest income grew $154 million, or 14% quarter-over-quarter, while reported net interest margin increased 47 basis points to 3.53%. Our adjusted margin was 3.68%, reflecting the combined effects of average cash balances of $14 billion and PPP. The cycle to date deposit beta remains low at 9%, contributing to higher-than-anticipated net interest income growth. We expect full year deposit betas in the high teens. In addition to higher rates, growth in average loan balances provided further support for net interest income. Looking forward, while we do expect cash balances to continue to normalize, we do not anticipate accessing more expensive wholesale borrowing markets for multiple quarters. This, coupled with additional hedge maturities in the fourth quarter provides further runway for margin expansion. Total net interest income is projected to increase 7% to 9% in the fourth quarter and is now expected to be approximately 33% to 35% higher than the first quarter of 2022. Reported net interest margin is projected to surpass 3.80% in the fourth quarter. While we have purposefully retained leverage to higher interest rates during a period of low rates, our attention has shifted to normalizing our interest rate risk profile in today's uncertain environment. Through the first half of 2022, we added $15 billion of swaps and securities. The swaps become effective in the latter half of 2023 and 2024, and generally have a term of three years. This represents approximately 75% of the total hedging amount expected this cycle. As previously disclosed, hedging already completed will support a 3.60% margin floor even if rates move back to below 1%. We made some modest tactical changes to our profile in the third quarter, primarily extending some of our current protection. We still expect to execute an additional $5 billion of hedges at balanced market rate levels and risk to growth as we decide the appropriate time to finish the program. Now let's take a look at fee revenue and expense. Adjusted noninterest income declined 5% from the prior quarter as a modest increase in wealth management was offset by declines in other categories. Service charges declined as the impact of policy enhancements implemented in mid-June offset increases in other service charges, including treasury management. We expect to implement a grace period feature sometime in 2023. Overdraft policy changes made to date are expected to result in full year service charges of approximately $630 million in 2022. In 2023, after including the impact of a grace period feature, full year service charges are expected to be approximately $550 million. Within capital markets, activity was negatively impacted by the delay of M&A deals and higher rates in real estate capital markets. Results also include a positive $21 million CVA and DVA adjustment. We expect capital markets to generate fourth quarter revenue in the $80 million to $90 million range, excluding the impact of CVA and DVA. Card and ATM fees declined quarter-over-quarter. Credit card income was negatively impacted by higher costs associated with the reward liability, while check card and ATM fees produced lower interchange due to a decline in both transaction volume and discretionary spending resulting from higher inflation. Elevated interest rates and seasonally lower production drove mortgage income lower during the quarter, but was partially offset by higher servicing income. Wealth management continues to perform well despite ongoing market volatility, and we expect this business to grow incrementally year-over-year. We also expect full year 2022 adjusted total revenue to be up 11% to 12%, driven primarily by growth in net interest income, partially offset by lower PPP-related revenue and the impact of overdraft policy changes. So, let's move on to noninterest expense. Reported professional and legal expenses reflect a charge related to the resolution of a previously announced regulatory matter. We do anticipate $50 million of this charge will be mitigated by insurance reimbursement proceeds, which we expect to receive in the fourth quarter. Excluding this and other adjusted items, adjusted noninterest expenses increased 4% compared to the prior quarter. Salaries and benefits increased 3%, primarily due to an increase of 277 full-time equivalent associates as well as one additional day in the quarter. This increase was partially offset by lower variable base compensation and a decrease in payroll taxes. Over 70% of the increase in associate headcount are customer-facing within our three lines of business. We expect full year 2022 adjusted noninterest expenses to be up 4.5% to 5.5% compared to 2021. Importantly, this includes the full-year impact of the acquisitions we completed in the fourth quarter of last year as well as inflationary impacts. With the changes in revenue and expense guidance, we expect to generate positive adjusted operating leverage of approximately 6% in 2022. Although the consumer loan sale and hurricane-specific reserve creates some volatility in certain credit metrics this quarter, underlying credit performance remains broadly stable. Reported annualized net charge-offs increased 29 basis points. However, excluding the impact of the consumer loan sale, adjusted net charge-offs were in line with our expectations at 19 basis points, a 2 basis point increase over the prior quarter. We are seeing some deterioration in certain commercial segments that contributed to a quarter-over-quarter increase in nonperforming loans, but it is important to note that we remain below pre-pandemic levels. Provision expense was $135 million this quarter. The increase relative to the second quarter was due primarily to another quarter of strong growth in loans and commitments, normalizing credit from historically low levels and a $20 million reserve build for potential losses associated with Hurricane Ian. These increases were partially offset by a net provision benefit of $31 million associated with the consumer loan sale. Our allowance for credit loss ratio is up 1 basis point to 1.63% of total loans, while the allowance as a percentage of nonperforming loans remained strong at 311%. Our year-to-date adjusted net charge-off ratio is 19 basis points, and we now expect our full year 2022 adjusted net charge-off ratio to remain approximately 20 basis points. We ended the quarter with a common equity Tier 1 ratio at an estimated 9.3% for solid capital generation through earnings, partially offset by continued strong loan growth. Given the uncertain economic outlook, we plan to manage capital levels to the mid to upper end of our 9.25% to 9.75% operating range over time. So in closing, we've delivered strong year-to-date performance despite volatile economic conditions. We will continue to be a source of stability to our customers and also being vigilant with respect to any indicators of potential market contraction. Pretax pre-provision income remained strong. Expenses are well controlled. Credit remains broadly stable, and capital and liquidity are solid. With that, we're happy to take your questions.

I guess maybe just to start out, I mean, obviously, revenue backdrop, NII looking pretty good heading into next year. Just give us a sense of how you're thinking about using some of these towards franchise investments? How we should think about expense growth going from here, both in terms of investments you're making, inflationary costs that you're seeing and just using a better revenue backdrop to actually invest in the franchise?

Yes, Ebrahim, this is David. As you noticed, we made significant investments last year in the fourth quarter through three nonbank acquisitions. We are actively seeking opportunities in all three lines of business to grow our franchise. There are many initiatives happening, including the introduction of new systems over time, which will lead to some cost increases. However, we are leveraging our continuous improvement program to manage total expense growth effectively. While we won't provide specific guidance for next year, we have included a slide in the presentation demonstrating our strong compound annual growth rate in managing and reducing costs. We will maintain this focus while making necessary investments. Currently, we are looking for opportunities to further grow our three lines of business.

And those, they were essentially tuck-in deals, be it fintech or fee kind of deals that you've done recently similar to those?

That's correct.

Got it. I have a quick question about your hedging strategy, which is well understood. In a scenario where rates exceed expectations compared to the forward curve, is there a risk of a potential drag on the margin in the short term, especially if the Fed is not cutting rates but we see rates rising significantly above what the forward cost pricing suggests?

I believe there are a few factors at play. Higher interest rates for our franchise are advantageous. If we exceed 4.5% or 5% for Fed funds, we will benefit. However, if rates remain elevated, it introduces some additional credit risk, as sustained high rates suggest that inflation is still too high for the Fed, leading to further rate increases. This means there may be some credit risk until rates stabilize. The reason we haven't finalized our hedging strategy and why we hold $13 billion in cash is partly because we want to assess potential future rate movements. We have about $5 billion available, in addition to the $13 billion, which gives us flexibility. We are seeking a solid opportunity and can afford to be patient. Our net interest income is growing well without the hedge. Our materials indicate that we can maintain a margin of 3.60 even if rates drop to 1% or below, so being patient seems to be the best approach for us.

Just on the credit front, if you could get with a little more detail on the loan sale in terms of the actual types of credits that were sold? And any remaining sales expected on that front? And if so, how are you thinking about the loss content on any remaining transactions on that side?

Sure, John. This is David. We acquired EnerBank in the fourth quarter of last year, focusing on an unsecured consumer portfolio. At the time, we indicated that we could achieve double-digit growth in that portfolio. The industry is valued around $175 billion, which translates to approximately $1.7 billion to $2 billion in production annually. Additionally, we had another unsecured consumer portfolio that we had accumulated over time, but those loans were not being serviced by us or another party. From a capital allocation and risk reduction perspective, we decided it was best to sell that portfolio while we continue to invest in expanding our EnerBank book. As shown in the slides, we reserved about $94 million and took charge-offs of $63 million, resulting in a provision benefit of $31 million reflected in this quarter's financials. This action was primarily a capital allocation risk reduction measure, and we do not anticipate any further sales at this time. Although we do have a small, runoff unsecured portfolio, it's not significant.

Got it. Okay. All right. That's helpful. Can you provide more detail about the decrease in NPAs? You mentioned some commercial segments. What specific commercial areas saw that increase, and do you see any trends there? Additionally, you talked about some normalization in credit affecting your provisioning. In which areas are you observing that normalization? Could that lead to higher charge-off expectations for 2023, even though you mentioned you're at 20 basis points for 2022?

John, this is John. So we are seeing some stress in the office portfolio, particularly urban office, a reflection of some of the back-to-work changes that we're all seeing in the economy, consumer discretionary-related kinds of businesses where consumers are choosing not to spend as freely as they had been. Some softness in not-for-profit healthcare related to rising labor costs and inflation, similarly in senior housing. Again, we're seeing, I would say, some impacts from both labor and inflationary costs and then some disruption in technology-related businesses. All that I'd characterize as the beginnings of what we would call normalization, we are at historically low levels and begin to normalize in 2023 and beyond, currently at 52 basis points of NPLs, still much better than pre-pandemic levels. The charge-offs, as you noted, 19 basis points for the quarter, we expect 20 for the year. We'll firm up our guidance for 2023 in late November or January. But our current projection is that charge-offs in '23 will be somewhere between 25 basis points and 35 basis points as we begin to see a return to more normal levels, again, of credit quality.

If I could just focus in on the fee side. I see you're continuing to reiterate your '23 service fees guidance of $550 million. And just kind of take you through the recent settlement and the incremental changes that you're making and the confidence you have in continuing to reiterate that level of service fees for next year?

Yes. Ken, thank you for the question. I think what we're observing is customer patterns are very much what we expected when we made changes. So you might recall that we changed our posting order. We provided customers with alerts. We reduced the cap on daily overdraft fees. We eliminated charging for NSF. We eliminated charges for overdraft protection transfers. Most recently, we're giving customers access to their paycheck two days in advance. We also implemented an overdraft protection line of credit to help customers. And in probably the second half of 2023, we'll also implement a grace period. All that is designed to help customers better manage their finances. And we're seeing a positive impact. It's not necessarily a trend, but I would say over the last quarter, we've seen about a 20% reduction in a number of customers who are overdrawing their account, which is, again, I think, a very positive thing. We've talked about historically how we've dealt with changes in fees. And I'd point to overdraft fees as an example. Since 2011, we've seen almost a 40% reduction in the collection of overdraft fees. And yet we overcame that and grew noninterest revenue over that same period of time of almost $500 million. So we have a history of continuing to evolve and change our business to overcome losses in fee revenues. We're doing that through growth in capital markets, growth in treasury management, growth in wealth management and in other parts of our business. And so we feel good about the impact to customers and believe that we can manage the impact to our business.

Got it. Okay. And second follow-up, just in terms of wealth management really has bucked the market trend here, continuing to increase in a really tough market. Can you just talk about is that new customer wins and business adds? And is that more than overcome the natural market challenges?

Yes. It's a combination of a number of things. One, we have a very strong retail investment services business works very closely with our branch bankers and in this environment, we see a lot of customers who are interested in acquiring annuities. So we've seen nice growth in that source of fee revenue. Our institutional business is growing, and we've had some nice wins there. And then within wealth management, both opportunities to move new business, new customers, and we've additionally seen about 20% of our increase in fee revenue in the personal wealth management business as a result of customers moving money to us during this period of time where they're looking for more stability. Our approach to the business is as a fiduciary. And I think during uncertain and volatile times, customers are choosing to increase their level of business with us. So all those things are contributing to growth in wealth fee income.

My first question is for David. David, you're implying an exit rate for NII of $1.375 billion in the midpoint of the range of your guide. And I'm wondering, as we think about that as a jumping off point, do you think that you can continue to grow that level of NII based on the forward curve in '23?

Yes, I believe we still have some resources available. We currently have $13 billion in cash and won't need to tap into the wholesale market for several quarters according to our estimates. There's still a bit of hedging left to do. We made some minor adjustments last quarter to help continue increasing net interest income and our margin, leveraging the potential for a significantly higher rate environment. Our guidance assumes a 75 basis point hike in November, followed by increases of 50 and then 25 basis points. If we had to reassess, we might set those expectations a bit higher. We see additional opportunities for growth, and our loan growth has been good. Our balance sheet is strong and we effectively utilize our deposit franchise. I believe we're benefiting from favorable conditions and aim to finish the year on a high note while also positioning for a very strong 2023. We will provide more precise guidance during the earnings call in January.

Got it. For a follow-up on deposit trends, the current rate curve indicates a terminal rate over 100 basis points higher than what we discussed previously. Can you provide some insight into how you've been managing the surge in deposits? How do you anticipate deposit growth in the fourth quarter? Do you believe most of the surge deposits will have left the bank? Additionally, with a 9% cumulative beta in the third quarter, what should we expect regarding terminal beta with the new Fed rate or what the forward curve suggests?

We anticipated a decline in corporate deposits, especially the surge deposits which ranged from $5 billion to $10 billion. Since the end of last year, we have seen a decrease of about 4.5%. However, we are retaining more deposits than we initially expected, which is a positive aspect for us. Regarding betas, our previous cycle had a beta of approximately 29% to 30%. We have indicated that this time it will be higher, in the mid to upper 30s. Currently, our beta is at 9%, compared to 11% in the previous quarter. We expect to see it rise next quarter, projecting a beta of around 30% in the fourth quarter, which would bring our cumulative beta to the mid-teens. In the first quarter, we anticipate an even higher beta, around 50%, which will increase our cumulative beta to about 25%. Overall, we expect a gradual increase but still believe our beta will be lower than that of our peers, reflecting the strength of our franchise, landing between the mid-30s to upper 30s.

David, can we follow up on the credit side of it? Again, I know your levels of credit delinquencies and charge-offs are extremely low. But John, when you were talking about some of the commercial stuff, can you share with us just how large the syndicated loan portfolio is today as well as the leverage portfolio? And are there any signs that syndicated portfolio is showing signs of more weakness in your just in footprint portfolio?

Sure, Gerard. First of all, no would be the answer to the last question. And the syndicated portfolio represents about 25% of our overall portfolio. Interestingly, we've had a 27% increase in investment-grade balances over the last 12 months. And so, the investment-grade portion of our overall portfolio is about 40% today. Over the last three years or so, we've seen the probability of default come down by 19 basis points. In other words, the quality of our book continues to improve, we believe. Our leverage book as defined, about 3/4 is roughly $9.5 billion in total and about 86% of that is in the Shared National Credit exposure. So again, pretty high quality, we think, and we're not seeing any deterioration to speak of in that portfolio at all.

Gerard, this is David. Often, they don't reach the back of our presentation, but on Page 25, we have a lot of what John discussed. It clearly illustrates significant improvement in terms of probability of default and the enhancement of our investment grade.

Thank you for your insights. Following up on deposits, as you noted several times during the call regarding the strength of the franchises, this is true for most banks prior to quantitative easing. However, what stands out is that the medium customer deposit balances remain very strong, as shown on Slide 19. Have you looked into this? I believe you mentioned that possibly higher paychecks on the consumer side are contributing to these stable balances. Can you share what you are observing about why these balances aren't declining significantly at this point?

Yes, the consumer has shown remarkable resilience. Particularly, this specific group has received a significant amount of stimulus and benefited from minimum wage increases. Our unemployment rate is below 4%, indicating that these individuals are employed and spending wisely. They haven't been spending beyond their means, which I think is linked to the decrease in overdraft usage as well. People seem to be exercising more caution during this time. Given the inflation, one might expect this group to be more negatively impacted, but they have actually seen substantial benefits. This may seem counterintuitive at first, but the data supports this view. We have analyzed this group in detail, account by account, which has provided us with these insights.

Following up on your comments on Slide 19. Does the data tell you that the Fed is going to have to do more? Or does your interpretation of this suggest rather that consumers and businesses are just in a better position to weather the downturn? Curious to hear sort of just your interpretation of Slide 19.

We believe the Federal Reserve is effectively addressing inflation. Consequently, we anticipate that their forthcoming decisions will be quite robust. This specific customer segment appears to be more resilient, with some of our businesses strategically positioned to handle any potential decline or slowdown. While we do not anticipate a recession as our baseline scenario, we recognize that the likelihood of one occurring has increased. If the Fed continues on its current trajectory, there is a substantial chance that a recession could take place, though we expect it to be relatively mild. We have observed a decline in customer spending patterns, particularly reflected in our debit card transactions this quarter, which were down quarter-over-quarter. This suggests that consumers are exercising caution. The inflation we are experiencing is primarily driven by labor costs amid a tight labor market, making it challenging to manage unless the unemployment rate rises somewhat. Over time, this is what we anticipate will happen. Additional inflation pressures are stemming from commodity prices, which are currently characterized by a mismatch between supply and demand. However, with the Fed's actions, we expect that demand will realign with supply, leading to a slowdown in inflationary pressures.

That's very helpful. The expectation of a mild recession aligns with your reasonable and supportable outlook on Slide 23. For sensitivity purposes, could you explain what impact an increase in unemployment to 5% would have on the reserve rate?

Yes, I can provide some data points, but it's essential to recognize that focusing on one specific factor involves many variables in the calculation. What you're asking assumes that all else remains constant, with unemployment rising to 5% or 6%. If this were the case, without any other changes or responses from the bank, the reserve might be approximately 20% higher under a 6% unemployment scenario. However, it's important to consider how employment affects interest rates. Therefore, our net interest income is likely to outweigh any potential credit issues we might need to consider. While it's useful to think about, there are too many variables to determine the overall impact. We believe that higher rates will still be beneficial for Regions. Generally, when we implement hedges, they last for about three years. So if we're discussing the middle of 2023 and the start of 2024, that means we are looking at protection for 2026 and 2027. We will consider extending those hedges, as we still have capacity for more hedging and it's a dynamic process. We analyze this every quarter, and there is a team that oversees it daily. Therefore, what we're presenting is just a static snapshot from the time we prepared it.

I guess I wanted to ask, David, maybe to you first. What is it that makes you think these deposit betas will be higher this time around based on what you've seen so far? Is it really just a blending in of the surge deposits? Is it any sort of change in customer behavior? I just would think with all your liquidity, they would actually be a little bit lower based on what we've seen so far.

We are starting from a very low point, and we experienced a significant inflow of surge deposits, totaling $40 billion. We anticipate that about one-third of those deposits will eventually move out. Initially, we expected a 5 to 10 percent move, but that hasn't occurred yet. If we have underestimated this, it may be due to a cautious approach. We would prefer to present a mid-30s estimate rather than a 29, which was our ending point in the last cycle. However, we believe the expectations should be somewhat higher, considering we're transitioning from a low to a higher rate environment, similar to what we experienced previously. Last time, we peaked quickly and then began to decline around 2019. If we have miscalculated, it is likely due to our conservative stance. Yes. We typically maintain between $1 billion and $2 billion in cash. However, we need $13 billion to address the expected surge in deposits. We've been strategic about not deploying our cash and securities, as we've experienced strong loan growth and good hedging protection. Consequently, our net interest income has been increasing nicely. While we could have generated more net interest income, doing so might have meant missing out on better investment opportunities, which are now emerging. Therefore, it’s essential for us to remain patient and focus on using our cash to support our loan growth first, rather than investing in securities at this time. If we determine the rates may reach a peak, we might use our securities book for some additional hedging, but keep in mind that we still have substantial access to borrow from the Federal Home Loan Bank. Our total liability cost is currently 23 basis points, the lowest in our peer group, and we don't anticipate needing to access wholesale funding in the near future.

Actually all of my questions have been answered. Thanks.

Just two quick questions. Just as it relates to Hurricane Ian, I think around 12% of your deposits are within some of the counties that got kind of hit historically, you've seen some deposit inflows from aid and things like that. Is there any sort of expectation that you have for potential deposit inflows? And is it material?

At this point, there's still a lot of uncertainty regarding the situation with Hurricane Ian. We made our best estimate to assess the potential impact, but as you pointed out, there are often significant funds from federal aid, state support, and insurance payouts related to these storms. However, we have not taken those potential contributions into account, and our deposit guidance does not include any anticipated influx from those sources.

Okay. That's helpful. I'm sorry if I missed this, but it seems the range for capital markets has been slightly adjusted downward. As we look ahead to next year, the overall environment is softening to some extent. Should we anticipate this new range as our expectation for the near to intermediate term for that business?

I wouldn't sign off on that just yet for next year. We'll give you better range when we get to the January earnings. That was really just more for this next quarter because of what we're seeing right now in particular with M&A and real estate capital markets. So don't lock that in for 2023.

So just to be clear, we're not contemplating acquisitions in the quarter…

Yes.

Okay. Well, that was the last question. Thank you all for your interest in our company. Appreciate you participating today. Have a good day.