Good morning, and welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Shelby, and I'll be your operator for today's call. I would like to remind everyone that all participants' phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. I will now turn the call over to Dana Nolan to begin.
Thank you, Shelby. Welcome to Regions' 2nd quarter 2021 earnings call. John and David will provide high level commentary regarding the quarter. Earnings documents, which include our forward looking statement disclaimer, are available in the Investor Relations section of Our website. These disclosures have our presentation materials, prepared comments and Q and A.
I will now turn the call over to John.
Thank you, Dana, and thanks for joining our call today. We're pleased with our performance this quarter and importantly, We're beginning to see increased activity across our footprint that gives us greater confidence for overall growth in the second half of the year. Earlier this morning, we reported earnings of $748,000,000 resulting in earnings per share Credit quality at Regions and across the industry has demonstrated remarkable resiliency throughout the pandemic. Broadly speaking, since the pandemic began, I believe banks have done a tremendous job staying close to customers and supporting their needs by providing capital, advice and guidance. As I've begun to track our footprint again and meet with customers, I see them gaining confidence in the economic recovery and in their own business plans.
I've seen the strength of our markets firsthand. This combined with the ongoing successful execution of our strategic plan has positioned regions well for growth As the economic recovery continues, we remain focused on client selectivity, risk adjusted returns and capital allocation, All while making investments, particularly in talent and technology to support growth. For example, over the last year, we redesigned our mobile app and are continuing to make further enhancements to both our online and mobile platforms. We digitized the sales process. You can now apply for almost any consumer banking product online.
We're putting digital tools in the hands of our bankers and contact center associates, allowing customers to start a process in one channel And seamlessly transition to another. We now have e signature capabilities across most of the franchise. As a result of all of these changes, year to date, digital sales are up 53% over the prior year. We have also leveraged artificial intelligence to build lead generation and next best action tools for our bankers. We're also utilizing artificial intelligence in our contact centers.
RGGI, our virtual banker is on pace to handle over a 1000000 customer calls this year. Technology investments have also allowed nearly 100% of our contact center associates to work remotely, providing permanent cost saves from reductions in legacy corporate space. In addition, over the last 3 years, We've increased mortgage loan originators by approximately 150 and we'll continue to add talent as we grow market share. We've also added approximately 80 client facing associates across the corporate bank and wealth management with a particular focus on growth markets. We've consolidated over 2 15 branches while opening 75 de novo branches, primarily within dense fast growing markets.
These new branches have contributed almost 20% of our total retail checking account growth over the last 3 years. We're also investing in products and capabilities to serve our customers. In Wealth Management, we deepened our expertise in the not for profit and healthcare space through the acquisition of Highland Associates. And we're working on a digital advisory solution With deployment targeted for late this year or early next. Last year, we purchased Cinium Capital To help small businesses with their essential equipment needs and the platform has performed well throughout the pandemic.
On the consumer side, we just announced an agreement to acquire Interbank, a top 5 originator in the home improvement point of sale space, Which we're really excited about. Going forward, we'll continue to look for bolt on acquisitions that provide products and capabilities They're important to our customers. We're in some really great markets as reflected on the slide you see now. These markets Coupled with our go to market strategy and aided by technology investments have helped us realize some really nice growth in consumer checking accounts. Our year to date account growth is nearly 3 times higher than our 2019 pre pandemic rate for the same period.
So we have a really solid strategic plan that supports our goal of generating consistent, sustainable long term performance And we have a proven track record of successful execution. We feel very good about our progress and believe we are really well positioned to grow as the economic recovery To gain momentum in our markets. Now David will provide you with some details regarding the quarter.
Thank you, John. Let's start with the balance sheet. Average adjusted loans remained stable during the quarter, although adjusted ending loans increased 1%, confirming our view that loan growth should begin in the back Half of the year. Although corporate loans continue to be impacted by low utilization rates and excess liquidity, Pipelines have now surpassed pre pandemic levels. Production remains strong with new and renewed commitments increasing 33% On a reported basis, average corporate loans increased, while ending loans declined, reflecting an acceleration in PPP forgiveness late in the quarter.
Through June 30, approximately 53% of total PPP loans Have been forgiven, and we anticipate that reaching approximately 80% by year end. Consumer loans reflected another strong quarter of mortgage production accompanied by modest ending growth in credit card. However, consumer loans continue to be negatively impacted by runoff portfolios and further pay downs in home equity. Overall, we continue to expect full year 2021 adjusted average loan balances to be down by low single digits compared to 2020. Although we expect adjusted ending loans to grow by low single digits, with respect to loan guidance and the rest Our 2021 expectations, we are not including any impacts from our pending Interbank acquisition.
So let's turn to deposits. Although the pace of deposit growth has slowed, balances continue to increase this quarter to new record levels. The increase is primarily due to higher account balances. However, as John mentioned, And based on analysis of pandemic related deposit inflow characteristics, we currently believe between 20% 30% of deposit increases will likely persist on the balance sheet. Broadly speaking, we think liquidity will normalize over time As the Fed becomes less accommodative, reductions in their asset purchases will mitigate future liquidity increases In the system, we should curb further deposit growth.
Let's shift to net interest income and margin, which remain a significant source of stability for regions. Pandemic related items continue to impact NII and margin. PPP related NII increased $3,000,000 from the prior quarter. Cash averaged $23,000,000,000 during the quarter and when combined with PPP Reduced second quarter reported margin by 50 basis points. Excluding excess cash and PPP, Our adjusted margin was 3.31 percent evidencing active balance sheet management efforts despite a near zero short term rate environment.
The 9 basis point linked quarter decline was mostly attributable to the purchase of $2,000,000,000 of securities And one additional day in the quarter, both of which support NII at the expense of margin. Similar to prior quarters, The impact on NII from historically low long term interest rates was completely offset by balance sheet management strategies, Lower deposit cost and higher hedging income. Lower LIBOR drove a $2,000,000 increase from loan hedges. And at current rate levels, we expect roughly $105,000,000 of hedge related interest income each quarter until the hedges begin to mature in 2023. Since the beginning of 2021, we have repositioned a total of $6,300,000,000 of cash flow swaps and floors.
We do not currently expect any further repositioning. However, This is continually evaluated in the context of a dynamic balance sheet. Our current balance sheet profile allows us to support our goal of Specifically, we're positioned to benefit from higher middle tender interest rates And increases in short term interest rates in the future, while protecting NII stability to the extent that have less of an impact on Regions earnings As most of our fixed rate production has maturities of shorter than 6 years, a point on the curve that on a relative basis Has fallen less. With respect to outlook, we view 2nd quarter's NII to be the low point for the year. Over the second half and beyond, a strengthening economy, a relatively neutral impact from rates and organic and strategic balance Growth are expected to ultimately drive NII growth.
Before moving on, I want to highlight Slide 17 through 19 in the appendix, which provides additional asset liability management information that we think will be helpful to investors. Now let's take a look at fee revenue and expense. Adjusted non interest income decreased 6% from the prior quarter, but reflects a 5 Looking ahead, we expect capital markets to remain a strong contributor, Generating quarterly revenue in the $55,000,000 to $65,000,000 range on average, excluding The impact of CBA and DBA. Mortgage income decreased quarter over quarter, Primarily due to the gain on sale compression and hedge performance, particularly around timing and market volatility. We believe pricing has stabilized and expect second half revenue to be fairly consistent with that recorded during the Q2.
Wealth management income increased quarter over quarter, reflecting strong production and favorable market conditions. Service charges also increased compared to the prior quarter, driven primarily by 3 additional business days. While improving, we believe changes in which we have highlighted in the appendix are likely to keep service charges below pre pandemic levels. We estimate 10% below 2019 levels. Card and ATM fees continue to benefit from increased economic activity in our footprint, Reflecting strong growth, up 11% compared to the prior quarter, driven primarily by increased debit and credit card spend, Both now exceeding pre pandemic levels.
Given the timing of interest rate declines in 2020, Combined with exceptionally strong non interest income, we expect 2021 adjusted total revenue to be They will to up modestly compared to the prior year, but this will be dependent on the timing and amount of PPP loan forgiveness. Let's move on to non interest expense. While exceptionally strong performance, particularly in credit is contributing to higher than anticipated Other incentive compensation, adjusted non interest expenses decreased 3% in the quarter, driven primarily by lower capital markets incentive compensation, payroll taxes and legal and professional fees, partially offset by an increase in merit And marketing expenses. We will continue to prudently manage expenses while investing in technology, products And people to grow our business. In 2021, we expect adjusted non interest expenses to be stable to up modestly compared to 20 20 with quarterly adjusted non interest expenses in the $880,000,000 to $890,000,000 range.
And we remain committed to generating positive operating leverage over time. From an asset quality standpoint, We delivered strong performance as overall credit continues to perform better than expected, reflecting broad base improvement across most portfolios and recoveries associated with strong collateral asset values, annualized net charge offs decreased 17 basis points during the quarter to 23 basis points. Nonperforming loans, total delinquencies And Business Services criticized loans all improved during the quarter. Our allowance for credit losses declined 44 basis points to 2% of total loans and 253 percent of total nonaccrual loans. Excluding PPP loans, our allowance for credit losses was 2.07%.
The decline in the allowance reflects better than expected credit trends and a continued constructive outlook on the economy. The allowance reduction resulted in a net $337,000,000 benefit to the provision. Our allowance remains above peer median as measured against period end loans or stress losses as modeled by the Federal Reserve. Future levels of the allowance will depend on the timing of charge offs and greater certainty with respect to the path of the economic recovery. Based on improved market conditions, we now expect full year 2021 net charge offs To range from 25 to 35 basis points.
With respect to capital, Our common equity Tier 1 ratio increased approximately 10 basis points to an estimated 10.4% this quarter. Based on the recent stress test results, our preliminary stress capital buffer requirement for the Q4 2021 Through the Q3 of 2022, we'll be 2.5%. And our common equity Tier 1 operating range remains 9.25% to 9.75 percent with a goal of managing to the midpoint over time. We repurchased 8,000,000 common shares during the Q2. However, we are temporarily pausing Further share repurchases until the expected interbank closing date in the 4th quarter.
We anticipate being back in the market Also earlier this week, our Board of Directors declared a 10% increase to our quarterly common stock dividend to $0.17 per share. So wrapping up on the next slide are our 2021 expectations, which we've already addressed. In summary, we're very pleased with our 2nd quarter results and are poised for growth as the economic recovery continues. Pretax Pre provision income remains strong, expenses are well controlled, credit quality is outperforming expectations, capital and liquidity are solid, and We're optimistic about the pace of the economic recovery in our markets. With that, we're happy to take your questions.
Thank you. The floor is now open for questions. Your first question is from Matt O'Connor of Deutsche Bank.
Good morning, Matt. Good morning.
How are you?
Good. Can you just remind us how dilutive or sorry, the impact of capital From the pending deal, I'm just trying to think of the walk on CET1 from 10.4 to 9.5 by the end of the year?
Well, I think you can Matt, it's David. You can take the purchase price, which was $960,000,000 and that's the capital we're going to We'll pick up a little bit of balance sheet and equity with that. So I mean, you need to round that number, call it $1,000,000,000 Which is round numbers about a point.
Okay. That's helpful. And then just talk about some of the Kind of underlying loan demand that you're seeing, you said some pockets of francs and obviously there's been some pickup in COVID cases, Specifically in the Southeast, and have you seen any impact in terms of behavior of that in recent weeks?
Yes. So maybe I'll start Last question first. Our markets were when COVID originally impacted the economy, they were some of the last to close and first reopen. And we really have seen the benefits of that increasing activity, economic activity in our markets. We also are operating in markets There are some least vaccinated and so we have been at risk of some recurrence of COVID.
The Delta variant Is having some impact on the population, but we've not seen it necessarily impact the economy yet. Loan growth has been broad based. We're seeing increasing activity across virtually all of our markets. Growth has been across multiple segments, whether it be small business, middle market, large corporate. We're growing in many of our specialized industries businesses like healthcare, technology, Financial Services, Transportation, seeing growth in Asset Based Lending.
And so pipelines are have definitely expanded. I think the point was made, they exceed levels that we were experiencing at this same time in 2019. And the needs are for to support M and A activity, to support short term working capital needs associated with Expansion in businesses, growth in commodity prices, and also increasingly some fixed capital investment,
Okay. Thank you.
Your next question comes from
the line of Jamie. Just on as a follow on, on the consumer side as well, We obviously had good mortgage production. We expect to begin to see some growth in card as the level of payments comes down and Spend increases, so that should be positive as well.
Your next question is from Jennifer Demba of Truist Securities.
Good morning, Jennifer.
Good morning. Just wondering how much wage pressure you're seeing and how much you're seeing potential poaching of Your employees, I know there's a big work for talent out there right now.
Yes, Jennifer, it's David. From an expense standpoint, you can see our numbers, we're controlling that very well. I think at the end of the day, as we manage our human capital, it's Providing a great place to work, and we've received a number of awards on that front. We're obviously in this transition period post I guess still in the middle of a pandemic, but starting to return to work, but having some We'll return to the office, I should say. We've been working the whole time, really providing some flexibility for our workforce.
So I think when you create opportunities like that, You have to pay people fair market value. We think we do that. And so we haven't seen any big trends that have gone the other way. But we're cognizant of the fact that people have alternatives when we're working in a remote environment. And I think being able to adapt to that And have flexibility, it'll be a way to deal with it.
So the answer, I guess, short answer is no, we haven't seen that yet.
At this point, are you able to quantify how much money you can save In the area of real estate by having a more flexible work environment or totally remote work environment for some of your employees?
We can do some math around that, Jennifer, but it's probably a little premature to do so. We're working with a number of different So for instance, in our contact center, we're 100% remote. And so the question is, will that remain that way? And if so, does that affect space over the long haul? That's just one example.
There are going to be a number of those. I think we need to get a little more time Under our belt. Certainly, it leads you to believe that in time, our square footage ought to come down. And but I just don't know that we can quantify that at this point.
Okay. And one more question, if I could, on your newer branch As you mentioned, the amount of deposit growth you've seen from newer branches over the last few years, what are the plans For new branches as you look ahead next 1 or 2 years?
I think you're going to see us continue the trend that we have. We're going Consolidate branches when it makes sense. We're going to make investments in markets that we think where we build out our density. And so you'll continue to see some new branches. The power of the new branches, we're really contributing Disproportionately to our growth from those de novo branches, but we also have to acknowledge the fact that we do have Investments in digital that are important as well.
So I think as we optimize our branch footprint, Consolidation where it makes sense in a given market to be as efficient as we can while maintaining access for our customers. We don't want to have them travel too far to our branches. So we're going to continue to optimize our retail network As you have seen us do over time.
Thank you.
Your next question is from Gerard Cassidy of RBC.
Good morning, Gerard. Good morning, John. Good morning, David.
David, can
you share with us, when you think about you guys gave us some good data About the pressure that your liquidity is causing on your net interest margin, even when you exclude the PPP loans, Can you share with us what's a reasonable amount of money or size, I should say, that that liquidity So how much more are you carrying today than you would be comfortable with the way your balance sheet is shaped up today? And second, How long do you think it's going to take for you to kind of wean that down to that level that you think is appropriate?
Let me start with the end of the second part of the question. So as the Fed Continues to be less accommodative. I think that liquidity in the system will start to go the other way. We don't expect we didn't expect the growth we had this past Quarter. So it continues to come in.
Of course, we have childcare credits and things of that nature that will probably aid to the liquidity. So we're carrying on average about $23,000,000,000 sitting at the Fed earning 15 basis points. We'd love to redeploy that in a more meaningful manner. But sitting here where we are with the 10 year and trying to invest in mortgage backed securities is probably ill advised. Normally, we had been Gerard, that number had been, call it, dollars 1,000,000,000 maybe $2,000,000,000 in normal times.
So it's a tremendous number. We do think the surge deposits that we've had this year, dollars 30 plus 1,000,000,000 that we think 20% to 30% of that will persist on the balance sheet as we mentioned. I have a higher beta on it. But nonetheless, The question of timing really is centered on the economic recovery and what the Fed does with its balance sheet. And lower rate environment, more accommodation means deposits linger longer.
If in fact the economy continues to rebound, we get the virus under control, and we start seeing GDP growth and people putting their cash to work, then maybe we see it run out a little faster. So it's really, really hard to tell.
Very good. Thank you. And Jack, you gave us some color about the outlook for loan growth. Maybe can you give us elaborate a little further on that loan pipeline that you talked about? Can you share with us What the pull through rate is and I know in terms of loan pipelines, it can be as simple as your loan officers had a conversation With a potential client to somebody who's actually signed a contract with you guys and there's a line of credit established And therefore, that's more likely to come through as a loan than the first contact.
So can you give us some color of the pipeline and How it looks compared to prior quarters and what you think a pull through rate should be?
Yes. Great question, Gerard. And one I asked Ronnie Smith, just a few weeks ago, because there a lot of the outcome is a function How the loan officer relationship manager assesses the opportunity when they put it in the pipeline. The good news is that Our 75% probability pipeline, we're pulling through more than 90% of the opportunities that we believe are going to win. So One of the reasons you sense a little more confidence from us and our ability to grow is that We are seeing good opportunities, and we believe, at least to this point, we're winning most of those good opportunities when we I believe we have an opportunity to do that.
So, I feel good about pipeline management and the efforts that our teams are putting forth to Win new opportunities.
And is that pipeline considerably higher this quarter versus 1Q or 4Q or is it slightly higher?
It is a good bit higher than 1 it's a slightly higher, I guess, than 1Q. We began seeing some momentum build Toward the end of the Q1, it is, as I recall, 30 plus percent higher than it was This time, 2 years ago.
Great. Thank you.
Your next question is from John Pancari of Evercore ISI.
Good morning, John. Good morning. Also on the loan front, just wanted to ask about production, front end production. Can you do you have some quantifications around How that how much that was up on a linked quarter basis and then how much where it compares versus Pre pandemic?
So new loan production in our Corporate Bank was up 23% linked quarter. I don't have that number right in front of me, but I'll get it while we're here On a 2 year look back.
Yes. So the growth in total production. New production is what I'm referring to, 23%. Yes. Total new and renewed was up 33%.
But if you exclude PPP, quarter over quarter is up 54%. And how that compared to pre pandemic, we'll John, we'll look that up as we go through the call and come back to you. Okay. I think I missed the memory.
Yes. No problem. And one other thing on that topic, and then I have one other follow-up, Is your line utilization at 39.5%, how does that compare to your normalized level?
Typically, we run 44%, 45%. So we're 400 basis points to 500 basis points Shire of where we'd normally operate and each 100 basis point differential means 5.75 $1,600,000,000 in loan growth.
Got it. Okay. And then separately, I know you indicated your service charges Can we just confirm your overdraft fees annually, Do they total about $300,000,000 annually? And then secondly, where do you see that going As you see the continued change in behavior and maybe a little bit of governmental scrutiny around the overdrafts again.
Yes, John. So your number is reasonably close to that. I think everybody's hit around that number. And our anticipation of all the things that we've done, our anticipation of customer behavior, Our transparency we're providing, which is allowing customers to understand where they stand intraday On things that will post to their account the following night of a given day gives them more opportunity to take care Of a negative account situation. So we've tried to anticipate what all that is and our guidance on our service charge is being down 15%.
It was done because of that. It was done because we are doing things to help our customers. We reduced our overdraft caps And things of that nature in a given day. So now you've asked a question, what could happen? We don't know.
We're trying to do what we think is the right thing and what the government or regulators do, we'll have to adapt and overcome, If there's any change at all, so I think our 15% below the 10% to 15% below pre pandemic is our best answer And
I think I'd just add, John, that as we have provided our There's more tools to better manage their finances. We've seen NSF OD fees decline over time. So if you look back 10 years And come forward to today, there's been an over 40% decline in NSF OD fees that we recognize. So I'll call that, I guess, on average, about 4% a year from customers just managing their finances better. We've grown our customer base over that period of time.
So you'd have to assume there are fewer incidences of NSFs and overdrafts. And I think that, That trend will continue. And as David said, we're prepared for that through growth and other Fees associated with growth in our business, whether it be debit card transactions, associated with a high level of debit card activation and growth Checking accounts, growth in Wealth Management, Capital Markets and other sources of mortgage, other sources of fee income.
Got it. All right. Thanks for taking my question.
Thank you.
Your next question is from Betsy Graseck of Morgan Stanley.
Good morning, Betsy.
Hi, good morning. How are you doing?
Good. Thank you.
So I wanted to dig in a little bit on the EnerBank acquisition strategy. I know you have some nice slides in the back Talking about what the activity is in your footprint, could you give us a sense as to how the activity skews In the non regions branch footprint. And then what are you going to bring to this business? How are you going to ramp this going forward?
Yes. So it's today, we estimate The marketplace is about $176,000,000,000 annual origination market across a couple of different Categories of home improvement. Interbank has been particularly active in HVAC and pools, I have a growing presence in Solar. And we have been observing, participating in indirectly the point of sale lending space for Now 6 or 7 years and have aspired to have the opportunity to Have an origination vehicle, if you will, and we think Interbank provides that. We built our consumer lending strategy around Lending around the home, if you will.
So we've been investing in mortgage. We're making some improvements in our equity loan and line products. And We think Interbank is sort of the 3rd leg of that lending around the home stool with a focus on home improvement and point of sale Lending at the to the consumer. In terms of what we bring, we bring balance sheet. Interbank's growth has been constrained to some extent by their willingness, if you will, the parent company's willingness to fund their growth.
And we, of course, have significant liquidity and a balance sheet and a desire to continue to grow that business. We bring Banking products and services to Interbank's customers, which we think we can more broadly deliver and deepen those Which benefits Interbank as well, and it would spring overall capacity and an existing customer portfolio And we think we can market into across our footprint. So we believe the combination really powerful. We think we can it'd be a nice asset for growth, a nice set of products to offer to our existing customers and at the same time, Nice group of customers to sell our products into to meet Interbank's customer needs. It should be a good
combination. I'll add, as it relates to production, so 55% of their production is in our existing footprint. Obviously, 45 is not. And so we're looking at continuing to build out and diversify throughout the country on this particular product. One of the things that we bring that they did not have is, as you know, the yield is roughly 9% with 2.5 points of that coming from The contractor or the dealer and the other is the customer.
And so, if somebody takes out a loan and then refinances, We're going to be there. That's going to be our customer now that we have a mortgage opportunity for. So if that happens, Those fees get accelerated. And so, whereas Interbank would have Receive that, they wouldn't have gotten the benefits of the mortgage. We're going to be able to get that and the fees.
So we just think it's going to be very powerful. The last piece of this, I'll say is, as John mentioned, it's a large industry, but it's incredibly fragmented where Interbank only represents 1% of that And we think over time, we're going to be able to penetrate this market, much deeper than what they've been able to do, primarily because of our funding.
Right. I mean, when you look at the filings, it looks like they were selling out half of their originations historically and obviously you'd be able to retain that.
That's correct.
The other question I had is you mentioned that you are looking at more incremental M and A opportunities I'm wondering what gaps you still have or what you're most focused on growing.
Well, we want to continue to add to Some specific capital markets capabilities, we have a very good mortgage servicing Rights Group and so we're interested in potentially acquiring more and more servicing rights. We Want to continue to, as David said, potentially grow and expand what Interbank is doing. We think in Wealth Management, there's some Potentially some opportunities to gain some additional capabilities there as well. So fairly broad base as we think about Other opportunities to grow and diversify our revenue and to acquire capabilities to help us meet customer needs.
And the mortgage servicing rights piece, how does that fit in to customer needs? Can you just give me a strategic bullet point on that?
Well, it's we think it just continues to support the capabilities we have and continues to drive efficiencies through that particular unit. So it's as much about benefits to the shareholder, I guess, as it is meeting customer needs.
Okay. All right. Thanks.
Your next question is from Ken Usdin of Jefferies.
Good morning, Ken.
Hi. Good morning, guys. Hey, just a follow-up On the swap book, David, you said that you don't anticipate making any other changes to the book as is. And just wondering How you philosophically think about that against what's happened with the rate curve and the excess liquidity? I'll start with that.
Yes. Ken, I think all the adjustments that we see right now we've made, but that we also had a caveat in This is a pretty dynamic environment. So as circumstances change, we'll also adapt and overcome. We've talked about we think there's a misunderstanding on our swap book. We do have a long Terms 5 year terms on our swaps.
And as conditions change And we see an opportunity for rising rates, then you would expect us to take off some of that protection for low rate environment Protection that we have for the low rate environment, so that we can benefit as rates rise. That being said, we are naturally That's sensitive more so than many banks because of our deposit base. And so the repositioning of moving those notional amounts to a different period of time Help protect us when the economy actually rolls over the other way and the Fed becomes more accommodative. So it's very dynamic. What we want to do is make sure we have an appropriate interest rate risk program that lets us benefit Regardless of what the rate environment is, and that's an everyday, we have a whole group of people, that's what they do every day.
And so, we've made the changes we think necessary thus far, but we're
Understood. And just as a follow-up to that then, David, the $105,000,000 benefit run rate that you mentioned, how far Quarterly of a line of sight do you have on that level? And when in 'twenty three does that start to drip a little bit as just the natural I know, obviously, kept in concert with hopefully by then rates have gone up as an offset.
Yes. I mean, that's the point. I'm glad you mentioned that. That's exactly the point we're trying to make. So if you just looked at the hedge benefit of the 105, I think we have, can we put that in the slide?
If we didn't do it this time, We actually had a slide that show it drifting down lower as you go through 2023, but that's based on today. Over time, that can change because if we reposition certain derivatives, we're not going to be benefiting from the derivative, but we'll be benefiting because rates are higher on the Because rates are higher on the rest of our loan portfolio, the purpose of the hedge was to protect us, not to juice NII and margin, it was to protect us if rates stayed low, which they have done. And so, when you think about giving up, If you will, benefit from our derivatives because either their term comes or we terminate them, It's because we're winning on our whole portfolio that helps offset and then some for NII growth. Hopefully, that makes sense.
It does. Okay. Thanks for that, David.
Let me go back to John Pecari's question on Loan production. So John, we if you go back to the Q2 of 'nineteen and you compare that production level to what we just had, It's a little over 100%, so a little bit more than double what that production was at that time. So hopefully that gives you a little bit of context.
Your next question is from Bill Carcache of Wolfe Research.
Good morning.
Thanks. Good morning, John and David. Following up on your comments around the enhancements to your overdraft practices, Can you give a bit more color on whether you're combining those enhancements with a marketing message on your consumer friendly practices so that hopefully those enhancements translate into greater
We are reaching out to customers, reaching out to across our Associate base making sure that everyone understands the benefits we're providing and hopefully that translates into, Frankly, customers are beginning to increase utilization of the tools that we're providing. We're not seeing early early, we're seeing some nice pickup in alerts, as an example, Which I think is a key tool that customers can and will use to help them better manage their finances. We should be introducing our BankOn product. It's been approved and should be live sometime later this quarter. And I think that's another enhancement that when combined with the other changes we're making, we'll send a real positive message to our customers.
Got it. Separately, following up on EnerLink, can you give a bit more color on the cross sell opportunity across The 10,000 plus contractor network and sorry if I missed this, but over time, do you intend to extend the business model outside of where EnerBank originates loans today or is there a reason you need to stay closer to your footprint?
Well, I think they're originating loans across the country today and we don't intend to change that. The good news is that 55 plus percent of their originations are in our footprint, and that makes some sense when they're financing HVAC in Pool, swimming pools, you'd naturally think that a good bit of that activity is going to occur in the Southeast. So we'll continue to lean into that. In terms of cross sell, we're just beginning to have conversations with the leadership team there about how we'll Go about it, but we have a similar effort underway, if you will, with Ascentyum Capital and we're already beginning to see the benefits That activity, so we'll have a template of sorts with what we're doing with Ascentium And their customer base that we think we can leverage into the relationship with Interbank.
I see. I think I may have misread on Slide 28, you guys have on the top right, the originations LTM, and there are several states where there aren't any. So I just thought that that met only the ones that show, I think I just might have misread that. So they are originating across the country.
Yes. And it's a think about just it's a function of products. So back to 3 primary products being HVAC, pool and solar, those are largely going to be products Originated across the Sunbelt and on the West Coast.
Understood. And then lastly, On PPP, with the bulk of loans forgiven by the end of this year, can you give any color on the extent to which you think QPP helped deepen the relationship with your customers that participated in the program beyond having provided support for them during the pandemic. Just curious whether you think there's any future benefit from those deeper relationships?
I do. I mean, I would say customers that I run into that I mean, that was such an incredibly stressful time for customers, for bankers in the economy. There was so much uncertainty And our ability to meet customer needs and to help almost 80,000 customers Receive a loan through the PPP program had a huge impact on customers and on their employees. We think that we supported Saving of over 1,000,000 jobs as a result of the loans that we made. And so I think we did Generate a good bit of additional loyalty.
Good news is our loyalty scores are already very high amongst our Consumer and small business customer base, but I think our participation in the PPP program and the way we responded for customers ultimately did
Your next question is from Christopher Marinac of Janney Montgomery Scott.
Good morning.
Thanks, John and David. I was curious if the EnerBank deal would have been as attractive if the excess liquidity wasn't as high because the excess liquidity kind of help justify the transaction?
I think I'll let David speak to the finances, but just Purely from a strategic perspective, as I said earlier, we've been participating in through an indirect relationship, actually 2 indirect relationships we had. We've been participating in point of sale or unsecured lending to consumers on an indirect This is largely to support home improvement, not entirely. And it has been our desire to find a way into that Space, as we've seen consumers migrate their borrowing from banks traditionally to these point of sale lenders. And so We also, as I mentioned, are focused on lending around the home and meeting customer needs through Three different sort of product channels, 1st mortgage, HELOC, HELON and then third, this point of sale lending activity. So We've been looking and interested for some time, and we think Interbank is a great opportunity for us, really well run company.
We like the team and the relationships they have. And so I believe it would have been just as interesting to us. But David, if you want to Yes.
Financially, it would the fact that we had idle cash is incrementally beneficial, but we would have still done the transaction With the debt financing, I mean, the return on capital, return on investment that we're going to experience And continuing to grow, and we think that's, at the end of the day, what our investors really want us to do with our business and the capital we generate instead of Buying stock back and things of that nature is to invest in the business and grow and to make smart acquisitions where you get a disproportionate return and you're Creating a product capability to serve existing customers and grow new ones that you can cross sell to as We just talked about whether it be the 10,000 contractors or all the folks, individuals that have loans. So This was not done because of that. It was independent.
That's helpful. Thanks for walking through that background. I appreciate it.
Sure. Thank you.
Your final question is from Christopher Spahr of Wells Fargo Securities.
Thank you. Good morning. So first, I'd like to give you commend you on actually your good digital disclosures. It's One of the best amongst all regional banks. So my question is going to be tech related.
So what's your outlook for your 625,000,000 tech budget given opportunities to grow accounts and target specific customers as well as like optimizing your contacts that are 100% remote, I And then second, my follow-up would be, at what point do these investments become self funding and when do you expect to get there?
Well, I'll speak to the first part of the question. I'm not sure about the self funding. I guess it's Our hope is over time as we make investments that the cost of computing comes down and we're able to make continually make investments. We've said We're spending about $625,000,000 as you pointed out, roughly 10% of that is dedicated to Cybersecurity and defending our the bank and our customers, approximately 48%, RESET is dedicated to keeping the bank going, to maintaining operations and 42% to support innovation New ideas and we're going to continue to make those investments and we believe Through doing things like improving our mobile app, through digitizing the account origination process, through giving our Bankers, whether they're in the branches or commercial wealth RMs, more digital tools to assist customers, e signature capabilities across the footprint drives digital usage. At the same time, we want to make sure that we're investing in capabilities that give customers more self-service options That allow them to use all of our channels and have the same great experience, whether they're at an ATM in a branch or Using their mobile or online app or talking to the call center, that will be really important to us as we continue to try to meet customer expectations for Convenience and speed of transaction, more self-service options.
So, I think as we make those investments, they create process improvements, They help us drive efficiencies and effectiveness consistent with our desire to continuously improve and that generates more Funding for reinvestment in technology and innovation. We believe that model and we Prove that that model works over the last 3 plus years, and we expect it will continue to work as an important part of our strategic plan.
Yes, Chris, I'll add that, I think, so we're spending 10% of our revenue on technology. We expect to grow revenue over time, and as a result, technology spend will increase. You've asked a very good question. And To the folks that work for Regions, I promise I didn't have Chris plant this question because that's what we ask all the time is we're going Spend this kind of money, where's our return? When are you going to be on your own?
And that's hard to answer, Chris. But certainly, we challenge ourselves all the time to make Every dollar that we spend is meaningful and that we're not just spending technology, spend technology. What benefit does our customer get and what benefit do our shareholders get from this spend? And it's a continual challenge, And I think we're in pretty good position for that, but it's hard to give on a kind of give a project exactly when that's self sustaining.
Thank you very
much. Is there a no
other question?
Great. Well, I'll just close by acknowledging the great work of Teams, these are still somewhat uncertain times and I think our teams have remained focused on the things that we can control, particularly focused on taking care of our customers. I think that those benefits are beginning to appear in our results. So I appreciate Work our teams have done thank all of you that participated today for your interest in Regions. Have a great weekend.
This concludes today's conference call. You may now disconnect.