Speaker 1: We can get you a much more stronger story than
Speaker 1: that with Joe Castday of the CEO of Citizens Bank Covenment,
Speaker 1: who joins us around the type we now coome monit,
Speaker 1: Joe get more Ning, You've got a pathless story to tell.
Speaker 1: It is not that gloomy talk us through it.
Speaker 2: It's not.
Speaker 3: I think relationship bankers that have intimate knowledge of their
Speaker 3: their borrowers and that have been disciplined through this last
Speaker 3: five ten years are not going to see the type
Speaker 3: of weakness and the commercial real estate market that others
Speaker 3: are anticipating. I think those that have more distance from
Speaker 3: the borrowers or outside the banking system. I think that's
Speaker 3: where he has a vulnerability. Lots of regional impacts as well,
Speaker 3: So large urban centers with large, multi tenant buildings have
Speaker 3: more susceptibility to some of these this weakness and higher
Speaker 3: interest rates and potential vacancy issues. Then maybe smaller, smaller
Speaker 3: type of commercial real estate that maybe office occupied still,
Speaker 3: but that the lender knew this borrower and was able
Speaker 3: to structure appropriately low LTVs focusing on debt service coverage
Speaker 3: for the last few years. Those types of lenders are
Speaker 3: going to come out.
Speaker 1: Okay, there was some real stress about nine ten eleven
Speaker 1: months ago, in the spring of last year for the
Speaker 1: smaller banks. I think for a lot of people, they
Speaker 1: concluded that the bigger banks will get bigger and the
Speaker 1: smaller banks need to grow and consolidate. Have a different
Speaker 1: view on that. The reason we need more than four
Speaker 1: thousand banks in America? Why do we need that number?
Speaker 3: Well, when we talk about smaller banks, even the beginning
Speaker 3: of last year, small banks truly.
Speaker 2: Ones like mine, we're fine.
Speaker 3: We really didn't see the deposit runoff because there's a
Speaker 3: diversity of deposits. Average deposit amounts are very low, and
Speaker 3: so you didn't You weren't counting on hundreds of millions
Speaker 3: of dollars concentrate on very few depositors. And also you
Speaker 3: had more like we have two thirds of our deposits
Speaker 3: are non interspering, non maturity deposits, and so when you
Speaker 3: have that, there's not even though you had some laws
Speaker 3: and some now competitive pressures on the interspering deposits, you
Speaker 3: just didn't have those same pressures as like some of
Speaker 3: the large regional institutions and broker deposits also also increased
Speaker 3: quite a bit due to the demand earlier last year,
Speaker 3: and we've seen that soften quite a bit.
Speaker 2: Again.
Speaker 3: It goes back to relationships, and I think whenever we
Speaker 3: look at having four thousand plus banks in the United
Speaker 3: States is a great strength for us, both in having
Speaker 3: a bank in your location. If you're in rural areas,
Speaker 3: you may not have access to a bank if you
Speaker 3: have consolidation. I mean a suburban area with over fifty
Speaker 3: sixty banks in one hundred thousand person town, but there's
Speaker 3: relevancy for a small bank because we're the ones sponsoring
Speaker 3: the football stadium and the Little Lady games, and we
Speaker 3: put on a big street festival to revialize her downtown.
Speaker 3: There's social capital there that you don't find in larger institutions,
Speaker 3: and you see it even representing TV and movies, just
Speaker 3: how important a bank can be. Consolidation yields distance, which
Speaker 3: I think also yields risk, and we're seeing that as
Speaker 3: we just talked about commercial state and deposit potential loss.
Speaker 3: Whenever you have a tie to your bank and your banker,
Speaker 3: it listens the risk overall, even though maybe small institutions.
Speaker 2: Systemically, it makes a difference.
Speaker 4: Let's talk about some of those relationships, especially at a
Speaker 4: time where a lot of FED officials are talking about
Speaker 4: anecdotes and how important they are to really understanding the economy.
Speaker 4: How much is the economy slowing. Do you get the
Speaker 4: sense that your clients, the relationships that you have, are
Speaker 4: expressing a greater degree of concern that some of the
Speaker 4: macro data might suggest.
Speaker 3: I really don't see that in our locality. I think regionally,
Speaker 3: you do hear that it does have an impact on
Speaker 3: small business as we have rates increasing for them, especially
Speaker 3: those that have variable rays where they're not having a
Speaker 3: big repricing or refinancing that this is hitting them at
Speaker 3: with each rate increase, and so they're starting to have
Speaker 3: that pressure. As commercial real estate has the higher need
Speaker 3: to be able to service their debt, we see rents
Speaker 3: go up quite a bit, so some of the small
Speaker 3: businesses that's really been more of a struggle. And then
Speaker 3: for consumers as well, the higher cost of putting food
Speaker 3: on the table and i'll bring a household have been
Speaker 3: really challenging.
Speaker 4: You talked about the strength of being a smaller bank
Speaker 4: and all of these relationships and the ability to diversify
Speaker 4: in the way that you want. How vulnerable do you
Speaker 4: feel to some of the new capital rules that could
Speaker 4: come down the pike that we keep hearing about in Congress.
Speaker 3: Yeah, the new capital rules don't directly impact me because
Speaker 3: they're targeted for larger institutions, but there will be some
Speaker 3: type of trickle down. Well, I'm most concerned about those
Speaker 3: new rules is where we have greater specifity of whatever's
Speaker 3: that this is going to cost you more capital versus
Speaker 3: it being generally.
Speaker 2: You need to have more capital.
Speaker 3: Is you have unintended consequences, So then you have potentially
Speaker 3: some transactions that would occur within the banking system get
Speaker 3: moved out of the banking system and actually could have
Speaker 3: more herperal impacts to the economy and less ability for
Speaker 3: regulators to have an impact.
Speaker 1: Do you think the proposal meets the moment then? Based
Speaker 1: on what we saw last year, what was that in
Speaker 1: your mind? Was that a favure of regulation or oversight?
Speaker 3: You know it, Just as we need a whole banks accountable,
Speaker 3: I think regulators are also accountable too. We have really
Speaker 3: great regulations, and we have really great decentralized regulatory structure
Speaker 3: in the United States was a great strength, and I
Speaker 3: think where we've seen some failures or some vulnerabilities and
Speaker 3: we never that hasn't been executed well. So that's what
Speaker 3: I would would say is that we really we have
Speaker 3: great regional examiners that are on the ground that understands
Speaker 3: the local econ what type of risk banks are taking.
Speaker 3: It's just important that they continue to do that. And
Speaker 3: I think changing the structure kind of can penalize and
Speaker 3: take that autonomy out and you then aren't able to
Speaker 3: assess risk as sophisticated in such a sophistical manner as
Speaker 3: you can do before.
Speaker 1: What kind of proposal would you like to see some
Speaker 1: kind of deposit insurance reform? What would you like to see?
Speaker 3: I think the deposits insurance is also there's so many
Speaker 3: different tools with marketplaces to be able to exchange deposit insurance,
Speaker 3: ability to pledge collateral to deposits, that there's really to me, no,
Speaker 3: there's no need to really change anything there. We have
Speaker 3: less than we're right at five percent uninsured deposits in
Speaker 3: our organization, and when we saw organizations last year be
Speaker 3: over ninety percent uninsured deposits, there was no reason for that.
Speaker 3: There is plenty of tools to be able to use,
Speaker 3: and you now see banks really shifting and making sure
Speaker 3: that they don't have that exposure on uninsured depositor unclateralized deposits.
Speaker 1: Brahma. We've been talking about this whether the regulation, the
Speaker 1: proposal at least makes the moment of nine, ten, eleven
Speaker 1: months ago, and the message I keep receiving every single
Speaker 1: time is probably.
Speaker 4: Not not only that, but a lot of people are
Speaker 4: saying that. Probably down in Washington, they're going to start
Speaker 4: to agree with this. Morgan Stanley actually started to turn
Speaker 4: bullish on US banks.
Speaker 1: That's sick.
Speaker 4: That's agra sick because she didn't think that the capital
Speaker 4: rules would be as harsh as some people were expecting.
Speaker 4: So that pushback is pretty widespread, and maybe some people
Speaker 4: are already pricing in that it's not going to really
Speaker 4: get applied as initially proposed.
Speaker 1: We'll keep this conversation going, Jill, let's talk about real
Speaker 1: estate if we can just a little bit. You mentioned
Speaker 1: it earlier. Do you have a different view on commercial
Speaker 1: real estate? And is your view on commercial real estate
Speaker 1: different to your overall view on CRA across the nation.
Speaker 1: And what I mean by that is your bank exposure
Speaker 1: might be one thing, but do you think that speaks
Speaker 1: to a broader story At the moment yeah.
Speaker 3: I recently saw a survey of banks that were confident
Speaker 3: with their own commercial real state holding has been not
Speaker 3: necessarily really confident broadly, and I think it has to
Speaker 3: do with just that there aren't as many banks in
Speaker 3: commercial real estate. I mean as far as like looking
Speaker 3: at the whole portfolio, only fifty percent or so is
Speaker 3: financed by banks. You know, I feel really comfortable with
Speaker 3: our portfolio. We have always been a real estate concentration
Speaker 3: concentration bank and have great risk managment tools, and where
Speaker 3: as a banker you have to be an expert risk manager,
Speaker 3: and so it requires discipline going into higher risk type
Speaker 3: of lending, and so making sure you really understand is
Speaker 3: this desk det service coverage ratio real, and there's this value.
Speaker 3: Is this appraisal we got reasonable? What is the value
Speaker 3: looking like over time?
Speaker 1: Does it make you nervous that everybody else thinks their
Speaker 1: bank book is okay and everybody else's is the problem?
Speaker 3: Yeah, well it would on the surface, but when you
Speaker 3: look at the composition of how real estate's been financed,
Speaker 3: there's been lots of deals we've passed on the non
Speaker 3: banks have financed, and so I think there is a
Speaker 3: lot of that market mix occurring. Banks have great tools,
Speaker 3: so we can also reamortize. We have flexibility when it
Speaker 3: comes to restructuring rates. We've all been through workouts so
Speaker 3: for so as long as you go in with your
Speaker 3: eyes wide open, that you're working with borrowers that note
Speaker 3: you know, have great integrity, you should be okay.
Speaker 1: Jill, I was surprised by this. I think you were too.
Speaker 1: What does auto lending look like for you in the bank.
Speaker 3: We've seen less demand for car loans and so the
Speaker 3: rates are driving consumers not to purchase on whenever I
Speaker 3: look out on the ground, but there is some demand
Speaker 3: up there from like I didn't kind of buy a
Speaker 3: car a few months ago or a few years ago,
Speaker 3: and so now it's trying to buy one.
Speaker 2: But I think we will see some great demand.
Speaker 3: There's demand kind of pin up because the rates have
Speaker 3: been high. We've seen consumer debt go up as well
Speaker 3: and being more difficult to have the savings that we
Speaker 3: saw during COVID and even pre COVID.
Speaker 2: So this is surprising data for me.
Speaker 1: What creases the wheels for you? Can you give us
Speaker 1: an idea of the number we talk about moves of
Speaker 1: fifty basis points one hundred basis points one four percentage
Speaker 1: point on FED funds coming down, and that's going to
Speaker 1: get things going again. Does that move the dial for
Speaker 1: you when you drop rates that much to people start
Speaker 1: lining up to borrow money to buy cars.
Speaker 2: Well, not necessarily buy cars.
Speaker 3: So I think we're still seeing a lot of auto
Speaker 3: financing and sendatives from the dealers and from the manufacturers.
Speaker 3: So you know, I don't really see that as much
Speaker 3: because I think there are other debt is what's causing
Speaker 3: some stress. So it's not necessarily going on and getting
Speaker 3: necessarily the new car loan. Definitely on the carline, you
Speaker 3: would have a high higher rate associated with that, but
Speaker 3: the other demands upon in the perception of what the
Speaker 3: rate would be, I think it's keeping folks from purchase.
Speaker 1: Can you give us an idea of rates to borrow
Speaker 1: right now? What does it look like if we come
Speaker 1: to the bank to you today, What am I paying?
Speaker 1: I'm not paying five point fifty, which is Fed funds.
Speaker 1: What am I paying?
Speaker 3: Yeah, you're right at the prime rate, and so you're
Speaker 3: maybe a little bit less than that, but you can
Speaker 3: still go to deal or finance and get quite a
Speaker 3: bit lower. And so they're really kind of and I
Speaker 3: don't know what GM is doing, but they may have
Speaker 3: some incantyms and being interesting.
Speaker 1: Look at that, Jill, it's going to see you. Thanks
Speaker 1: for being with us, appreciate it. Great to be I
Speaker 1: send our love to est George favorite FED official formerly
Speaker 1: the Kansas City Fed. Just the absolute best, the best.
Speaker 1: Love to the absolute best, Jill. Thank you,