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Speaker 1: We can get you a much more stronger story than

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Speaker 1: that with Joe Castday of the CEO of Citizens Bank Covenment,

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Speaker 1: who joins us around the type we now coome monit,

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Speaker 1: Joe get more Ning, You've got a pathless story to tell.

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Speaker 1: It is not that gloomy talk us through it.

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Speaker 2: It's not.

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Speaker 3: I think relationship bankers that have intimate knowledge of their

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Speaker 3: their borrowers and that have been disciplined through this last

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Speaker 3: five ten years are not going to see the type

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Speaker 3: of weakness and the commercial real estate market that others

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Speaker 3: are anticipating. I think those that have more distance from

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Speaker 3: the borrowers or outside the banking system. I think that's

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Speaker 3: where he has a vulnerability. Lots of regional impacts as well,

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Speaker 3: So large urban centers with large, multi tenant buildings have

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Speaker 3: more susceptibility to some of these this weakness and higher

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Speaker 3: interest rates and potential vacancy issues. Then maybe smaller, smaller

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Speaker 3: type of commercial real estate that maybe office occupied still,

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Speaker 3: but that the lender knew this borrower and was able

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Speaker 3: to structure appropriately low LTVs focusing on debt service coverage

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Speaker 3: for the last few years. Those types of lenders are

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Speaker 3: going to come out.

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Speaker 1: Okay, there was some real stress about nine ten eleven

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Speaker 1: months ago, in the spring of last year for the

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Speaker 1: smaller banks. I think for a lot of people, they

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Speaker 1: concluded that the bigger banks will get bigger and the

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Speaker 1: smaller banks need to grow and consolidate. Have a different

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Speaker 1: view on that. The reason we need more than four

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Speaker 1: thousand banks in America? Why do we need that number?

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Speaker 3: Well, when we talk about smaller banks, even the beginning

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Speaker 3: of last year, small banks truly.

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Speaker 2: Ones like mine, we're fine.

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Speaker 3: We really didn't see the deposit runoff because there's a

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Speaker 3: diversity of deposits. Average deposit amounts are very low, and

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Speaker 3: so you didn't You weren't counting on hundreds of millions

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Speaker 3: of dollars concentrate on very few depositors. And also you

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Speaker 3: had more like we have two thirds of our deposits

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Speaker 3: are non interspering, non maturity deposits, and so when you

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Speaker 3: have that, there's not even though you had some laws

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Speaker 3: and some now competitive pressures on the interspering deposits, you

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Speaker 3: just didn't have those same pressures as like some of

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Speaker 3: the large regional institutions and broker deposits also also increased

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Speaker 3: quite a bit due to the demand earlier last year,

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Speaker 3: and we've seen that soften quite a bit.

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Speaker 2: Again.

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Speaker 3: It goes back to relationships, and I think whenever we

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Speaker 3: look at having four thousand plus banks in the United

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Speaker 3: States is a great strength for us, both in having

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Speaker 3: a bank in your location. If you're in rural areas,

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Speaker 3: you may not have access to a bank if you

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Speaker 3: have consolidation. I mean a suburban area with over fifty

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Speaker 3: sixty banks in one hundred thousand person town, but there's

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Speaker 3: relevancy for a small bank because we're the ones sponsoring

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Speaker 3: the football stadium and the Little Lady games, and we

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Speaker 3: put on a big street festival to revialize her downtown.

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Speaker 3: There's social capital there that you don't find in larger institutions,

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Speaker 3: and you see it even representing TV and movies, just

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Speaker 3: how important a bank can be. Consolidation yields distance, which

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Speaker 3: I think also yields risk, and we're seeing that as

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Speaker 3: we just talked about commercial state and deposit potential loss.

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Speaker 3: Whenever you have a tie to your bank and your banker,

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Speaker 3: it listens the risk overall, even though maybe small institutions.

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Speaker 2: Systemically, it makes a difference.

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Speaker 4: Let's talk about some of those relationships, especially at a

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Speaker 4: time where a lot of FED officials are talking about

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Speaker 4: anecdotes and how important they are to really understanding the economy.

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Speaker 4: How much is the economy slowing. Do you get the

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Speaker 4: sense that your clients, the relationships that you have, are

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Speaker 4: expressing a greater degree of concern that some of the

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Speaker 4: macro data might suggest.

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Speaker 3: I really don't see that in our locality. I think regionally,

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Speaker 3: you do hear that it does have an impact on

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Speaker 3: small business as we have rates increasing for them, especially

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Speaker 3: those that have variable rays where they're not having a

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Speaker 3: big repricing or refinancing that this is hitting them at

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Speaker 3: with each rate increase, and so they're starting to have

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Speaker 3: that pressure. As commercial real estate has the higher need

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Speaker 3: to be able to service their debt, we see rents

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Speaker 3: go up quite a bit, so some of the small

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Speaker 3: businesses that's really been more of a struggle. And then

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Speaker 3: for consumers as well, the higher cost of putting food

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Speaker 3: on the table and i'll bring a household have been

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Speaker 3: really challenging.

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Speaker 4: You talked about the strength of being a smaller bank

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Speaker 4: and all of these relationships and the ability to diversify

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Speaker 4: in the way that you want. How vulnerable do you

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Speaker 4: feel to some of the new capital rules that could

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Speaker 4: come down the pike that we keep hearing about in Congress.

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Speaker 3: Yeah, the new capital rules don't directly impact me because

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Speaker 3: they're targeted for larger institutions, but there will be some

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Speaker 3: type of trickle down. Well, I'm most concerned about those

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Speaker 3: new rules is where we have greater specifity of whatever's

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Speaker 3: that this is going to cost you more capital versus

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Speaker 3: it being generally.

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Speaker 2: You need to have more capital.

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Speaker 3: Is you have unintended consequences, So then you have potentially

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Speaker 3: some transactions that would occur within the banking system get

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Speaker 3: moved out of the banking system and actually could have

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Speaker 3: more herperal impacts to the economy and less ability for

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Speaker 3: regulators to have an impact.

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Speaker 1: Do you think the proposal meets the moment then? Based

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Speaker 1: on what we saw last year, what was that in

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Speaker 1: your mind? Was that a favure of regulation or oversight?

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Speaker 3: You know it, Just as we need a whole banks accountable,

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Speaker 3: I think regulators are also accountable too. We have really

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Speaker 3: great regulations, and we have really great decentralized regulatory structure

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Speaker 3: in the United States was a great strength, and I

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Speaker 3: think where we've seen some failures or some vulnerabilities and

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Speaker 3: we never that hasn't been executed well. So that's what

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Speaker 3: I would would say is that we really we have

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Speaker 3: great regional examiners that are on the ground that understands

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Speaker 3: the local econ what type of risk banks are taking.

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Speaker 3: It's just important that they continue to do that. And

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Speaker 3: I think changing the structure kind of can penalize and

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Speaker 3: take that autonomy out and you then aren't able to

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Speaker 3: assess risk as sophisticated in such a sophistical manner as

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Speaker 3: you can do before.

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Speaker 1: What kind of proposal would you like to see some

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Speaker 1: kind of deposit insurance reform? What would you like to see?

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Speaker 3: I think the deposits insurance is also there's so many

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Speaker 3: different tools with marketplaces to be able to exchange deposit insurance,

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Speaker 3: ability to pledge collateral to deposits, that there's really to me, no,

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Speaker 3: there's no need to really change anything there. We have

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Speaker 3: less than we're right at five percent uninsured deposits in

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Speaker 3: our organization, and when we saw organizations last year be

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Speaker 3: over ninety percent uninsured deposits, there was no reason for that.

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Speaker 3: There is plenty of tools to be able to use,

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Speaker 3: and you now see banks really shifting and making sure

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Speaker 3: that they don't have that exposure on uninsured depositor unclateralized deposits.

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Speaker 1: Brahma. We've been talking about this whether the regulation, the

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Speaker 1: proposal at least makes the moment of nine, ten, eleven

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Speaker 1: months ago, and the message I keep receiving every single

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Speaker 1: time is probably.

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Speaker 4: Not not only that, but a lot of people are

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Speaker 4: saying that. Probably down in Washington, they're going to start

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Speaker 4: to agree with this. Morgan Stanley actually started to turn

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Speaker 4: bullish on US banks.

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Speaker 1: That's sick.

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Speaker 4: That's agra sick because she didn't think that the capital

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Speaker 4: rules would be as harsh as some people were expecting.

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Speaker 4: So that pushback is pretty widespread, and maybe some people

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Speaker 4: are already pricing in that it's not going to really

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Speaker 4: get applied as initially proposed.

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Speaker 1: We'll keep this conversation going, Jill, let's talk about real

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Speaker 1: estate if we can just a little bit. You mentioned

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Speaker 1: it earlier. Do you have a different view on commercial

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Speaker 1: real estate? And is your view on commercial real estate

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Speaker 1: different to your overall view on CRA across the nation.

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Speaker 1: And what I mean by that is your bank exposure

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Speaker 1: might be one thing, but do you think that speaks

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Speaker 1: to a broader story At the moment yeah.

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Speaker 3: I recently saw a survey of banks that were confident

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Speaker 3: with their own commercial real state holding has been not

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Speaker 3: necessarily really confident broadly, and I think it has to

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Speaker 3: do with just that there aren't as many banks in

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Speaker 3: commercial real estate. I mean as far as like looking

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Speaker 3: at the whole portfolio, only fifty percent or so is

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Speaker 3: financed by banks. You know, I feel really comfortable with

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Speaker 3: our portfolio. We have always been a real estate concentration

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Speaker 3: concentration bank and have great risk managment tools, and where

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Speaker 3: as a banker you have to be an expert risk manager,

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Speaker 3: and so it requires discipline going into higher risk type

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Speaker 3: of lending, and so making sure you really understand is

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Speaker 3: this desk det service coverage ratio real, and there's this value.

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Speaker 3: Is this appraisal we got reasonable? What is the value

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Speaker 3: looking like over time?

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Speaker 1: Does it make you nervous that everybody else thinks their

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Speaker 1: bank book is okay and everybody else's is the problem?

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Speaker 3: Yeah, well it would on the surface, but when you

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Speaker 3: look at the composition of how real estate's been financed,

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Speaker 3: there's been lots of deals we've passed on the non

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Speaker 3: banks have financed, and so I think there is a

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Speaker 3: lot of that market mix occurring. Banks have great tools,

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Speaker 3: so we can also reamortize. We have flexibility when it

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Speaker 3: comes to restructuring rates. We've all been through workouts so

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Speaker 3: for so as long as you go in with your

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Speaker 3: eyes wide open, that you're working with borrowers that note

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Speaker 3: you know, have great integrity, you should be okay.

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Speaker 1: Jill, I was surprised by this. I think you were too.

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Speaker 1: What does auto lending look like for you in the bank.

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Speaker 3: We've seen less demand for car loans and so the

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Speaker 3: rates are driving consumers not to purchase on whenever I

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Speaker 3: look out on the ground, but there is some demand

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Speaker 3: up there from like I didn't kind of buy a

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Speaker 3: car a few months ago or a few years ago,

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Speaker 3: and so now it's trying to buy one.

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Speaker 2: But I think we will see some great demand.

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Speaker 3: There's demand kind of pin up because the rates have

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Speaker 3: been high. We've seen consumer debt go up as well

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Speaker 3: and being more difficult to have the savings that we

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Speaker 3: saw during COVID and even pre COVID.

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Speaker 2: So this is surprising data for me.

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Speaker 1: What creases the wheels for you? Can you give us

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Speaker 1: an idea of the number we talk about moves of

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Speaker 1: fifty basis points one hundred basis points one four percentage

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Speaker 1: point on FED funds coming down, and that's going to

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Speaker 1: get things going again. Does that move the dial for

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Speaker 1: you when you drop rates that much to people start

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Speaker 1: lining up to borrow money to buy cars.

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Speaker 2: Well, not necessarily buy cars.

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Speaker 3: So I think we're still seeing a lot of auto

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Speaker 3: financing and sendatives from the dealers and from the manufacturers.

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Speaker 3: So you know, I don't really see that as much

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Speaker 3: because I think there are other debt is what's causing

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Speaker 3: some stress. So it's not necessarily going on and getting

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Speaker 3: necessarily the new car loan. Definitely on the carline, you

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Speaker 3: would have a high higher rate associated with that, but

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Speaker 3: the other demands upon in the perception of what the

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Speaker 3: rate would be, I think it's keeping folks from purchase.

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Speaker 1: Can you give us an idea of rates to borrow

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Speaker 1: right now? What does it look like if we come

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Speaker 1: to the bank to you today, What am I paying?

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Speaker 1: I'm not paying five point fifty, which is Fed funds.

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Speaker 1: What am I paying?

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Speaker 3: Yeah, you're right at the prime rate, and so you're

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Speaker 3: maybe a little bit less than that, but you can

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Speaker 3: still go to deal or finance and get quite a

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Speaker 3: bit lower. And so they're really kind of and I

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Speaker 3: don't know what GM is doing, but they may have

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Speaker 3: some incantyms and being interesting.

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Speaker 1: Look at that, Jill, it's going to see you. Thanks

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Speaker 1: for being with us, appreciate it. Great to be I

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Speaker 1: send our love to est George favorite FED official formerly

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Speaker 1: the Kansas City Fed. Just the absolute best, the best.

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Speaker 1: Love to the absolute best, Jill. Thank you,