Regions Financial Corp (NYSE: RF) Q4 2020 earnings call dated Jan. 22, 2021.
Corporate Participants:
Dana Nolan — Investor Relations
John M. Turner — President and Chief Executive Officer
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Analysts:
Erika Najarian — Bank of America Merrill Lynch — Analyst
Ken Usdin — Jefferies — Analyst
Jennifer Demba — Truist Securities — Analyst
Gerard Cassidy — RBC Capital Markets — Analyst
Betsy Graseck — Morgan Stanley — Analyst
John Pancari — Evercore ISI — Analyst
Dave Rochester — Compass Point — Analyst
Matt O’Connor — Deutsche Bank — Analyst
Presentation:
Operator
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. [Operator Instructions]
I will now turn the call over to Dana Nolan to begin.
Dana Nolan — Investor Relations
Thank you, Shelby. Welcome to Regions’ fourth quarter 2020 earnings call. John and David will provide high level commentary regarding the quarter and full year results. Earnings documents, including forward-looking statements are available in 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.
John M. Turner — President and Chief Executive Officer
Thanks Dana, and thank you for joining our call today. Let me begin by saying that we are very pleased with our fourth quarter and full year results. We achieved a great deal despite the challenging interest rate and operating environment. Earlier this morning we reported full year earnings of $991 million, reflecting our highest level of adjusted pre-tax pre-provision income in more than a decade, resulting in an adjusted positive operating leverage of 2.6%. Over the last 10 plus years, we’ve made significant strides toward our goal of positioning the company to generate consistent sustainable long-term performance. We’ve enhanced our credit, interest rate and operational risk management processes and platforms. We’ve sharpened our focus on appropriate risk adjusted returns and capital allocation. These actions position us well to weather the economic downturn caused by the pandemic and to serve as a strong foundation for growth. Despite a year of unprecedented uncertainty, we remain focused on what we can control, and our efforts are paying off.
During 2020, we grew consumer and small business checking accounts by 1.5%. We increased corporate loan production by 6%. We made investments in talent, target markets, technology and digital capabilities. And we expanded and enhanced products across the Consumer and Corporate Bank incorporating changing customer preferences and learnings from the pandemic. In 2021 and beyond, we will continue to focus on growing our business by investing in areas that allow us to make banking easier for our customers, and while continuing to provide our associates with the tools they need to be competitive. We will make incremental adjustments to our business by leveraging our strengths and investing in areas where we believe we can consistently win over time. We did this by adding mortgage loan originators when rates were still rising, positioning us to better capitalize on mortgage activity. We also expanded our small business platform through the Ascentium acquisition as well as our enhanced SBA technology platform.
In closing, we are very proud of our achievements in 2020, but none of these would be possible without the hard work and dedication of our 20,000 associates. This year is a myriad of challenges. However our associates took action, providing best-in-class customer service, successfully executing on our strategy and maintaining strong risk management practices in the face of a rapidly evolving operating environment, all of which contributed to our success.
Now Dave will provide you with some details regarding the quarter.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Thank you, John. Let’s start with the balance sheet. While adjusted average loans were up for the year, they decreased 2% in the fourth quarter. New and renewed commercial loan production increased 25% compared to the third quarter, however, balances remain negatively impacted by historically low utilization levels. As of year-end, commercial line utilization was just under 40% compared to historical average of 45%. Commercial loan balances were further impacted by the company’s active portfolio management efforts during the quarter. Approximately $408 million worth of commercial loans were either sold or transfered to held for sale. Additionally, PPP forgiveness began during the quarter, resulting in a $415 million reduction in average loan balances.
Consumer loan growth again reflected strong mortgage production, offset by run-off portfolios. Overall, we expect 2021 adjusted average loan balances to be down by low single-digits compared to 2020. However, after excluding the impact of this quarter’s portfolio management efforts, we expect adjusted ending loans to grow by low single-digits.
With respect to deposits, balances continue to increase this quarter to new record levels. Full year average deposits are 17% higher than 2019 with most of the growth coming in non-interest bearing core operating accounts across all three business segments. The increase is primarily due to higher balances, however, we are also experiencing new account growth. We expect near-term deposit balances will continue to increase, particularly as the second-round of stimulus is dispersed.
Let’s shift to net interest income and margin, which remain a significant source of stability for Regions. Net interest income increased 2% during the quarter and as expected remained relatively stable excluding the benefit from PPP forgiveness. Similar to prior quarters, the impact from lower loan balances and low long-term rates was mostly offset by our cash management strategies, lower deposit costs and higher average notional values of active loan hedges. Net interest margin was stable linked quarter at 3.13%. Deposit growth drove cash we hold at the Federal Reserve to record levels, averaging over $13 billion and reducing fourth quarter margin by 34 basis points. PPP benefited net interest income through the realization of approximately $24 million of fees related to forgiveness. In total, the PPP program contributed 7 basis points to the margin. Excluding excess cash and PPP, our normalized net interest margin remained stable at 3.4%, evidencing our proactive balance sheet management, despite a near zero short-term rate environment.
Loan hedges added $97 million to net interest income and 30 basis points to the margin. Higher average hedged notional values drove a $3 million increase compared to the third quarter. Our last forward starting hedges began earlier this month. So going forward, we expect roughly $100 million of hedge related interest income each quarter at current rate levels until hedges begin to mature in late 2023. Our hedges have a remaining life of four years and provide protection through 2026. We continue to look for opportunities to deploy excess cash, balancing risk and return of note.
Incremental securities currently come with larger premiums, which increased our quarterly premium amortization run rate, but that is factored into the overall benefit. Total premium amortization was $51 million this quarter and would be in the low $40 million range excluding book premium increases and elevated Ginnie Mae buyout activity. Interest-bearing deposit costs fell 6 basis points in the quarter to 13 basis points contributing $10 million to net interest income. Looking ahead to the first quarter PPP related net interest income is expected to be relatively stable with the fourth quarter.
However, the timing of PPP loan forgiveness and participation in the second round of funding remains uncertain. Fewer days will reduce first quarter NII by roughly $12 million. After level setting for days net interest income is expected to be modestly lower quarter-over-quarter, mostly attributable to lower average loan balances. The impact of lower long-term rates will continue to be offset by the benefits from hedging, cash management strategies and lower deposit cost.
Now let’s take a look at fee revenue and expense. Adjusted non-interest income increased 7% quarter-over-quarter. We achieved record capital markets income driven primarily by increased M&A activity. Mortgage delivered another solid quarter and for the full year generated record production and related revenue. Looking ahead to 2021, we expect mortgage and capital markets to continue to be significant contributors to fee revenue. Excluding the impact of CVA/DVA, we expect capital markets to generate quarterly revenue in the $55 million to $65 million range on average.
Service charges increased 5%, but remained below prior year levels. While improving, we believe changes in customer behavior as well as continued enhancements to our overdraft practices and transaction posting are likely to keep service charges below pre-pandemic levels. Although we expect the impact of these changes will be partially offset by continued account growth, we estimate 2021 service charges will grow, but remain approximately 10% to 15% below 2019 levels.
Card and ATM fees have recovered compared to the prior year, driven primarily by increased debit card spend. And while credit card spend continues to improve, it remains slightly behind prior year levels. Given the timing of interest rate changes in 2020, combined with exceptionally strong fee income performance, we expect 2021 adjusted total revenue to be down modestly compared to the prior year, but this will be dependent on the timing and amount of PPP forgiveness and loan growth.
Let’s move on to non-interest expense. Adjusted non-interest expenses increased 5% in the quarter, driven by higher incentive compensation related primarily to record capital markets activities. Of note, base salaries were 2% lower compared to the third quarter as we remain focused on our continuous improvement process. Associate headcount decreased 2% quarter-over-quarter and 1% year-over-year. And excluding the impact of our Ascentium acquisition, the associate headcount decreased over 3% in 2020. 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 remain stable to down modestly compared to 2020. We remain committed to generating positive operating leverage over time but acknowledge 2021 will be challenging without a stronger economy than currently anticipated.
From an asset quality perspective, overall credit continues to perform better than expected. Annualized net charge-offs were 43 basis points, a 7 basis point improvement over the prior quarter, reflecting improvement primarily within our commercial portfolios. Non-performing loans, total delinquencies and business services criticized loans all remained relatively stable. Our allowance for credit losses declined 5 basis points to 2.69% of total loans and 308% of total non-accrual loans. Excluding PPP loans, our allowance for credit losses was 2.81% of total loans. The decline in reserves reflects stabilization in our economic outlook and improved credit performance, charge-offs previously provided for and the impact of active portfolio management. The allowance reduction resulted in a net $38 million benefit to the provision. Our year-end allowance remains one of the highest in our peer group as measured against period end loans or stress losses as modelled by the Federal Reserve.
As we look forward, we are mindful of the uncertainty that exist in the economy due to the pandemic. However, we are cautiously optimistic as we move beyond events, which were the source of uncertainty in prior quarters. Further reductions in the allowance will depend on the timing of charge-offs and greater certainty with respect to the path of the economic recovery. While charge-offs can be volatile quarter-to-quarter, we currently expect full-year 2021 net charge-offs to range from 55 basis points to 65 basis points. Additionally, based on what we know today, we continue to expect charge-offs to peak in mid 2021.
With respect to capital. Our common equity Tier 1 ratio increased approximately 50 basis points to an estimated 9.8%, inside of our current operating range of 9.5% to 10%. In the near term, we intend to operate at the higher end of this range.
So ramping up, on the next slide, for our 2021 expectations, which we have already addressed. So in summary, we are cautiously optimistic about 2021. Pre-tax pre-provision income remains strong. Expenses are well controlled. Credit quality is showing resilience. Capital and liquidity are solid and we are optimistic on the prospect for the economic recovery to continue in our markets.
With that we are happy to take your questions.
Questions and Answers:
Operator
Thank you. The floor is now open for questions. [Operator Instructions] Your first question is from Erika Najarian of Bank of America.
John M. Turner — President and Chief Executive Officer
Good morning, Erika.
Erika Najarian — Bank of America Merrill Lynch — Analyst
Good morning. Good morning. David the first one is for you. As we think about total adjusted revenue, how should we — expectations, how should we think about what you’re thinking about PPP 2.0 participation and also whether or not loans originated in PPP 2.0 are going to be forgiven in 2021? The second part of that question is, you have 7 times as much cash as you did a year ago — a quarter — year ago and also what your expectations are for where those cash levels level out in ’21?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Okay. Well, good morning. Let me start with PPP. So we originated about $5 billion worth of PPP loans this year. The rules were changing early on as you know, and some of our customers actually gave us money back before we really earned much yield on it. So at the end of the year as you can see on our Page 20 in the supplement, PPP loans amount to $3.6 billion at December 31. We forgave approximately $1 billion worth of loans in 2020 and that was really in the fourth quarter where we generated from the forgiveness piece alone $24 million that we disclosed to you. As we think about PPP 2.0, we estimate at least at this time that we had originate approximately $2 billion in PPP loans. The timing and the ultimate amount of that is uncertain as is the forgiveness with the existing $3.6 billion. So we’ve given you the pieces that you can do some scenario analysis in terms of how you think that may come into income. Clearly loans that are forgiven quicker come into 2021 and would help from a revenue standpoint.
Your second question — piece of the question is on cash. So you’re right. We do have quite a bit of cash. Our deposit growth was quite strong during the year, both in consumer and well and also in the Corporate Banking Group. So all three of those had [Technical Issues] growth. We have deployed some of that cash into securities book as you’ve seen and we have gotten a little bit of steepening of late. The problem is, mortgage spreads has tightened other way and therefore, you really don’t have a great place to put the cash and we’re reluctant to take on duration risk at this time. That being said, we are mindful of more stimulus could steepen out even further which would give us a better entry point to put that cash, but until we see that we really are going to have that cash at the Fed earning 10 basis points, which we understand does weigh on our revenue, but we think that’s the most prudent path.
Erika Najarian — Bank of America Merrill Lynch — Analyst
Got it. And my second question is for John. Kudos to you and your team for trading at 1.5 times tangible book in the middle of a global pandemic, really speak. So the balance sheet management and the expense management that your team has executed. I’m wondering as you emerge from this crisis stronger, what your thoughts are on using that currency for inorganic opportunities?
John M. Turner — President and Chief Executive Officer
Erika, our point of view on that really hasn’t changed. We want to continue to look for opportunities to make non-bank acquisitions to expand our capabilities to help us grow and diversify our revenue. We think the acquisitions that we’ve made over the last few years have proven to be fruitful as evidenced by, as an example, the great quarter that we had in capital markets, largely driven by M&A activity. We also had a good quarter in low income housing tax credits and syndications of that business. Ascentium Capital, we’re excited about what we think it can mean for the future. So that’s our primary focus.
With respect with respect to bank acquisitions our view of that — about that hasn’t changed. We think we have a really solid plan. If we continue to execute our plan, continue to build a consistently performing sustainable business that over time we will continue to benefit from generating nice returns for our shareholders. Our currency will get stronger and if an opportunity comes along in the future we would then have an opportunity to consider it, but our focus is on executing our plan.
Erika Najarian — Bank of America Merrill Lynch — Analyst
Great. Thank you gentlemen.
Operator
Your next question is from Ken Usdin of Jefferies.
John M. Turner — President and Chief Executive Officer
Good morning Ken.
Ken Usdin — Jefferies — Analyst
Hey, good morning guys. Just to follow-up on the loan side. You give us that nice adjusted number and reconciliation in the back. I was just wondering if you can help us understand also underneath that the auto book and the run-off that’s still happening in the portfolio loan sale that you called out. So it looks like that averaged about 2.7% the auto stuff in ’20 and what do you think that’s going to look like as you look forward into ’21?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Well, I think, again if you go back to that, you’re referring to Page 20 in the supplement, in which we really want to level set because, our point is, if you kind of cut to the core of our business, we think in the end, we can grow loans. We said we’d grow low single-digits. But we’re still — we’re going to continue to have the pace of run-off that you see there with regards to our exit portfolios. You can see just in the quarter, we were down some $140 million on indirect other and we were down about $200 million on vehicles and we see that pace continuing that will weigh on total loans. But we’re trying to send the message our core business we are in great markets, we expect there to be somewhat of a rebound, but it will be towards the back half. The amount of which really is dependent on the economic recovery.
Ken Usdin — Jefferies — Analyst
Yes. Understand and that’s exactly what’s going to follow-up, David. As you look through the commercial books and where would you expect that to be seen the most in terms of that economic recovery starting to show up in that regular way loan book? Thanks.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes, I think, big part of that is going to be in things like health care and would be a big one financial services, elements of manufacturing, we think are also capable of growing, those would be three areas that we would really point to at this time.
Ken Usdin — Jefferies — Analyst
Got it. And the second question, just on the expenses you guys have done a very good job holding the line on costs grow keeping a close to flat. There’s — some of the peers are starting to talk about extra investments and fronting of things that might have come over time. Just wanted to hear how you guys are strategically thinking about that. Are you putting in enough as you save to keep flat and how do you think about that strategically as you go forward? Thanks.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes. So Ken, we’ve been pretty consistent with our message on investments. We’ve invested in people, mortgage loan originators as an example, Wealth Advisors be another one, we’ve had relationship managers, we have to continue to make investments in the people side there. We continue to make investments in technology and cyber and digital. We have to keep doing that to serve our customers. We also are cognizant of the fact that when revenue is challenged we had forgot to how to pay for that, so that we can keep our expenses relatively stable to down as we are indicating. So what we do is we look at things like our headcount, it’s 55% of our costs. We look at occupancy costs. We look at third-party vendors, furniture fixtures and equipment. We’ve been really good at keeping that cost down and we are going to continue to focus on it through our continuous improvement program in those same areas in 2021.
Ken Usdin — Jefferies — Analyst
Understood. Thanks, David.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Thank you.
Operator
Your next question is from Jennifer Demba with Truist Securities.
John M. Turner — President and Chief Executive Officer
Good morning, Jennifer.
Jennifer Demba — Truist Securities — Analyst
Good morning. Just curious about the loan loss reserve and where you see that going over the course of 2021. Do you think it could go back to your day one CECL reserve level or do you think that might occur more in 2022?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
It’s a great question and there’s a lot of uncertainty with regards to that. You can see our slide that we have that’s on Page 20 of our deck, where we break out the component parts where the reserve is moving. Jennifer there is still uncertainty with regards to the economic recovery as evidenced by the federal government stimulus program. So we need to see more certainty with regards to where we think losses will ultimately be. We think there is a risk that those have been just pushed out a bit, that they are still there, and until we have clarity that they’re not, we’re going to keep the reserves at an appropriate level. We are mindful of the fact that timing of charge-offs matter on the reserves, the macroeconomic factors which we have to measure every quarter end is important to us. And so, we think ultimately we can get there when times are good. I’m not confident — we are not confident that that can happen in 2021. And the pace of reserves coming down again will be dependent on the things I just mentioned.
Jennifer Demba — Truist Securities — Analyst
Thanks David.
Operator
Your next question is from Gerard Cassidy of RBC.
John M. Turner — President and Chief Executive Officer
Good morning, Gerard.
Gerard Cassidy — RBC Capital Markets — Analyst
Good morning, John and good morning, David. How are you guys?
John M. Turner — President and Chief Executive Officer
Doing good. Thank you.
Gerard Cassidy — RBC Capital Markets — Analyst
Good. Maybe if we could start off David, you guys had an interesting slide in the deck at the back of the deck on the LIBOR transition. The question I have for you is, do you think there is any possibility of that dropped date being pushed out from the end of the year? And then second, when you look at that slide, what are the top two or three risks that you’re focused on to ensure that there is a smooth transition here?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Well. So to answer your first part of that question is, there is a chance that this — all this gets pushed out a bit. I think what most people are finding is that this is much more difficult than just changing an index. It’s so — it permeates a lot of our business, obviously, our loan book, our derivatives book and how we transition is really important. How we get our systems updated as a risk that we have to be mindful of from a competitive standpoint. What index will our customers prefer to go to and we deal with large customers and we deal with middle market and small business customers and a lot of our competitors, they use a different Index and so we need to transitioning in that front will be important for us. We need to see the term structures continuing to develop, so that we can effectively hedge our interest rate risk without having basis risk at the same time. So a lot of contracts is just a big body of work Gerard and having more time would be helpful.
Gerard Cassidy — RBC Capital Markets — Analyst
Very good. And John, a bigger picture — bigger question — big picture question, I should say for you is that Regions obviously your quarter was quite strong, your peers are putting up good numbers as well. The industry appears to be positioned to benefit from this economic recovery that many people are forecasting that’s tied to the vaccine rollout. Can you share with us, when you go down the elevator at night what are the risks that you think about as you look out over the next 12 to 18 months that you don’t want to lose sight of?
John M. Turner — President and Chief Executive Officer
Well as I’ve said to our team every day and we can’t take anything for granted. We continue to see improvement in our business. We have done a great job I think over the last 10 plus months working through a very challenging environment. The industry has done a great job. We’re still confronting a number of crises across the country, whether they’d be health-related, the economy, the political environment we’re operating in, social unrest, all those things potentially impact our business. And so we can’t take anything for granted. We’ve got to continue to focus on the risks in our business. Make sure that we are executing well, that we are continuing to recruit our talent internally and externally every day to keep an engaged and active team. And I think if we do those things and stay focused on the things that we can control, which are how we take care of our customers, how we respond to each other. It’s about the investments that we make in technology and in our business. If we do those things, then I think we’re doing a good job of managing the risk that are in our business and we will deliver that consistent sustainable long-term performance. It’s about really focusing on what we can control.
Gerard Cassidy — RBC Capital Markets — Analyst
Thank you.
Operator
Your next question is from Betsy Graseck of Morgan Stanley.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Good morning Betsy.
Betsy Graseck — Morgan Stanley — Analyst
Hi, good morning.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Good morning.
Betsy Graseck — Morgan Stanley — Analyst
Hi. I just wanted to dig in a little bit on the NCO guide of 55 basis points to 65 basis points for 2021. And just kind of understand how to think about the trajectory among the different asset classes, becasuse consumer tends to be fairly mechanistic with the day calendar role, but C&I and career obviously a little bit more at your discretion. So maybe you can give us a sense as to how we should anticipate the cadence throughout the year goes?
John M. Turner — President and Chief Executive Officer
Yes. So I think as we’ve guided it to 55 basis points to 65 basis points and that we believe charge-offs will peak in the first half of the year, that’s certainly a reflection of the fact that our view is, we’ve got some Corporate Bank or commercial wholesale credits, whether they’d be typical C&I or investor real estate to work through in the first half of the year. On the other hand, consumer, which has performed exceptionally well, we think it will continue to exhibit really good credit quality, particularly with the additional stimulus pumped into the economy. And so if charge-offs rise in the consumer sector that’s likely to be in the second half of the year. Is the way we think about it.
Betsy Graseck — Morgan Stanley — Analyst
And then these charge-offs are — you’ve already reserved for them, so we should anticipate release to match the charge-offs as they come through?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes, I think you got it really. That word release is always bothered me but the reserve should go down because of charge-offs. And then the question is how much do you need in reserves for the remaining portfolio? And so, if your portfolio loans isn’t growing and the credit quality isn’t changing and the macroeconomic factors aren’t changing, then you would re-provide because the theory is you already did that. And so that’s a straightforward is I know how to make it.
Betsy Graseck — Morgan Stanley — Analyst
Do you like the word match better?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
No.
Betsy Graseck — Morgan Stanley — Analyst
But basically, what you’re saying is…
David J. Turner — Senior Executive Vice President, Chief Financial Officer
To my point, I don’t mean to be flip it, but my point is that those are two independent thoughts. Charge-offs are charge-offs. Then you settle down and you figure out what your reserve needs to be under CECL. And you can’t think of it in the context of the old accounting. That’s what I’m trying to get at it by everything.
Betsy Graseck — Morgan Stanley — Analyst
Are you suggesting that the economy is getting better you should have reserve release ahead of the net charge-off recognition than that’s also another possibility?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
That’s it. That’s absolutely right. That’s why we give you the analysis we did on that Page 20 to show you what the moving parts are on analyzing the reserve. You got charge-offs. You’ve got the change in the outlook, and then you have other qualitative factors and model considerations that you have to consider. So you’re absolutely right. If the economic outlook continues to get better, then you would expect not to need the reserves that you booked, and that is — that’s a true release.
Betsy Graseck — Morgan Stanley — Analyst
Got it. And when are you making those reserve decisions? Is that at the end of the quarter like December 31 or is that something you’re doing earlier in the quarter?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Well, we have our teams, this is what they do every day. And — but, we’re incumbent upon us every balance sheet date to look at the facts that exist at that point in time and make our ultimate determination. So, yes, as you remember, the first quarter of last year, one week to the next week was dramatic shifts in the macroeconomic environment. So you can’t make a call until you get to the end of a quarter.
Betsy Graseck — Morgan Stanley — Analyst
All right. Okay. And then just separately on the CET1. I know you’re CET1 range that you’ve given is 9.5% to 10%. And given that you are at 9.8% currently, how does that impact your decision on timing for repurchases. Can you give us a sense as to you’re waiting until you had 10% and then commence or anywhere in that range is a fair game?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Well, we said that for the near term we — that’s our range. We’re probably going to want to operate at the higher end of that range, just because, as we mentioned a minute ago uncertainty continues in the economy, but 10% is our number right now. If we continue to accrete over that, then we would be in position subject to the other regulatory tests that we have to have, begin to repurchase our shares. As John mentioned earlier, though we really want to use our capital to grow. Grow organically to grow — do a non-bank transaction to pay an appropriate dividend but we will use share repurchases to keep ourselves at least today at that closer to that 10% level and it can vary a bit, just because, what happens right at month end, but if we get clarity that maybe we don’t need 10%, there is something lower than that then we’ll readjust our share buyback based on our new capital number.
Betsy Graseck — Morgan Stanley — Analyst
Okay. All right, thanks very much.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes.
Operator
Your next question is from John Pancari of Evercore ISI.
John M. Turner — President and Chief Executive Officer
Good morning, John.
John Pancari — Evercore ISI — Analyst
Good morning. Good morning. I appreciate the net interest income detail you gave in terms of the outlook. I just wanted to see if you could comment a little bit around the margin and how that could trend for your full-year expectation and maybe into next quarter, just given the liquidity dynamics as well as obviously the PPP dynamics? Thanks.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes, John. So I think from a margin standpoint, we do have a little bit of an anomaly this first quarter we have two-day change so it’ll hurt us by that $12 million on NII, but it will help the margin a little bit. So you could see that go actually up a little bit. But we think if you look at it in total for the year, we think our margin will trim down into that $330 million range, and then we’re talking about our core margin now x cash in PPP. We think the full year margin will be down about 4 basis points or 5 basis points from where we are today. And if we look at with cash in PPP we think we’ll be down 3 basis points or 4 basis points if you look at the full year number. Hopefully that helps you.
John Pancari — Evercore ISI — Analyst
That does, that does. Thank you. And then just on the competitive backdrop, obviously we’ve seen a lot of activity in terms of recent bank deals and the fact that are impacting the Southeast. And can you just talk about, are you beginning to see any competitive strain show up either in loan pricing or other areas that were not as obvious even a year ago or so? And then separately, are you seeing opportunities potentially on talent or customer acquisition as a result of those deals there in your backyard? Thanks.
John M. Turner — President and Chief Executive Officer
Yes. I don’t know that we’re necessarily seeing a change let’s say in competition. There’s still a lot of competition, because there is a tremendous amount of liquidity in the market. So whether it be bank competitors, non-bank competitors, when we see good opportunities, they are very competitive. And in fact, we’ve recently lost a few, what we would characterize as good opportunities to pretty aggressive pricing. Having said that, again, I wouldn’t say that’s a change as a result of new announcements in the marketplace, Bank combinations or anything of that nature, just people looking for opportunities to and particularly, I’d say community banks in the middle market space looking to acquire assets and get some yield.
With regard to just disruption. I’d say we feel like we’ve been able to recruit some really quality talent in the market and that’s something that we stay focused on all the time. So whether there is an announced bank transaction creating some disruption or a stable market, our challenge to our team is to always be looking for the best talent in the markets that we operate in and we have through the pandemic, I think added a number of bankers and senior leaders that we are excited about, both in our customer-facing businesses and in our staff functions and so I’d say talent acquisition has been good and we expect it will continue to be.
John Pancari — Evercore ISI — Analyst
Thank you. That’s helpful. I’m sorry, if I could ask just one more on the margin front. Would anything really — what would change your view about potentially putting some of that excess liquidity to work in the bond portfolio. I know you indicated a lack of interest there, but would it only be a material move in rates beyond what we have seen or is there anything else that would make it put money to work? Thanks.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes, I think that’s the primary. If we could see a steepening effect occur where we have opportunity to take a little bit of risk there, if we continue to see deposit growth continuing to grow where we have even more cash and we have now could be an opportunity, but again we really don’t want to continue. We’ve grown our securities book fairly strong compared to our peers. Some have more cash than we do, but we’re all trying to figure this out. We’re all trying to figure out what type of risk we want to run and I think for us it’s just, it’s more rate driven than anything, John.
John Pancari — Evercore ISI — Analyst
Got it. All right, thanks David.
Operator
Your next queestion is from Dave Rochester of Compass Point.
John M. Turner — President and Chief Executive Officer
Good morning.
Dave Rochester — Compass Point — Analyst
Hey. Good morning. So you guys have done a great job reducing higher cost borrowings in the last year. I know there isn’t much of that left. I was just wondering if you’re assuming any further reduction this year?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes, so your question is what have we done to reposition the liability management is that what your question is Dave?
John M. Turner — President and Chief Executive Officer
He’s done a good job reducing higher cost borrowings do we have. What are our thoughts about it? Is there any other opportunities?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Yes. So we are running a little thinner today in terms of opportunities. What we try to do is things that where we don’t have liquidity value that we end up taking that out, call it, because we have so much cash on hand. We have some marginal opportunities that we’re looking at right now. Not as many as we had this past year, we had a lot of calls, we round of FHLB altogether I think it was over $8 billion. We call, but there is some small opportunities still left that we are going to continue to evaluate including things in the preferred stock arena too.
Dave Rochester — Compass Point — Analyst
Okay. And then maybe just one quick one on the margin. What’s the roll-on roll-off differential at this point in the loan book? And then to the extent that you’re buying securities to maybe keep the portfolios stable at this point, I guess, where are you guys seeing those yields currently?
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Well, let me talk about it in total. So we have about $12 billion each year of cash flows we have to put to work and the front book, back book piece of that is about 115 today. It’s up a little bit, it had been about 1% is about 115 now and so we think we’ve done a pretty good job through our liability management, cash management strategies to neutralize rate even at the long end, but — and of course we have our hedges on the short end. So we think we’ve neutralized rates in our ability to really grow NII and the resulting margin is really going to be predicated on growing our loan book, the size and mix and then the timing of the PPP program as mentioned earlier.
Dave Rochester — Compass Point — Analyst
Great. All right, thanks guys.
David J. Turner — Senior Executive Vice President, Chief Financial Officer
Thank you.
John M. Turner — President and Chief Executive Officer
Thank you.
Operator
Your final question is from Matt O’Connor of Deutsche Bank.
John M. Turner — President and Chief Executive Officer
Good morning, Matt.
Matt O’Connor — Deutsche Bank — Analyst
Hey, guys. I just wonder if you could remind us the strategy in the capital market business obviously was very strong this quarter, but a couple of quarters ago is also very strong. So remind us if you have a target the customer and just how it’s integrated with the overall firm?
John M. Turner — President and Chief Executive Officer
Yes. So we’ve been investing in that business since 2014, made a couple of acquisitions to help build it, been acquiring talent to help build out our capabilities and we’re really pleased with the progress. That function was established to really help us leverage capital markets capabilities into our existing customer base and through the creation of some industry verticals, also build a portfolio of new customer opportunities by again leveraging capital markets as a mechanism for acquiring new customers. We’re doing that, both in our Commercial Corporate Banking business in particular and in our Real Estate business. One of the very first acquisitions we made was of a Fannie DUS license. And that real estate permanent placement business has been really solid. We had another good quarter in the fourth quarter and expect that we will in the future.
So our objective is to combine our capital markets bankers working closely with our industry experts and our local bankers to deliver our capital markets capabilities whether it be debt placement, it be capital raising activities, M&A, derivatives, foreign exchange and all those things are creating very nicely to us and helping us grow the capital markets business and our expectation is that we’ll continue to see that as the business matures.
Matt O’Connor — Deutsche Bank — Analyst
And I guess the commentary about it being in the $55 million to $65 million range in the near term here, is there just kind of a conservative approach being taken on that or were there just a couple of lumpy things that really drove the outflows results for the quarter?
John M. Turner — President and Chief Executive Officer
Yes, we — it’s the business is episodic. It ebbs and flows. And what we’ve found is that over the last six years as we’ve been building it we sort of reach a point of kind of equilibrium where we step up to the next level, so to speak and so I think maybe a year to a year and a half, two years ago we were giving guidance, said it was a $40 million to $50 million a quarter kind of business. And now we’re increasing that guidance because we think there is more recurring sustainable revenue, which will be complemented by the episodic revenue that things that happen that we weren’t anticipating. That certainly was the case this quarter when we had a number of M&A transactions that got completed prior to the end of the year, pulled forward as a result of customers being eager to get something done in 2020. And so don’t anticipate that for the second — for the first quarter and we certainly don’t plan on that in 2021. So we’ve got it to sort of a new level of what we would say is more likely consistent performance in that business.
Matt O’Connor — Deutsche Bank — Analyst
Got it. That’s helpful. Thank you.
John M. Turner — President and Chief Executive Officer
Yes. Okay. Well if there are no further questions. We very much appreciate your interest and participation today and have a good weekend. Thank you.
Operator
[Operator Closing Remarks]