Q3 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue just standby. Thank you for your patience.
On the call. This morning from banking I did our rusting chairman President and CEO .
Lastly, the not Chief financial Officer.
Tom Cornish Chief operating officer.
Before we start the company would like to remind everyone. This call contains forward looking statements within the meaning of the U.S. securities laws.
Forward looking statements are subject to risks uncertainties and assumptions and actual results may vary materially from does indicated and these statements.
Additional information concerning factors that could cause actual results to differ materially from those indicated by the forward looking statements can be found in the company's earnings release, an FCC filings.
The company does not undertake any obligation to update or revise any such forward looking statements now or anytime in the future.
I'd like to turn the call over to Mr., saying.
Thank you so much welcome everyone to our earnings call. Thank you for joining us.
We have had another strong earnings for.
Earnings from eat the EPS growth.
We reported this morning $76.2 million with net income 70 cents per share.
Yes, I think this time last year, a we had the EPS of 90 cents does that include lost share and if you Paul I'd Love. Your earnings we were at 64 cents. So 64 last year compared to 77 this year retrocession about 20% growth.
In the learnings, which I'm back happy about given the environment that were and that's pretty good progress.
I'm happy to announce it would be the increase in cost of funds that that core has now turned.
Officially turn cost of deposits came down three basis points this quarter.
The 167 basis points.
And this is a small downpayment on what they expect to be a meaningful acceleration in the groundwork trajectory on deposit costs.
And I see that.
It's not even taking into account more rate cuts, which we are pretty well.
Sure. The Mako is pretty sure there will be at least one more later this month and probably a second one in December but even if those don't happen we expect.
Deposit costs to come down meaningfully based on the actions that we've already taken.
Let me.
Start these calls with the comment about the environment. So let me just go back and talk a bit about things, we don't control I.E. the vitamin.
The economy's days from our vantage points stays healthy.
So I I visit.
Oh, they do a two part we look at this when we look at mainstream or are you looking at our own loan portfolio things look pretty solid what do you look at a wall Street. There obviously a lot of signs to be concerned about as we head into next year, so they're paying attention to both those things and being cautious.
And I'm trying to take on excessive risk, but that's the way we were seeing the landscape right now.
Interest rate environment remains challenging I sound like a broken record but.
For the last God knows how many quarters, it's been challenging and it keeps getting more challenging.
Right now that I think this this entire poorer the the carbon reported.
Now the fed has moved twice already is about to move with other time.
The next few days and dabbled, probably that's when it gets back to a flat curve, but nevertheless, it's a challenging environment for margin Memphis spread.
In light of what we're seeing a win with the short end of the card coming down a we had been.
Taking a very defensive or do you off trying to grow money market and savings as is evident in our growth numbers deposits grew only martially. This water and if you look at school they tie a year.
Yeah, all five year olds really came from D.A., which obviously, it's at the other day. One this game is all about.
Loan growth was actually wanted to $53 million and they're all the walk you through some parts of the bank came in very very aggressively other ports. The banks all run off but that's again, just you know changes quarter by quarter, but what are the particularly <unk> loan growth for the year I'd take worried about it a little.
The $1 billion, taking into account that we did sell $168 million Annika, London being told you about last quarter.
In terms of.
Banking <unk> 2.0.
I wanted to give a quick update on data as well we had come back to come to you if I think.
In April and laid out plans for the next two years as to what 2.0 would be about and and I'm, giving you some targets.
Very comfortable and where we out where we see them today, we still think it to $60 billion bogey 40 million in costs and 20 million in revenue lift.
The update that I would have for you now six months into implementing this is that on the expense side. We are probably just a tad bit ahead in terms of timing.
And the revenue side, we're probably a capital behind overall, you combine and we're right on where we said it could be SEK 2021, the total benefit would be about $60 billion why we feel even more comfortable today than we did six months ago and we're just embarking on this journey today, where we're pretty far down and I'm feeling pretty good about it.
Again come you can feel free to give more color around that but oh margin contracted like I said, you know given the interest rate environment came down from two compared to last quarter to 41, well. That's left for you talk a little bit about data truck.
Or in terms of what happened to deposit cost, which you're walking through the absent deal side of it but oh npis NPL ratios all fairly steady I think they were down and building down a basis point. It gets about two basis point charge offs data about a six basis points.
There was a 73 million dollar uptake in criticized classified loans or 42 of that is one relationship in Vietnam I, Florida, It's not an industry wide issue. It is an issue that is a unique to that particular borrower and and that loan is in the war about the rest are a bunch of other loans, but it's that 140.
2 million alone, but I wanted to mention.
We did finish our $150 million buyback and announced a another $150 million buyback I was announced in August and we will be working on that over the course of next few weeks a few months.
With that I will turn it over to Tom.
Okay.
Thank you Raj wanted maybe just a little bit more detail on some of the bank United 2.0.
Initiatives that Raj mentioned, we have essentially completed our realignment of the commercial lending and credit and support teams into a more customer centric and watch geographic centered shiloh or we expected to be an excellent go to market strategy for us, giving us an ability.
To better leverage or specific areas of expertise across the company or practice group strategies and whatnot there across the entire organization.
And also to develop a great deal more operational efficiencies.
Despite the challenging environment that Raj mentioned, continuing investment in strengthening of the sales teams.
Across our industry verticals in business segments is really helping us deliver good quality production.
And the areas that we're really focused on from a growth perspective, we're also seeing as part of the revenue initiatives in 2.0.
Very early strong progress as it relates to Treasury management sales deepening relationships expanded number products per client and our revenue trends in that area have been up ahead of expectations and we're very happy about that one of the major things. We did in this past quarter's we launched a new comers.
Actual lending team and the Atlanta market, We think Atlanta has got a great prospects for such a wonderful middle market one of the largest middle market segments in the U.S.. We traditionally had some lending corporate banking business and the Georgia market and we've hired a team in Atlanta that opened up an office.
Three weeks ago, and we're very optimistic about the opportunities for us both from a loan and deposit side and the Atlanta market.
Little bit more color on the loan and lease growth.
As Raj mentioned loan growth of 253 million for the quarter was driven by growth of 341 million in mortgage warehouse outstandings. They really had a grand slam quarter. It was a great quarter for that team both in terms of overall growth and a growth and commitments the residential portfolio group.
And 8 million, a 182 million awards, which was in the Ginnie Mae early buyout portfolio.
And some of our core commercial areas, we did see.
Runoff in most of these areas in Cree, we were down in multifamily 162 million or most of that was in the New York multifamily market and a good portion of it which then the rent regulated market that's going through a significant amount change recently were down 120.
The million and other Cree and are seeing eye businesses were down 84 million overall the production for the quarter was good it was in line with.
What we expected, but we're continuing to see a great deal of payoffs in some of these.
Segments.
And B F G were up.
Modestly and we had some moderate runoff in the clinical portfolio.
Deposits grew by 34 million for the quarter as Raj mentioned 27 million of which was noninterest DTA.
We ended the quarter, we had a bit of atypical volatility in a few large commercial didier accounts by quarter end, but I would say just sort of in closing as we looked at the next couple of quarters.
We think that the loan and deposit pipelines.
Look good and actually October started out well in terms of new fundings and transactional volume that we've seen so without I'll turn it over to lastly, thanks Tom.
[laughter] Starbucks taken a few minutes you talk about net interest income net interest income declined by $66.3 million compared to the third quarter to prior year, while the NIM decreased to 241 from 351. These decreases were expected given the termination of the loss share agreement and final portfolio sale of cover.
Volumes in Q4 2018.
The NIM declined 11 basis points from 252 for the prior quarter ended June Thirtyth two to 41 this quarter.
Is mainly due to declines in the cost of deposits lagging declines in yields on interest, earning assets to some extent LIBOR or front, leading fed funds in terms of the rate of decline the impact of accelerated prepayments on residential loans purchased at a premium and on mortgage backed securities impacted the NIM by seven basis points for the quarter. So seven.
The 11 basis points in decline, where do the data most of that came from the residential portfolio.
Accelerated premium amortization there.
The yield on loans was for 43 this quarter down from 452 for the immediately preceding quarter.
Most impactful driver that decline, which coupon resets on floating rate loans, most of which are tied to one month LIBOR, although payoffs of loans at higher rates in the portfolio average also contributed to that.
The yield on loans for the third quarter. The prior year with 547 the decline from the prior year. As you would expect is primarily attributable to the expiration of loss share agreements and the covered loan sale.
Yield on the investment portfolio was flat compared to the third quarter in the prior year, but decreased to three four he from 361 linked quarter that decline was due to the combination of coupon reset lower reinvestment rate and retrospective accounting adjustments, which accounted for six basis points in the decline.
Ratio in the portfolio remains low at 141.
Current expectation is that the NIM will stabilize next quarter, maybe down a basis point or two that we shouldn't see the kind of decline. We saw this quarter for the full year, we think will land somewhere between 245 in 250, obviously all of that is dependent on assumptions were making about deposit repricing and our estimates are based on the can.
The forward curve, which at the time, we put this together call for a high probability of a cut in October in a more modest probability of another cat in December which would have a nice minimal impact on the quarter in any case.
Couple of comments on unusual items included in non interest income and expense for this quarter the gain on sale of loans for the quarter included about 2.4 million in gains related to the sale of the pinnacle loans that we that we moved to held for sale at the end of last quarter.
We took a loss of $3.8 million this quarter related to the extinguishment of some higher cost FHLB advances those FHLB advances had a weighted average rate of 272, and we also had a 2.4 million dollar loss on the sale of one commercial Oreo property. This quarter. So all of those a little bit unusual.
I want to take a couple of minutes to talk about Stifel and give some guidance about what we expect the impact of diesel to be.
So we're currently in parallel run in based on our current portfolio mix, our economic forecast and other assumptions.
We expect the reserve to increase a range of 15% to 30%. So we expect to 15% to 30% increase in the allowance for credit losses.
And that will lead to us having a ratio of the allowance to total loans in the range of 55 to 62 basis points compared to the current 47 basis point.
We also expect a few million dollar increase in the reserve for unfunded commitments, probably $5 million to $7 million.
The increase in the reserves primarily related to this transition from incurred loss model to an expected loss model and providing for lifetime losses, rather than incurred losses, which we estimate today generally using a 12 month loss emergence period.
Obviously all of these estimates are dependent on economic conditions at the time of implementation.
Thanks to our economic forecast changes in portfolio mix and further review and refinement of our models and methodology is over the course of the first fourth quarter. We do expect increased volatility in our allowance estimates in our provisioning after implementation.
Couple of words on expenses.
Non interest expense for the quarter in nine months ended September Thirtyth included $2 million in 14, and a half million dollars, respectively of cost specifically related to banking I did 2.0.
Most of that's professional fees as well as some severance and branch closure costs for the full year 2019 compared to 2018, we expect total operating expense to be down about 3% to 4%.
Yes, I'll remind you beat the 2.0 is any implementation basically not done bank, United 2.0 that probably would have been afford to 5% increase in opex. So in total that's about an 8% swing on $500 million worth of expenses. So we're pretty happy about that to be clear about how I'm calculating those numbers. This is my numbers exclude the.
Onetime cost related to the 2.0 implementation.
Exclude FDIC asset amortization for 2018, and I also not including depreciation of equipment under operating leases, we don't really view as an operating expense and that will fluctuate with the size of the portfolio.
We also do you expect noninterest expense to continue to decline from 2019 to 2020 or in the middle of budgeting season right. Now. So we'll have more specific guidance about the pace and amount of those expected declines on our next call and with that I will turn it back over to rush for any closing remarks.
No.
Before turning it over to questions again say im very happy with the way the earnings came out I think if you're a few times ahead of.
Consensus estimates, which is always good 20% increase in core earnings from last year, but this year for this particular quarter is not bad given the environment.
And in sort of leaning in and growing aggressively we're choosing to wait it out, especially on the deposit side.
You know at when rates are going up.
The the month trying the bank used to be let's try and get in front of the fed rate hike that it's coming and that Kobe recently that everybody has to be scrambling client there will be a month or doing better than say, let's put on deposits now because the cost going up and that sentiment has totally reverse itself and now everyone. In the bank is talking about let's just wait this out.
Because we know rates are going to be lower next month or next quarter and and.
Focused totally get on deviate growth the fact that the group.
Deposits for in May 2 million for the year for nine months of the you're at 506 of that 482 weeks DTA.
Say that all that our focus is totally on DTA.
Growth, which is very good long term.
Success driver, so with that I will turn it over floor.
Good day.
Operator may start.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key please standby well, we compile the culinary roster.
Our first question comes from Brady Gailey with KBW. Your line is now open.
Thank you good morning, guys.
Good morning quality.
I wanted to start thank you for the.
Cecil guidance was later, but I wanted to ask you still have a.
Fairly elevated yield of over 30% on those previously FDIC covered loans.
I don't see saw for some banks kind of impact that level of accretion for bank, United do you expect any sort of impact to the yield.
On those previously covered loans.
I do not expect the impact to be material.
Okay, and went where did those loans stand.
And the third quarter I know they've been shrinking their around 180.
Yeah quarter.
Yes, I believe the numbers the ended the third quarter I have it in my notes here I'm, just kind of check I believe it's $171 million and a yield of.
30, 549 for the third quarter.
Okay, and then rise I heard in your opening comments here you talked about how.
Classified and criticized were up a little bit you mentioned the $42 million. What can you just go ever with how how much did that increased by and where are those levels as of the ended the quarter.
I think we're at 1.9% for the bank, yes. So overall number is pretty modest but.
It did increase by little over 70 million, mostly I think that we've had one loan which we've had on our books for.
This line has been but thats for several years seven year, seven eight years, something like that and.
Just made a bunch of bad decisions over the last year and a half.
And.
They are paying for it and.
So are we [laughter] is that is that a credit that.
So youre concerned about do you think theres potential loss there.
It's still performing but the performance of the company itself is not looking good which means that we'll probably end up taking some.
Some credit action on this.
Fourth quarter, maybe first quarter, we're in the middle of it right now we moved it from the line.
Thank God group and.
And our basically working on the credit there probably will be some provision set up for this coming quarter.
Okay, and then last remains just on the margin. It's nice to hear that you expect some stability and the fourth quarter as we look towards 2020. Your margin is your margin is already fairly below peer average when you think it can maintain that to 40 next year or do you think we'll see some continued slow.
Bids.
It's really hard I think there's there's so much Brady that's going to impact that you know our success in growing noninterest DTA, what the fed does.
What the yield curve, because it's very very premature I think to try to prognosticate asset we will give some guidance on our fourth quarter call. After we get through positing season, Theres a lot of variables there.
Yes, Thats fair thanks on the color guys.
Thanks, Greg.
Thank you and our next question comes from Jared Shaw with Wells Fargo Securities. Your line is now open.
Hi, good morning.
Turning to Aaron.
Yes, I guess, maybe looking at loan growth without obviously it was great quarter for around for mortgage warehouse, so without that it looks like it would have been hey, a little bit of a contraction the loan portfolio.
Are you waiting to sort of get the lower deposit costs opportunity before we should really see.
A ramp up in loan growth or is that more particular to third quarter yelling that we could see loan growth.
Accelerate even without the deposit growth accelerating.
I would say this.
Production.
Has the in line with.
Sure.
The lower level of net loan growth that you're seeing is almost completely attributable to.
To be early pay offs that we're seeing and that's a very hard pig to to try and.
Yes. So this quarter was particularly painful actually first quarter was pretty decent we were actually happy into first quarter, because we saw much lower runoff and this quarter to cut on all caught up and everyone. We probably going to were due to pay off in the first quarter and then finally by the third quarter.
Doing that so for production perspective, which is what the pipelines refer to our they're very healthy.
And.
Very much in line with what you've seen over the last year. So.
It's just very hard to predict where we also will come from and and.
It's in both the yet I'm, sorry, we're seeing a lot of that.
The warehouse business obviously.
They had a unbelievable quarter and they continue to do very well, but thats coming both from utilization and from growing commitments.
So it's not just at the utilization went up.
And.
Yes, good position was up but we also put out a whole lot of new business you appliance.
And.
Which is all very healthy growth and coming in a decent margins. So.
On the deposit side I will say again, we will continue to to do.
She was quality over quantity and keep a very strong line on on deposit pricing. That's why I feel so comfortable in saying that deposit cost will come down quite meaningfully not like to three basis points you see here, but.
Hell of a lot more next quarter, which is what goes into Leslie saying that we feel pretty good about margin being somewhat stable next quarter. So.
You could have again, a quarter, where you see board loan growth in deposit growth export.
I would add one thing on the production side too. If you. If we went back and we looked at the last 12 quarters of production and correlated that to growth in any one quarter. The variability of the production numbers is relatively small 85% the variability in ultimate net growth really is from.
Payoffs refinancings private equity Takeouts and other capital market activities that that tend to impact your growth levels off of gross production. So.
When were happier unhappy it doesn't usually tend to be around production that usually tends to be around payoffs and refinancings and asset sales.
The thing I would say Jared in this environment with the inverted yield curve and the challenge that presents to us on both sides of the balance sheet. We are a lot more focus on the optimizing and the mix of what's on the balance sheet.
A little bit less purely growth focused right now.
The lower yielding asset at a higher yielding liability.
The spread between those.
It is at historically low levels right that our loans out there getting done at at said, sometimes even under and their deposits that are being generated in the system at over 2% that's not a lot a spread.
What are some capital again, you are much better off letting that.
Go and using that capital either at a later date when there is better.
Urban better margin or just buying back stock with it and especially when your stock is trading at 1.1 times, that's pretty straightforward you don't need.
Hi, flying EMEA to figure that out so it's it's we're looking directly at capital usage and what's the best way I'm, putting on 3% acid and funding number 2% liabilities.
And holding acres and capital is not a based marketing to do.
Okay. Thanks, and then just on on the margin.
The shape, the the thoughts around deposit pricing decline.
Do you feel you know as you look at the timing of that you need the.
Potential October cut too.
To accelerate the pace of that type of that deposit pricing decline or you're already seeing that sort of in the quarter right now.
It will so internally, we look at deposit pricing almost daily basis, I'll tell you that the numbers already come down meaningfully even if there is no kind of in October and.
And the fed surprises us I still expect deposit costs for fourth quarter to be meaningfully lower than third quarter fourth quarter. When it goes in.
It takes a month to sometimes two months before operationally, we can actually having trickle into deposit numbers. So October will help further fix that down but October will actually help partially the fourth quarter animal health more on this in the fourth quarter.
So what we're still working on this September rig Scott.
So I can tell it will certainly help.
If I compare doesn't happen it will still be of meaningful drop and deposit costs.
Okay, great. Thanks.
Thank you and our next question comes from Ebrahim Poonawala with Bank of America. Your line is now open.
Good morning, guys.
Morning morning wanted him.
I guess just the first question around.
How are you say lifted but did you provide what the new loan origination coming on in terms of the yield.
I'm, sorry can you read that yes, good new loan origination yield.
I think what are the new loans getting booked at.
Mid fours this quarter on average.
Got it.
And I guess, just going separately on talking with the client John It is a very good market also highly competitive.
If you could.
Give some color around depart process of Hawaii, Atlanta was just an opportunistic timing from acquiring a team at the time and should we expect you to do more of these.
Or over the coming months headquarters and going into new markets that have strong growth prospects.
Yes, so we've we've been looking at Atlanta for Awhile, but I would say, we're looking at it from a distance.
What really got us too.
<expletive> I, even harder look was the announcement up to some cause BBSI deal, which is going to create a lot of chaos in the Atlanta market over the next to go for years. So we see a an opportunity boats on acquiring business also quite good people.
And and and and when the Viking comes along you move on it right and we found the right game and we acted on it and we think over the next two three years. This will be just to be a nice piece of business just like a few years ago, because the Jacksonville, we don't have any branches and Jacksonville, our footprint really.
There was no branches beyond Orlando well be found to keep a few years ago in Jacksonville, and build a business around it and I don't recall the exact numbers, but it's a few hundred $70 and loans and deposits that we build and we're very very happy with what we've done I mean, we're trying to replicate the same thing in Atlanta.
I was looking for good teams.
That would fit the culture that will triple businesses were trying to build and not just in the in.
Atlanta or in the southeast, but also in the northeast.
We've been in discussions with some teams in northern New Jersey, as well that hasn't yet and out but we're looking over there too.
Understood that has put and just.
In terms of would love to get to your talks and how you think about M&A in consolidation for the sector.
On a one to one hand, the revenue challenges, we would imply that we should see more dealmaking, but again, there's been significant dislocation in stocks like we'd love to get you are talking of how you think about it and what you are yielding in terms of when you're talking to other bankers.
On on potential for any kind of be making over the near term.
I think.
There there are obviously number of reasons why there should be deals, but I can scale of and.
The regulatory environment that related but you might change couple of years down the road.
But then there are lot of hurdles also right. The biggest hurdle be that everybody stock prices depressed now you can say said relative gain.
And the stock for stock deal, but.
Human nature doesn't quite work like that people always look at their stock price and feel like it's down more than everybody else's and why what I want to use this I'd, rather just do a buyback or just wait it out so that is getting in the way of doing deals and then deals.
A vast majority of deals that have been announced over the last three or four years have not been received well.
And the stock of the acquirers are not doing quite as well the couple of deals that have been announced more recently.
You know.
Termed merger of equals they have their own set of issues, while the numbers might look a little easier to digest.
They will have a lot of integration issues and and they're not easy to pull off.
So.
M&A has always been a difficult game.
And I think it'll continue to do remain so I would think there is still something I mean I'd welcome back CEO . There is still talk about you know we gotta go deal done sort of this this quarter and next quarter on the times to get to announce you want to not big the risk of.
And then election in getting your deal approved.
But if to the extent deals are announced by April or May of next year I think there will be even less deals after that in the second half of the year.
Understood. Thanks for taking my questions.
Thank you and our next question comes as Steven Alexopoulos with JP Morgan. Your line is now open.
Hi, Good morning, this is Alex on for Steve.
Hi.
Hi.
So on you 2.0, you mentioned that you're on track for the 60 million in pre tax by mid 2021.
So when you provided the initial guidance you also provided our away targets of 1% and are we targets of 11% are you on track to achieve this under the same timeline as well or if not.
A sense of when this could be achieved.
Yes, So I will ask you to go back and listen to that fall, what we said that call was.
You take $60 million of benefit, which we feel pretty good about achieving and you add that to the numbers, we have announced at quarter end over to remember their numbers of my head, but if you took the our away our OE that we announced at quarter end, you're adding 60 million to it. It gets you over 1% our way and it gets you over Africa, where we said 11%.
The 1% R&D.
The.
What's keeping in mind that the underlying premise, which is sort of the core earnings for the company are dependent on the environment right what happens at the rate environment, what happens if the economy.
Thanks, what rate environment, right now and that is being down on margin. This is not so say one not a goal a target said.
That you know this the target is almost $60 million in benefit, which we will get there and that will get probably a little better than that will do.
But what happens at the core franchise, what happens to the environment God forbid the recession next year.
It's that a lot salt and the 11%, 1%, but a big Claire gets better and the economy said healthy then we will do that and we'll do probably better.
Got it thanks, requiring FOT clarifying that and also early you mentioned some runoff in the near rent regulated multifamily have you kind of do you have any observations there in terms of the marketplace with valuation or credit quality in this portfolio.
I'll, let Tom Davis.
I think it's still clearly early in the process to say that I mean, what you are seeing.
Is evidence of.
A lesser appetite on investors to buy obviously into rent regulated apartments. When you look at what's happening in valuations we saw some data.
The last few days on what's happening with valuations in the free market area, which is increasing more sharply as you would expect people are no tilting their investment strategy towards free market versus rent regulated.
It's early to say what's happening with valuations.
We think that there will be consolidation among the property owners and I think asset owners that have significant critical mass in infrastructure will be able to manage through this process better than.
More fragmented investors and I think we will expect to see sort of consolidation within the rent regulated market, but right now other than a expected lesser appetite for acquiring properties. You know, there's not a lot trading in the market today to be able to grab a whole dog and say this is.
Sort of a trend line in what you see and valuations other than free market valuations.
Our clearly I think going to move upwards as investors kind of tilt strategy over the next 12 to 24 months.
Thing I would add to that is I agree with Tom's comments about valuation.
I'd add to that that that these loans are cash flowing in performing and that has not changed correct.
Thanks for taking my question.
Thank you and our next question comes from Tyler Stafford with Stephens. Your line is now open.
Hey, good morning, guys. Thanks for taking the question.
Hey, guys clearly sound positive on the funding and deposit cost improvements I was just curious if you could give us an update roger or where deposit cost at the end of the quarter to give us a sense of just the magnitude as improvement you guys have seen so far and then just any comment on where kind of new CD rates are at this point.
We have not disclosed in the past I don't want to start a precedent I will give you the CD pricing. So CD pricing. Our typical flows on Cds were backed off to the 120 550 range.
Our schools running if special but we're not really push from an advertising it at a Nathan.
At 2% to take it down.
A big that down as well money markets are in the 150 ish range.
I wouldn't give you a piece of.
Information I asked yesterday, just look at the month of June for deposit pricing and the month of September .
So it's not even October so just just looking at what the deposit costs, where the month of June versus September the decline was nine basis points.
That doesn't really include anything that happened post September and certainly doesn't include what will happen in October so.
Yes, I think to the overall decline you will see will be even higher than that number.
Okay. Thanks very helpful. And then just lastly from me I'm just curious if you could make any credit trend comments around the bridge energy portfolio in the restaurant French franchise Division. What you guys are seeing there. Thanks.
So.
Let me talk about franchise.
Franchise portfolio.
The largest countries as a quick service restaurants, but we also have.
Full year two thickness industry.
Feel very good by the for this industry trends are very very solid no issues over there on the restaurant. The quick service restaurant. Aside we are seeing pressure on labor cost given unemployment being as low as it is and they also seeing.
Some pressure on gross margins coming from changing customer.
Sort of preferences delivery is becoming a big deal and delivery tends to not include.
Drinks and desserts, which is high margin items, and probably getting too much into detail over here, but that's some of the trend that we're monitoring over there on the franchise side on the site is pretty good actually fairly solid.
Energy, Let's steel company, yes, our energy exposure, obviously is all highbridge portfolio at September Thirtyth, we had about $305 million.
Exposure to energy in the bridge equipment portfolio. The majority of that $211 million is in the operating lease equipment portfolio 199 of that is railcar $60 million is vessel 40, sixs helicopters and some other.
That's where the exposure is we did have.
Little over $40 million in assets.
Off lease at 930 that we're looking to release all of those leases, though now without exception all those leases or are performing right. Now we haven't had any impairment charges that we've had to take that that's what's there that's where the exposure and yet we're not looking to grow that we're not looking to grow the energy exposure and we're also taking a fairly considerably.
View on the restaurant franchise as well.
Maybe just talk a little bit more detailed to support that our overall franchise book is roughly around 600 million about 68% of that is in a quick service food, it's pretty diversified among a number of concepts at a number of states about 28%.
Fitness and the remainder we'd be non franchise.
Fitness or food businesses, which are typically things like jiffy lube and other franchise.
Concepts and the stress areas in the business.
That Raj mentioned are predominantly on the 68% thats in the foodservice less on the remaining 32% it's in the other parts of the portfolio.
Great. Thank you for all the details there I really appreciate that.
Thank you and our next question.
Comes from David Bishop with D.A. Davidson. Your line is now open.
Hey, good morning.
Good morning and wrong.
Quick question pretty Ross I guess in the past.
Demand deposit noninterest bearing deposits.
Sort of size the focus on the year over year growth than others volatility on the quarters that 2020, 1%.
Growth rates sort of the number to kian, that's or keying in on a go forward basis.
Yes, I would say so yes, I may over the last 12 months, we've had about $700 million of deviate grow them about 1 billion seven up total deposit growth and if it's especially hard to predict deposit growth unlike loan growth.
There's a lot easier.
Looking at the pipeline.
Do I feel the pipeline is as strong as it was six months at nine months ago absolutely.
Got it then it looks like the other piece of share buybacks, maybe backed off a little bit. This quarter was that just related to the growth you were seeing the mortgage warehouse preservation of capital just just curious sort of.
What drove that lower.
No no we completed $150 million initial authorization that we had from our board. They gave US another hundred 50 million dollar authorization that we didn't get that until September . So we've now started.
Back under that new hundred 50 million dollar authorization. So it was really just the timing between the completion of the one authorization in the granting with an access. It was this a few weeks industry. That's what was going on there.
Got it and then I guess on the narrative looks like your deposit service charges nice growth on a year over year basis.
Part of back United to comment on this list the $20 million revenue enhancements.
I, just I guess that falls into that purview anything else you can give us to hang our hats on in terms of what else can drive that $20 million on revenue side.
So some of that early if youre seeing already which is.
You're absolutely right that is sort of discharges, it's and Treasury management revenue was basically not waving what we don't have to wait and collecting on it better cross sell and better penetration into existing customer base. The new products that we are launching those are the things that will take time.
Yeah. This is the commercial card program for example, that's going to take a full year to develop I don't think we sell.
Our first commercial card until probably third quarter of next year. So that'll be the second piece of it would just takes time to develop and it will be fully launched and running into 2021.
Same thing on the small business side, we're making some pretty heavy investments in small business as well and.
But for the next 12 months is more about investing in rather than harvesting the benefit of that.
I appreciate the color.
Thank you and our next question comes from Christopher Marinac with Janney Montgomery Scott. Your line is now open.
Thanks, Good morning, I wanted to drill down on deposit.
Cost and sort of kind of right specials, they either you need to do their work being done and your backyards, either in South, Florida or New York.
You execute the 2.0 strategy.
Deposit competition is still very much fierce look in New York in Florida.
And both in commercial and consumer.
We're actually seeing.
Even today, 2% less.
Fourth CD.
And if you want to grow money markets. The rate is still in the high ones, if not plus 2%.
They were priced at the 150, you actually see runoff, which is what is in front of view for this quarter.
You know, we're hoping next week when the fed moves that number comes up by 25 basis point, but competitors have been slow to move.
Filled it fairly.
A high level of irrationality deposit pricing.
Roger does that make it more challenging to execute next year or began to do you think the fed sort of takes takes care of that for us with these changes.
It all depends on eventually not just for the fed does what the long term does too long term after having come down over the summer has been somewhat stable. It's 10 years at 180 odd love where to stay there as the fed reduces and begin to some you know if not an upward sloping curve at least flat curve and that will be health.
Full but last quarter.
Fairly severely and were in Chlor.
Got it.
And then a follow up just on credit quality for for Tom or whomever is with the classified numbers, we've seen in the queue kind of track the stability weeks on Npis this quarter.
No I think as Ross mentioned, you're going to see it about a 70 million dollar uptick in classified and criticized in Russia, Russia to that earlier and that'll come up to about 1.9% of total loan.
Okay. So no offsets to that one side, where I was going.
No that's net sentiment from that number.
Perfect.
Got it great. Thanks very much.
Yes.
Thank you and our next question comes from lot Chan with BMO capital markets. Your line is now open.
Thank you Matt good morning.
Questions one on the CRB multifamily portfolio, given sort of maturity coming up.
Seeing into next year.
How much of a headwind do you think prepayments could be and the growth for that business I know the what do you expect.
Balances team continue to move down in the in those portfolios.
Yeah, I would say within the multifamily portfolio, specifically to New York, We would expect to see it continue to come down I don't think it'll be a.
Prepayments per se because you have 2020 as a significant amount of maturing loans because the bulk of the portfolio was five year loans in 2015, we're sort of a big vintage year. So theres, a significant amount of maturities coming up in 2000.
20, and a good portion of that portfolio.
Is within the rent regulated market, although we have no at this point very little exposure around reposition type loans. So we would expect to see a lot of competition in that market, particularly from the.
The government sponsored a lenders, which are checking out a lot of the existing real estate loans now and the long term markets right. I think that we will continue to see that particular segment of the New York portfolio.
Go down in 2020.
Okay. Thank you and just related to that in terms of the margin. This quarter were there any elevated.
Prepayment penalties in thank you.
Hi, I don't think particularly elevated now there were some but I don't think it had an outsized impact on the margin for this quarter compared to the last several quarters.
Okay.
Not not material to the margin Lonore. Okay. Just one more question Leslie on terms of the stock buyback should we think about the pace to be similar to the last couple that you've done roughly three quarters.
I would say it depends on the stock price, we don't try and trade. This hundred databases, we generally give our growth or some kind of guidelines and execute and begin to report every two weeks or so.
So if the stock is.
Lower it's going to go faster if the stock is higher than go little slower, but at the end of the Dave you know, we're not thinking like traders are investors to where does any of this is the return of capital and.
This has happened over the course of the next few weeks and months.
Okay. Thank you very much.
Thank you and our next question comes and David She of uranium with Wedbush Securities. Your line is now open.
Hi, Thanks for taking the questions. So first on the.
He Atlanta team could you size the opportunity and perhaps say how much they were overseeing at their price for.
I'd rather not.
But again, we're not.
You know, we're going to measure their success on before some three years, not just sold or what to do over the next.
Okay.
But it is a commercial team I will say that it's.
And to see at IP and they are.
Going to be responsible for not just lending bundles of deposit generation in that market.
And you alluded to Jacksonville.
Earlier in that team should we think of it as similarly sized in terms of a few hundred million over the next few years.
Thanks, Doug you know that's hard to say I mean, we've done well in Jacksonville over the last three years.
Atlanta is.
A great market to be end, we benefited by being Fortunately, our franchises and excellent markets and Atlanta is a good market. It's one of the biggest middle market. So I figured the Jacksonville certainly it's a it's one of the biggest middle market.
Segments in the entire country so our.
Our hope is obviously that we do well, but it would be it would be far too early to kind of throw out targets premature to give specific guidance.
Got it thanks for that and then shifting to.
Your liability so looking at a 5 billion of each FHLB advances.
On the second quarter the rate was 2.41% that came down five basis points in the third quarter, how long will it take for these to reprice down more meaningfully.
At least a couple of years. Some so let me let me back up and explain the strategy around FHLB advances, we use FHLB advances obviously the funding sources, but one of the other things that we use that instrument for is to hedge interest rate.
Interest rate risk exposure on the balance sheet.
So for example, we recently entered into some hedges to protect us against a protracted downturn in rates because our analysis showed.
Pickup in in sensitivity if rates were to go down.
Materially from here and so we purchased some insurance against that.
So so we do use that as a hedging tool.
Well, we won't see the cost of that move on a dime because most of it is hedged out energy used as a hedging tool.
So even if we get a couple more rate cuts it'll still be in this a lot of up to 30 I mean, the portion of today's then we will come down sure, but a lot of that it has seen its hedge out over some duration. So effectively it's like fixed rate paper in some cases, so doesn't he doesn't move as quickly as say aligned more based alone because of the hedging.
Strategies that we employ.
Got it alright, that's it for me thanks very much.
Thank you I'd like to turn the call back to Ross thing for any closing remarks.
Thank you again for joining us.
Once again, we're happy with where we came out on earnings 20% growth over last year is.
No mean feed in this environment and we look.
Forward optimistically to next quarter and due next year, we'll talk to you again 90 days. Thanks, so much bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.