Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Bank <unk> third quarter 2019 earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, threes program.
He's being recorded.
I'd now like to introduce your host for todays program Tim Hicks. Please go ahead Sir.
Good morning, I'm, Tim Hicks, Chief administrative officer, an executive director of Investor Relations for Bancos UK.
Thank you for joining our call. This morning are participating in our question and answer session and today's Q and a discussion we didn't make forward looking statements about our expectations estimates that outlook for the future.
Please refer to our earnings release made some comments and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected Dan or implied by such forward looking statements.
Joining me on the call to take your questions or George Gleason, Chairman and CEO , Greg Mckenney, Chief Financial Officer, and Chief Accounting Officer.
Well now open up the wants to your questions. Let me ask our operator, Jonathan to remind our listeners had a Q asked the questions. Jonathan certainly as a reminder, if you do have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound <unk>. Our first question comes in the long enough cans or at least from.
Morgan Stanley Your question please.
So that's good morning.
Someone's going to start off in terms of Oreos Ci I'm very good origination his talk little bit about what drove the higher origination volume in our S. T or was it a lot of loans was it a couple of large loans. Thanks.
Thanks, Ken I'll address that yes, we did have a our best origination quarter and already S.G. sense. HM 2017, a we had loans of all sizes, we originate in our largest loan ever in the quarter, we originated a lot of small.
Allowance I believe the I'm I'm not sure this number but I think the a number of plugs in the quarter with 30, something I believe don't hold me to that but it was a a good job that our team did a you know we're being very disciplined and our credit quality.
To enter into held very diligently to our long established inconsistent a credit quality standards.
We have been very.
Protective of our return on investment almost loans that are not doing transactions that are just.
So cheap that they're not a generating a good return force. So I'm very pleased with the job that our team did an originating the diversity of credits in a diversity of our markets.
Holding to our credit standards and you know, we're just gonna have to continue to work hard.
And find those good opportunities that fit our credit and profitability profile.
Okay, Great and then in terms of the margin obviously came down about 19 basis points. This quarter and that's on one rate hike can I get life, where it's been coming down to.
If we end up getting to rate cuts one in September and then one October .
How should we think about margin I mean is there any reason to think it wouldn't be down twice as much as of the 19 basis points or are there any offsets.
Hey, Ken This is Tim Yeah, we had two rate cuts in Q3, So July and September I believe one month, LIBOR or was down 40 basis points during the quarter.
So with 75% of our loans variable and.
82% of those variably based on one month or a three month LIBOR. We've got chart in here that explains that we're going to be really variable very sensitive to that move in one and three month LIBOR, specifically one month LIBOR until we have a chance for our floors to catch up and we are.
Chart and.
Here on on floors is well you can see to on figure 14 page 13 amazement comment.
That that we have a total commitment 27% of our current loans are at their floor that was 15% a quarter ago.
You know another down 50 basis points half of our loans to total commitments will be yet had a floor, 47% specifically.
So that will help eventually alleviate some of the decline in loan yields with would help alleviate the decline in and net interest margin.
On the other hand deposit costs should should continue to benefit.
Okay to go down we had to a good decrease in deposit cost during the quarter down six basis points during the quarter.
We'd expect that to continue in the fourth quarter and the size of magnitude that will depend on how many recut forgetting win.
Can we added also I might refer you to figure 13 on page 12 with management comments, we added a box at the bottom of that that just showed our quarter over quarter changing course, Brad.
Over the fed increasing cycle and the last several quarters.
And you know as you can see there you know going back when the pad started increasing rights for calls about a lot LIBOR heavy book.
Loan yields increased faster than deposit cost and then ultimately deposit cost caught up so over the upcycle.
Our change in a yield on loans and change in yield on deposits cost of deposits was fairly equal and you know obviously with the lie bore.
Plummeting really quickly with the fed cutting rights two times on a quarter and the expectation.
Further fed cuts.
LIBOR is out running our ability to adjust our deposit calls we think over the full down cycle and I've, a couple of quarters or three quarters or something after the a bad is theyre cutting rates in our deposit cost.
Thank you largely catch up with our loan yield changes, but just as a deposit cost.
Like.
Coming up they're going to like going down. So we would have certainly preferred the bad have not started cutting rights when my dad, and giving us a few more quarters to that.
Cycle, our floor writes up would have been helpful. But.
Of course, I didn't do that yeah, and if we do get in October cuts, where do you envision them falling out in fourth quarter.
We're not giving a specific guidance on that as you can obviously imagine if lab or drops our loan yields will drop Tim mentioned, we expect deposit costs too.
Continue to come down and get better.
Quarter over quarter, but there will be a lag effect and that probably.
Gotcha, Okay, and then just one last question if I may you mentioned in the release that you expect can expenses to continue to move higher what piece of expense growth are you envisioning going forward.
Hey, Kansas, Greg I think comments and response that question would be similar to how we respond in a quarter ago I think you know.
We are.
Towards the end, but steel continuing to be able to somebody infrastructure, specifically we have some.
Furniture over the last quarter to related to you are suitable model validation for par validation for.
For third parties. So those have continued to keep our expense.
Increases a little bit on the elevated side that probably continues for another quarter or two although we were certainly working for trying to get that a much more moderated.
Will still grow but much more moderated as we get into 2020.
Yeah, we didnt have the new headquarters coming on so that will began.
Depreciation that building at all it at some point gearing up.
And probably the second quarter of a 2020, but that's I think I've walked around Korean Vietnam noninterest expense are very similar.
It last quarter.
Hi, Thank you very much.
Your next question comes from the line of Catherine Mealor from KBW. Your question. Please.
Thanks, Good morning.
Hi, good morning.
On day, one follow up on the deposit side is there any way to give us.
Some color around what deposit cost it on a monthly basis, we can kind of see where deposit costs and it just for the maybe the month of September I think age from what we may see in the fourth quarter.
Yeah, I mean, I think Catherine this is a Tim obviously a September was was below.
Where our a quarter number was a few basis points.
So that's going to help us.
For the quarter give us a kind of a good good head start obviously, there's a lag effect, obviously to the two to move a that we had.
In Q3 on the on the fed funds target rate.
I'd also mentioned our CD book, our CD book in a in Q3, I would say with probably ahead.
Headwind to the overall decrease but should improve as time time goes on.
In the less of the headwind the two overall decrease so.
We're not giving a specific range, but we've got things moving in our direction that.
That should help us for Q4.
Okay. That's helpful. Then it's a big picture gross we saw a little bit we the origination volume and we thought that are kind of bottom line growth. This past quarter any thoughts on just can as you look forward to the level of repayments. It you may expect.
In the near term you do you feel like.
Next quarter or kind of into early 20, you'll still be able to net grow the balance sheet or is your forecast for for retain its still to where we need the balance sheet may be relatively stable in a flat.
Katherine Let me this George let me address that I I think we generally expect a moderate growth in.
And the balance sheet next year.
Certainly not anything it's going to rise probably to the level of robust.
We still will be contending with the pay downs from our purchase loan portfolio is everyone is down and saying for several years.
Oh, we will still be contending with a a high level of our U.S.G. a loan payoffs. We would hope that are our U.S.G. team would be able to do what they did this quarter and that is a work hard find good opportunities that fit our credit and profitability profile too.
Continued to.
Replace the payoffs and achieve some net growth.
In the Ariyoshi book.
The other too big a.
Loan components community banking.
We think we will do better in growth and community banking next year one of the reasons. The salary cost have been going up is we've been adding staff and we'll continue to add staff and those community bank lending verticals, we feel like we're really getting well possess.
Question too.
Achieve a bit of accelerated growth in the community banking area.
That I suspect will be offset by more modest growth.
And the indirect marine in RV business those of you monitor that.
Sector.
From a from a dealer point of view will know in a manufacturer point of view will know that sales of marine and RV equipment is down.
And that's resulting in less consumer paper, which is where we are in the space.
And yet the competition put that papers pretty robust. So we are just like we've done in our U.S.G. as we faced.
A declining volume of opportunities and increase competition, we're holding very rich.
Our very strong credit standards on that Piper Oh, we underwrite that in a very specific way.
So that we believe we'll achieve outcomes from that portfolio far better than the typical marine or RV portfolio outcome, we're gonna how those credit standards Todd.
We will not go below a certain pricing point, so I think we'll see a.
A reduction in our growth in indirect marine and RV next year, I think we'll have nice growth, but but.
Well off the pace of growth we've had there I think you'll see that largely to some degree plus or minus some degree offset by increased growth.
In.
The community banking side, so we're not.
Giving any specific growth guidance for next year, we would expect overall loan growth to be moderate and I'll leave it at that for now for next year.
Great. That's really helpful color. Thank you George Thank you.
Thank you aren't next question comes in the line of two more Brazil from Wells Fargo Securities. Your question. Please.
Hi, good morning, good morning.
Maybe just circling back to prior comments on the largest loan book to date at our yes, Gee, how can you give us a little bit more color on the credit.
Well I will tell you it was a alone in the Tampa area in Florida.
It meets all of our standards for I really large credit.
It has outstanding sponsorship it is.
I am incredibly exciting then well thought out and.
Well to be well executed project based on what we've seen so it meets our standards of a billion I high quality project with a truly.
Great sponsorship.
And a great market and we're very excited about it it's a very.
Defensive structure, you can see the loan to value in lumber cost numbers in our tables.
You'll notice that that on the aggregate most of the loans, we originated or most of our volume in the quarter. Just a ended was it it even lower loan to value in loan cost numbers then or.
The portfolios, we actually had a slot downtrend on our average loan to cost number for the portfolio.
Last quarter, because the things that paid off were slightly higher than the things that went on so very conservative high quality project with freight sponsorship.
Okay, and it was a condo or hotel there.
It is actually a multiple.
Buildings that will include office condo apartment retail.
I.
Parking facility in and various other components, it's a very mixed use multi building project.
Okay. That's helpful. And then I appreciate all the color around margin in the deposit side, maybe just looking at the asset mix what type of origination yields are you getting on the indirect RV marine paper on the community paper and.
Our yesterday.
Well it varies quite a bit from.
Loan to alone on the yard CSG side, you know those are our.
Complex credits in some cases, and straightforward and simple credits and others and.
Depending on the different credit tap the different market and the complexity.
The value, we bring with our expertise to we get different pricing on different loans, but.
I'll tell you that really hasn't a significantly changed this year the pricing.
We're getting early in the years very similar to the pricing we're getting now there obviously, the marine and RV pricing has.
Has come down over the course of the year that you know it's heavily affected by five year and 10 year type yields and as the Djokovic flatten and dropped this year that paper has come down I think probably the.
Typical Piper we're getting is is a mid fives coupon of course, we're paying a premium for that.
To the a dealer or the correspondent.
On glass.
So we're looking at a.
Probably a.
Low fives half for is very high fours net yield on that Piper.
Okay. That's helpful. And then just one last one for me. It's now been a couple of years since Dan's departure from the bank.
Just wondering if you can provide an update on how that transition has gone a any or how does the clients reacted any kind of meaningful attrition there anything else worth noting I'll tell you I. Thank our Ariyoshi team is today is the best most capable our U.S.G. team working in most collaborative.
Fective manner that we've ever had and so we're thrilled to death with our team there and you know dance departure was move long ago and that that was an issue that was in rear view mirror for us the a day after he left.
Understood. Thank you.
Thank you.
Thank you. Our next question comes on line, Michael Rose from Raymond James Your question. Please.
Hey, good morning.
In the management comments, you guys talked about a four pronged approach to turn around what has been I think three quarters in a row of Ah that's interesting Tom.
Decline in can you elaborate on those a little bit more and then as you move into 2020, you talked about.
Some modest balance sheet growth.
D. actually think with the margin headwinds and I know it depends on on rates, obviously, but what do you actually thank you can grow net interest income next year. Thanks.
That's good question, Michael and time will tell on that obviously, how many why bore.
How many fed funds cuts we get.
What the expectations reflected in forward LIBOR rates become as is.
The rights scenario evolves, we'll have a big impact on that.
We are working hard to get our deposit cost down, but we're doing that also in the context of really trying to achieve some qualitative shifts and adjustments in our.
And our deposit book as well.
And we did that in the quarter. Just ended will continue to do that and we think we'll get deposit costs down.
Hi, I pretty much responded to the growth thing you know in response to a Catherine's question you know.
Our yesterday is gonna have to continue to stay disciplined and work really hard now as I said earlier I'm. So proud of our team for the job. They did originating the volume they did in a very competitive environment, where there are fewer loan opportunities out there that meet our high standards and they're probably were two to three years ago.
So I laid out a great job looking good quality business. It good yield in the quarter just ended.
If we can continue to do that and offset or more than offset the paydowns that will come from the ariyoshi portfolio and have a have a decent margin growth in our U.S.G. that will certainly be helpful.
We expect less growth as I already detailed probably in the marine RV space next year than this year, we expect more growth in the community Bank space. Obviously, there are a lot of variables the.
Future adventurous rates being a big when there and then the rate of decline and.
And interest rate.
All those factors play in you know if the fed cuts rights, one or two more times and stops and we have an environment in 2020, where are our loan yields are not drop in Carlsbad is not dropping rates in our deposit costs are declining and catching up.
With the a decline in loan yields already that would make for an improving picture if the fed continues to.
Lower rates throughout next year or through much of next year and our deposit cost reductions are always.
Lagging the fed action after starting off in a like position here. This this quarter than that'll be a more difficult position. So.
Well, we'll see I plays out.
Okay, and then maybe just one follow up for me.
You know the comments again.
No no share repurchase program at this point yet capital continues to build probably will continue to build.
What.
As we think about enough post Cecil World, I mean, where do you kind of see.
Optimal capital levels I would assume that this too high and that you think at some point in the future you will deploy some of that capital.
But I think consistently you guys got the question about a buyback and return of capital and.
I just how should we how should we think about all that thanks.
Hey, Michael as Tim.
I would think about it as an active conversation that management in the board have each agent quarterly Board meeting, obviously, we've got very strong capital levels.
You know we've never done a buyback for R 22 year history as a public company, we saw a lot of tremendous opportunities during the last downturn.
We were able to capitalize on those because we had to set strong earnings and capital levels, we want to position ourselves to be able to.
Be able to capitalize on those opportunities if another downturn occurs the as you pointed out or our capital levels continue to grow.
And we'll continue that conversation at the board level and and we'll update you when we change if we do change they make under the same answer every meeting.
But.
As you as you said, we we do have very strong capital levels, and I think thats, a great position to be in right now.
It allows us to have a lot of flexibility in our strategic planning going forward and and we're we're satisfied with our capital levels being at an elevated level right now.
Michael I would I would add to that are there you know there's a diversity of opinion probably everywhere on what the right strategy is there and I you know to give an example of that one of our substantial shareholders that had been on a very.
Strong advocate for stock repurchases for several quarters quarters, calling me after the last earnings call and I was expecting him to once again.
Articulate his belief we ought to.
Quickly pursue a stock buyback and I was very surprised when he said he wanted to tell me that he had been thinking about it and in light of the growing.
Geopolitical tensions and political tensions in U.S. and economic uncertainty and decided that we were taking the route approach and that accumulating.
More excess capital he thought was prudent and lot of the fact that we'd have a demonstrated ability and economic downturns from the path to capitalize on significant opportunities and he thought we would have that opportunity again, you know nobody can be sure about that but.
That was an interesting.
Indicator to me from one of our shareholders, who had been strongly in favor of it that he has now come around to the other side of the equation based on the.
Geopolitical and.
Uncertainty around the economic environment.
Great. Thanks for taking my questions.
Thank you. Our next question comes from the line of Matt Olney from Stephens. Your question. Please.
Yes. Thank you good morning and.
I guess I won't go back to the already SG discussion and a few years ago. Following the restructuring I thought there was a focused to look at some loans and newer markets markets, maybe we're not top five in the country at the time I thought. This would result in the average loan size in our SG would be decreasing but.
We're not seeing that we're just seeing our SG.
Do you know larger loans and a record size. So I'm curious what your expectations are as far as the average size of the ariyoshi loans going forward.
Yes, that's a good question, Matt and I would tell you both.
Both the scenarios that you described there are playing out.
We are a.
Originating loans.
You know for example, our our market presence in Philadelphia is increased Washington, where three or four years ago. We had zero presence has become an important market for us.
Boston.
Weve gotten several significant transactions on the board there we've we've only occasionally had one or two there in the past.
We've got some mass transactions in Minneapolis, we've got.
A transaction, we're actually looking at in Detroit, which you know I've spent a day in Detroit not long ago and was quite impressed with the resurgence that's going on in certain parts of the city there.
And.
There there diversity of other markets that we are doing transactions and those do tend on average in the in the more secondary or smaller markets tend to be smaller transactions.
On the other hand.
You know in a in a market where.
Competition is intense and pricing is a aggressive on a lot of.
Middle sized transactions.
Where we add a lot of value is on very complex transactions that are expertise and ability to execute really makes it worth our customer pain, our rights and our pricing and putting up with our low leverage deal structure to have us in the transaction because.
We'd bring value with our expertise and ability to execute so.
The other side of that is we are doing a lot of larger transaction.
And that that's because we.
Get great assets, and really world class sponsorship on those big transactions, because only big companies with with great track record and big balance sheets, and so forth can do though so you get great sponsorship on a great transaction, you get paid well for it because they are paying for your ex.
Parties and execution ability.
So I think it continues to be a mixture of both of those things.
You know.
We did I a transaction that was our largest ever in the quarter. Just ended at the same time, we had a 15 million dollar ariyoshi transaction and a smaller market in loan committee. This last week. So I think it really does reflect the.
The fact that Oh, we are going into.
Some markets doing transactions smaller transactions in some secondary markets.
At the same time, we're continuing to harvest.
On good opportunities really primo opportunities that we get because of our expertise in execution ability.
Okay. That's great George Thank you and then can you just give us an update on the on the South Carolina, and North Carolina loans that we've discussed previously on these calls.
Yes of course, there they're both in Oreo as they were last quarter.
We are working to liquidate Bose, we think we're making some good progress toward them. We don't have either one of them fully liquidated we've got several pieces of the.
North Carolina property under contract to a sale.
We've got some very serious interest in the South Carolina property, which we hope will.
Results in the closing of the sale of that property. So we're working on them nothing adverse new but we don't have them liquidated yet either.
Thank you.
Thank you.
Thank you. Our next question comes from align Us Erin Cyganovich from Citi. Your question. Please.
Thanks, I guess, just getting back to the deposit discussion I.
I think in the senior management commentary, there's a section where basically.
It makes the point that.
Over time these changes in loan pricing in deposit pricing will kind of even out.
Do you think that you know as we head into the fourth quarter you have some of that benefit right. Because you're you had your loan change in Threeq, you and you'll get a bit of a catch up in Fourq. You is it can be a longer lag demand or I'm, just trying to understand the pieces of how that catch up my work.
Well, there and I think I think that really depends on expectations and what the fed does on rights. If the expectation is the feds going to cut rights and that's going to keep lab or trending down it to pay it actually does caught rights that's going to submit that decline in line, but we're in.
You know to future expectations farther down.
So we could have a situation for a while particularly the feds cutting two quarters at a time, where the a decline in our loan yields.
Continues to be like bar decline in deposit cost if on the other hand, the the fed cuts, one or two more times and and stops than our deposit cost will catch up more quickly.
We I don't know had.
13, or 15, or 17 quarter period, where the fed raise rates nine times and over that period of.
Time, I think there was a four basis point difference between our change and.
Cost of interest bearing deposits and our change in non purchase loan yields we would expect assume or very close correlation between.
The change in our our cost of interest bearing deposits non purchase loan yields over.
The full gamut of a.
Bad loosening period.
You know in including a couple of quarters or three quarters or so after the end to allow everything to catch up and normalized so I don't know when the fed when the deposit costs catch up with the Oh.
With the loan yields, but that's just kind of parent depend as I said earlier on the a number of fed cuts the period for all of that and how quickly they do that.
Okay. That's helpful. Thanks.
And.
We've heard that there's been a little bit more interest from smaller banks.
In terms of M&A, a little bit more discussion from some other banks are you seeing that and I know you don't have much of the currency. These days, but you are building capital you may be able to do a little bit more cash, which what's your view on the M&A environment.
You know our focus really is internal and organic and I'm really trying to improve and enhance.
Advance the quality of what we're doing his company every day.
That's not to say that where you know wouldn't look at an M&A opportunity, but I think it would have to be something.
Extremely compelling and I think the better M&A opportunities will for us will be after the next downturn.
When the quality of our loan portfolio is fully demonstrated and that's reflected the quality of what we're doing it's reflected in our stock price.
More significantly and they are aggressive lending that some of 'em.
Our other banks out there are doing is fully reflected in their results and their stock prices down and they're much more motivated sellers.
So.
I don't see us.
Engaging in M&A activity, you know certainly the remainder of this year and probably not in next year and maybe not even year. Following that I think that's a longer term proposition are we feel that the quality of our portfolio is it's reflected in our stock price today is is greatly under appreciated.
And the quality of.
Some other banks that we see.
Is greatly over appreciated because they're not concentrated but we see what they're doing them. We think that's not very sound, we would never do that and we think in due time that.
Dual realization of reality on both sides will make an act or an opportunity for us to make acquisitions that make sense.
Great. Thank you.
Thank you. Our next question comes on line up Brock Vandervliet from U.P.S. Your question. Please.
Hi, good morning.
I I was and most of my questions have been had been addressed but in looking at your.
Deposit composition now are still you got the costs down which was which was great.
But it's still kind of driven by the higher cost deposits and I know you know hired.
Positive czar.
Or something similar but.
I'm wondering when you're.
Finished gamble to show more gross than kind of a lower cost.
Categories.
Rock I would tell you that say a significant a 2020 go.
And there's a lot of.
Effort being expanded in that regard and yes, we have not only hired a I chief deposit officer and built out of a team of analyst and people in support of Pam.
We've.
Ben significantly reevaluating, how we greatly improve and position our community banking.
Team and products and so forth for the future. So Sandy Wolf Who's our chief banking officer, and Carmen Mclennan, Who's taking a significant ROE and our retail banking.
Deposit side operational side for the future.
The way, we do digital services call Center, our online banking products, our existing portfolio banking products all of that is undergoing I am a significant.
Revamping that you'll see a in.
The first half of 2020, and we think though we've got a great plan buyer.
That will.
Significantly improve the quality and quantity and a cost of our deposit base in future years steps are being taken incrementally to make adjustments.
Every.
Really probably every month and every quarter, but the the real significant revamp and redesign of all that is I'm going to appear in a.
And be implemented and 2020, and then you'll start seeing as 2020 rolls on some some benefits from that.
In support of that.
Sandy will fire, Chief banking officer, and and Alan Jessa, Our director of community banking centers on the deposit and operational side Allen's on the loan side.
And a number of other Paypal and I have visited every one.
Of our 260 branch 260 offices loan operations deposit operation centers LP of sense.
Between late November of last year in mid September of this year.
And Oh, we.
Ask our staff to recommend.
How we can improve our company we've gotten.
Hundreds and hundreds of recommendations on that we really implemented already hundreds of those recommendation and we've got from that and from visiting all of our markets from really getting down in the deepest weeds and understanding that I think we've got a a plan that is not just.
Quick fix effort to improve our deposit mix, but really a fundamental long term strategy.
I have to really position ourselves for the next decade.
Very well on the deposit side, so you know.
We're making some progress we're going to make a lot more progress, but we're going to do that in the context of I really strategic long term plan.
For our retail banking operations and that's all all going forward at a very.
Risk Cliff Theres, a lot of work being done on it but it's a big project.
Excellent okay.
Okay, great more than I bargained for are you in the meantime are you opening any.
Opening any branches are really focusing on the network.
Yes, you have a we opened a a branch in south Fort worth.
Last quarter, we are opening a branch.
In.
South Dallas area.
This quarter I thought I already have opened it already have opened it this quarter. Thank you. We've got three branches. So we are opening a in the Metro Atlanta area I think there's one more someplace to handle that's it okay. And then we closed a few branches we closed a redundant branch in mobile, Alabama that was underpinned.
Forming a and assembly closed.
Branches, and Clarksville, Arkansas, and Magnolia, Magnolia, Arkansas, and so where you know is as part of a review of all of our.
Retail banking infrastructure, we've identified a few needs we have where we're opening branches we've identified.
A few branches that we think are underperforming and not needed I think we'll probably identify a few more along the way that will we're rationalizing get get our structure, where it will serve our customers.
Excellent okay. So impressive oh, thank you.
Thank you.
Thank you. Our next question comes some line of Brian Martin from Janney Montgomery Your question. Please.
Okay.
Good morning.
You might have your phone on mute.
Can you hear me now yeah yeah.
Okay, sorry about that George I Wonder George can you just comment at all I know you talked about the you know your opportunistic ability in the community Bank your optimism I should say in the community banking environment next year, just to kind of really see that ramp up can you just talk at all about some of the hires you've made or just any more your I guess, you're kind of looking to beef up I didnt know how that may contribute to the growth.
Look you have to the optimism.
And maybe it just geographically or bye bye Bye division or segment, the you're you're kind of focus I don't know what you've seen a ramp up in.
Yeah, you know we're we're.
Adding folks in a variety of space. We've added a couple of folks on our business Aviation group and the last six months or so were adding.
Team members and our GE and now our government guaranteed SBK lending group.
We're adding a person or two and affordable housing and charter School finance.
Weve.
Reallocated, some internal resources to get a little more.
Horsepower in our manpower and our subscription finance business.
We are continuing to.
Increasingly integrate our middle market. So you are a group that is our community banking C. R E group that that handles.
C R E loans and on our U.S.G. lot sort of fashion.
But you know it's not a miniature ariyoshi, it's really an arm that is intended to facilitate and.
Make sure that the quality of CRT, we originate.
And our.
Community Bank is is similar to the quality of real estate commercial real estate, we do and Ariyoshi group, we're adding a few generalist lenders around in different markets.
And a lot of the specialty lending vertical guys around in different markets.
We we've added a couple of guys on home builder finance.
And that business continues to be good we are.
Trimming some customers, whose a leverage ratios and inventory numbers are not meeting our standards were adding customers that have strong balance sheets and a really good business models and good margins that are are doing a good job managing their inventory and in markets, where where theres good growth. So.
It's just a broad base continuous adjustment of trying to add people, where we see opportunity in different lines business.
And you know curtail or reduce resources in areas, where we see the opportunities winding.
Okay I appreciate the color George Thanks, So much yeah, I would I would add Brian that after visiting all.
All of our offices in the last 11 months.
You know, taking a full inventory and understanding of every market in the company and our our ability to.
Meet the needs in the opportunities in those markets is a really helped us fine tune.
Our plan.
Or allocating resources going forward, where we think we'll get the maximum effect from that.
Okay. Thank you so much thank you.
Thank you as a reminder, ladies and gentlemen, if you do have a question at this time. Please press Star then one.
We have a follow up on the line of not only from Stephens. Your question. Please.
Yeah. Thanks for taking my follow up I wanted to ask about your Cecil disclosures and it sounds like you gave it to us and in two parts into management commentary. The first part seems pretty straight forward with the general allowance, but but the second part of the Cecil disclosure I guess is the liability for the unfunded commitments that seems to be more.
Or you need to bank of CK can you help us understand how this is going to work and will that allowance set will that be separate from the overall allowance.
Brian I don't I don't think that is or Matt I don't think that is a unique to us. It's just more evident in our numbers because we are you.
Our construction and development portfolio have a much bigger number of unfunded commitments and lot of by myself, Greg do you want to yes, So Matt obviously with the with 11 plus billion dollars of unfunded no understates. The we have to evaluate that we have to over our projection period forecasts the funding of that and then run that through.
Our model for purposes of allow us.
From a from a balance sheet standpoint that we own revising the liability section not in the allowance section so.
So we broke those closures out you and evaluating that Matt we really kind of ran multiple scenarios you looking.
At a reasonable optimistic ripple pessimistic type scenario weighting of scenarios and try to sit band around our expectations on where that lands on day, one and that's what we provided.
That should tighten up somewhat as we move throughout Q4, you ready to go live.
You'll come first quarter of 2020.
But yes that will reside in the near the liabilities section you know from up from an income statement standpoint, it all runs through provision, but dependent on whether you're talking about whether its funded balances on balance sheet or whether you're talking about unfunded.
And we're picking Atlanta at a different spot on the balance sheet.
And I would Greg let me clarify as far as running through provision.
The the.
Adoption of Cecil day, one adjustment is all like if it is a capital and tough hit the capital adjustment in the running through provision going forward is a go forward.
Got it okay. Thank you.
Thank you.
I'm not showing any further questions in the queue at this time I'd like to and the program back to Mr. Gleason for any further remarks alright. Thank you guys very much. We appreciate you joining the call today. Thank you we look forward to talking with you in about three months bank have a good luck.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.