Q3 2019 Earnings Call
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I would now like to turn the presentation over to Mr., Andrew Hersom Senior Vice President of Investor Relations for People's United Financial Inc. Please proceed sir.
Good afternoon, Thank you for joining us today.
With me to review, our third quarter 2019 results Art, Jack Board, Chairman and Chief Executive Officer, David <unk>, Chief Financial Officer.
Kirk Walters corporate development strategic planning, Jeff Tangled, President and Jeff White, Chief Accounting Officer.
Please remember to refer to our forward looking statements slide one of this presentation, which is posted on our website people dot com under Investor relations with that I'll turn the call up the Jack.
Thank you and good afternoon, we appreciate everyone joining us today.
Let's begin by turning to the third quarter overview on slide two.
Our third quarter performance, which reflects another quarter of record earnings further demonstrates our success and strengthening the earnings power of the company, while continuing to build the franchise for the long term.
As such we are pleased to report operating earnings of $135.5 million, an increase of 19% from a year ago.
And then operating return on average tangible common equity of 14.4%.
On a per common share basis operating earnings were 34 cents.
Third quarter results were highlighted by a net interest margin of 3.12%, which was unchanged from the second quarter, despite declining interest rates.
The margin benefited from our proactive management of deposit cost and new business yields remaining higher than the total portfolio yield.
The margin through nine months is 3.14% well within our full year outlook range of 3.0.
<unk> to 3.15%.
Total revenues of $454.7 million increased both linked quarter and year over year and continued to benefit from strong non interest income.
Honestly higher expenses compared to the second quarter drove a 100 basis point increase in the efficiency ratio to 56.8%.
Our ability to enhance operating leverage is evidenced by a year to date efficiency ratio of 56.6%.
An improvement of 160 basis points compared to the prior year period.
Our thoughtful approach to expense management has enabled us to control costs, while continuing to make important investments in our digital capabilities.
We have launched several mobile device and online driven offerings. This year, so which we have discussed previously including residential mortgage and home equity lending portal and enhance deposit account opening solution.
A direct to client investment platform.
And a more advanced People's Dot Com website.
Our latest offering is a digital small business solution for loans of $250000 or less.
Which will roll out this quarter.
Looking forward, we will continue to partner with Fintech companies to bring greater efficiency ease of use and scale to our suite of digital products and services to meet the evolving needs of our customers.
Moving onto loans period end balances increased $224 million or 1% from the end of the second quarter driven by solid commercial loan growth, partially offset by a planned reduction in residential mortgages as we continue to remix the balance sheet.
The focus on higher yielding portfolios.
The growth in the commercial portfolio was primarily due to mortgage warehouse lending equipment finance and Boston commercial real estate.
Gary then deposits declined $893 million or 2%, partially due to late second quarter, ending balance, including a 500 million dollar short term commercial deposit which was withdrawn in July as expected.
On an average basis deposits were down 1%, primarily driven by lower savings and time balances, partially offset by increased non interest bearing deposits.
Despite the decline in balances we continued to be pleased with our ability to gather deposits recent FDIC data confirm we maintained strong market share in each state in which we operate and continue to hold the number one position in Fairfield County, Connecticut, and the state of Vermont.
We are particularly pleased.
Our market share in Massachusetts is now in the top 10.
Driven by the addition of Belmont along with organic growth, we moved up for spots So number nine.
The acquisition of United Financial is on track to close in the fourth quarter and we remain confident in achieving the transactions attractive financial returns.
The integration process is underway and progressing well as we execute our time tested acquisition approach.
The addition of United Bolsters, our already significant share of retail households, and commercial clients across central Connecticut, and Western Massachusetts. We are excited for their long tenured well established customer base to join People's United and benefit from our broader array of products services and tech.
Now the offerings.
Before I pass the call over to David to discuss the quarter's results in more detail I want to share some thoughts on the operating environment.
Looking ahead, our view is customers continue to manage their businesses thoughtfully and are looking to take advantage of opportunities to grow.
We continue to see areas of meaningful growth, particularly in Boston and Metro New York as well as in our equipment finance and specialty businesses.
However, uncertainty about the economy, whether trade related or recessionary fears is concerning the marketplace. Additionally, heightened competition remains notably in commercial real estate and our expectation is this will not be in the coming year.
Despite these economic and competitive uncertainties, we are cautiously optimistic about loan growth, we have broadened the capabilities of the franchise through strategic investments in talent and enhanced digital offerings, while also adding retail households, and commercial clients through thoughtful acquisitions.
Well, we have grown in size, we remain true to our roots as a bank with significant local knowledge and the ability to provide tailored solutions to meet the individual needs of our customers.
This solutions oriented approach to banking differentiates people's United and positions us well to take advantage of growth opportunities in any environment.
He is also evident margin compression will be a headwind in 2020 by the extent, but the extent to which will largely be dependent on potential changes in federal reserve monetary policy.
However, we remain focused on managing what we can control to offset the effects of declining interest rates.
These levers include continuing to remix the asset side of the balance sheet by reducing lower yielding residential mortgages.
Growing or a higher yielding commercial loan portfolios.
Managing deposit cost proactively.
Continuing to build our fee income businesses.
Capturing revenue and expense synergies of recent acquisitions.
And sustaining excellent asset quality.
Our long term approach to managing the business has and will further enable us to generate value for shareholders and customers regardless of the uncertainties in the operating environment.
With that Harry <unk> David.
Thank you Jack.
Third quarter financial results were highlighted by stable net interest margins continued strong non interest income.
Well maintained expenses and a lower effective tax rate.
Turning to slide three net interest income of $348.7 million was up $600000 from the second quarter.
Net interest income benefited 5.4 billion due to improved deposit pricing and lower balances as well as $2 billion from an additional calendar day in the third quarter.
Conversely, the loan portfolio reduced net interest income by 3.7 million due to the downward repricing the floating rate loans.
In addition increased borrowings and lower yields in the securities portfolio negatively impacted net interest income by 1.7 million and $1.4 million respectively.
As displayed on slide four net interest margin of 312 was unchanged from the second quarter. Despite declining interest rates as Jack referenced in his comments the margin benefited from our proactive management of deposit costs and new business yields remaining higher than the total loan portfolio.
Yes.
[noise] improved deposit pricing favorably impacted net interest margin by five basis points, while the additional calendar day added two basis points.
The largest offset to these increases were lower yields from the existing loan portfolio, which reduced net interest margin by four basis points.
Increased borrowings and lower security you'd also unfavorably impacted the margin by two basis points and one basis point respectively.
Turning to loans on slide five average balances of 38.3 billion increased by $88 million or less than 1% from the second quarter.
On a period end basis loans ended the quarter at 38.8 billion up 224 million or 1% from June Thirtyth.
Commercial period end loans grew 505 million or 2%.
Merrily driven by mortgage warehouse lending equipment finance and Boston commercial real estate, partially offset by $89 million that run off in the New York multifamily portfolio.
Conversely, retail period end loans declined 281 million or 2%, mostly due to our planned reduction of residential mortgages as we continue to remix the balance sheet with a focus on higher yielding portfolios.
Mortgage warehouse lending benefited from the decline in interest rates, which increased refinance and mortgage purchase activity.
Balances ended the quarter at nearly 1.7 billion up 429 million from the ended the second quarter.
Equipment Finance grew 125 million, primarily reflecting further strong production by late.
Furthermore, our commercial real estate business and Boston continue to benefit from the momentum generated by the addition of the Belmont team.
[noise] moving onto deposit.
Carried out in balances declined 893 million or 2%.
Partially due to second quarter, ending deposits, including a 500 million dollar short term commercial deposit which was withdrawn in July as expected.
On an average basis.
Slide on slide six.
POS is decreased 554 million or 1% linked quarter, primarily driven by a reduction in savings of 304 million and time balances of 142 million, partially offset by an increase in noninterest bearing deposits of 171 billion.
Interest bearing checking and money market balances declined 279 million.
Which approximately 250 million is related to the withdrawal of the large short term commercial deposit.
It's important to note that noninterest bearing deposits as a percentage of total deposits improved from a product to approximately 24% from 22% at the end of the second quarter.
We remain focused on controlling pricing as evidenced by a four basis point reduction in deposit costs during the quarter, which marked the first quarterly decline since third quarter of 2016.
As we mentioned on our second quarter call, we proactively lowered CD deposit cost two times in the two months, leading up to the Feds July 31st rate cut and then we subsequently lowered money market rates twice in the quarter.
Noninterest income of $106 million marked another strong quarter, although down $300000 linked quarter results are up the results are up 13.7 million or 15% year over year.
Year to date noninterest income of 307 million is up nearly 11% compared to the prior year period.
On slide seven the components of the linked quarter variance our display.
Noninterest income in the third quarter benefited from 1.6 million in higher commercial banking lending fees driven by increased commercial real estate prepayment income.
1.6 million in higher insurance revenues, reflecting the seasonality of commercial insurance renewals.
A 600000 dollar increase in bank service charges, primarily resulting from an additional calendar day in the third quarter.
Higher operating lease income and investment management fees, which collectively improved noninterest income by $500000.
The largest driver offsetting these increases was lower customer interest rate swap income, which was down $2 million from a record second quarter.
Noninterest income was also unfavorably impacted by 2.6 million dollar decrease in other fee income, which is primarily driven by the mark to market, one equity security position and normalized BOLI income.
On slide eight non interest expense of $281.4 billion increased $3 million linked quarter.
You did in the third quarter were $5 million merger related costs in the following categories.
3.7 billion in professional and outside services.
800000 compensation and benefits.
The remaining 500000 in occupancy and equipment and other.
In comparison to second quarter incurred six and a half million dollars merger related costs.
Excluding merger related costs non interest expense of 276.4 million was up four and a half million dollars for 2% linked quarter.
The largest component of the increase was $8 million in higher other expenses driven by several items, most notably certain legal and other onetime operational costs.
The primary offsets to these increases was a two and a half million dollar reduction compensation and benefits.
Resulting primarily primarily from lower payroll costs, and a 1.2 million dollar improvement and regulatory assessments attributable to an FDIC credit.
Turning to slide nine she efficiency ratio of 56.8% increased 100 basis points from the second quarter due to a modest increase and expenses.
Year over year, the efficiency ratio was up only 10 basis points.
Despite the increase in the third quarter, we're very pleased with the significant progress we have made enhancing operating leverage as evidenced by the year to date efficiency ratio of 56.6%, which improved 160 basis points from the prior year period.
Asset quality was once again exceptional across each of our portfolios as demonstrated on slide 10.
Originated nonperforming assets as a percentage of originated loans and Oreo at 56 basis points was unchanged from the second quarter and remain below our peer group and top 50 banks.
Net charge offs of six basis points increased slightly from an already low level and continue to reflect the minimal loss content in our nonperforming assets.
Briefly on slides 11, and 12 return on average assets improved the basis point linked quarter to 105 basis points, while return on average tangible common equity decreased 10 basis points to 14%.
An operating basis return on average assets was also 105 basis points, while return on average tangible common equity was 14.4%.
As you can see on slide 12 capital ratios remain strong given our diversified business mix at long history of exceptional risk managed.
Before opening up the call for questions I wanted to make a few comments on seasonal.
Our implementation efforts are progressing according to plan as we prepare for adoption on January Onest 2020.
Based on current forecasted economic conditions and portfolio balances at the ended the third quarter the impact of seasonal upon implementation could result in an increase of as much as 15% to 25% or approximately $40 million to $60 million to existing reserves.
This increase is driven primarily by higher reserve requirements associated with the company's longer duration retail portfolio, partially offset by shorter duration commercial portfolios at our low historical loss experience.
As a result, the current estimated impact on capital ratios for both the bank in the holding company is a decrease of approximately 10 to 15 basis points.
It's important to note. These estimates which are subject to further refinement and any potential change and economic outlook before year end do not include the impact of the United acquisition.
Now, we'll be happy to answer any questions. You may have operator, we're ready for questions.
Ladies and gentlemen, we are ready to open the lines up for your questions.
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<unk> Press Star one to ask a question.
Please standby for your first question.
Your first question comes from Steve Alexopoulos JP Morgan.
Hi, everybody.
Yes.
So you did clearly did a nice job of lowering deposit rates in the third quarter. How much further do you think you could reduce deposit rates you're in fourq.
And tied to that what's the outlook for the NIM here near term.
The.
With that.
Latter part of that question C B.
Our experience has been that a 25 basis point move in.
Either the fed funds rate or one month LIBOR equates to three to four basis points of NIM compression.
The we appreciate your comment on on being proactive on deposit cost management the.
And if.
There is another move and the end of this month, we would expect to be able to move deposit costs in both Cds.
As well its money markets down commensurate with what we did in the in the prior to two moves that's not a full 25 basis points with that.
In the range of about 15 basis points give or take.
Okay.
That's helpful and then on the loan side.
Given the re mixing you're doing when does this headwind move behind you and when should we start to see stronger reported loan growth.
That's that's going to take a while Steve. So we first of all we do have the headwind of New York multifamily REIT, which we guided last quarter to 200 to 300 million for the year spend $175 million year to date.
Every 1% decrease in that residential mortgage portfolio is just about $400 million.
So the.
Full re mixing of.
Our existing portfolio today or at the end of third quarter, It's probably a few gear up that however that doesn't mean, they're not going to be loan growth over that time period.
Yes submitted it obviously building the commercial portfolios.
Is it is going to be very market opportunity dependent.
Some of them a growing nicely up a good steady pace, but.
Others are facing up took the headwinds we talked about specialty real estate the biggest want.
And then thank you for that and then just a big picture question on M&A. So you guys have done several nice M&A deals had been a market cost saves a strong arm back a short with that said the markets not responding M&A the way it used to write even for your deals do you guys start to think differently about M&A as a tool to.
Their value given the dynamics around it.
I would say no.
The decline in interest rates is something we're paying a lot of attention to in terms of our thoughts around M&A pricing et cetera, but.
But if you just look at the M&A and we have done with the metrics that you described and then think about building deposit households in those markets, where we have presence and and gaining market share and gaining the opportunity to deepen those relationships.
We think that's all been very valuable and we'll continue to pay dividends for us.
Okay. Thanks for taking my questions.
Sure.
Okay.
Your next question comes from Ken Zerbe with Morgan Stanley .
Great. Thanks.
So I guess, maybe starting off in terms of fee income I know she has didn't include your outlook slide for the year in your slide deck.
But.
So any comments on why you pulled that would be that'd be helpful, but but the question on terms of fee income.
And your guidance was up couple percentage points for it seems as one of those six level that you're posting is just kind of meaningfully above sort of 2% to 4% growth that you had previously outlined in your slide deck is is one of six the right level for fees or is there and still unusual items in there. Thanks.
Short cat So I'd go back to our like we have a little discussion on the call last quarter.
Where we said we had a strong.
Second quarter at 106.3, we decided not to raise guidance just because of the variability.
Some of those drivers, but we did say that we would likely be at the high end of guidance or maybe even over.
Now with another quarter at one of six I would say, yes, we will definitely be over the original guidance. The I wouldn't go so far is to say one of those six is a sustainable run rate just because of the volatility of some of the capital markets activities, but away from that.
Yes, we continue to be highly focused as Jack said in his comments on growing our insurance business, our capital management business, our wealth management business at which are much more steady performers.
And then we'll have some good capital markets waters.
As well.
Oh.
Gosh, Okay, that's helpful and.
And then just.
Second question in terms of C.. So I really appreciate the additional clarity you provided.
In terms of the impact of C., so but.
Not sure how to phrase this exactly but so what's the ultimate impact I mean, I get is 10 to 15 basis points a capital presumably there's the three year phase in on on from a regulatory standpoint.
I mean does it.
It doesn't matter that you are going increased reserves $40 million to $60 million is there any is there any negative impact from whether its rating agencies or anything else that I can possibly think of.
Ted.
That is that we should as to sort of the selling by select committee.
Yes paying attention to its a good question at the passion, we talk about internally here as well so.
Cecil is an accounting exercise right. It it's not a it's not to reflect that $40 million to $60 million in our opinion is not a reflection of additional risk within that portfolio. It's a different way that we are now required to model and.
Provision in the new accounting regime.
Got it thanks bidding and.
And I would say it makes it harder for all of US you guys.
Investors as well as well.
Okay, but it doesnt change in any way, if whether you're thinking of buybacks or loan growth or anything there's no impact to that its other than on the balance sheet of course right. Okay. We.
Well not operate our bank any differently or think about credit any differently than today.
All right perfect. Thank you very much.
Welcome.
Your next question comes from Jared Shaw with Wells Fargo.
Hi, Good evening, guys all right.
I guess not to beat a dead horse sticking with C. So for me here.
When you look at the UBI NK deal.
Was that structure to Cecil in line or is there going to be incremental mark in excess of that the 1.8% Mark you put on there because of sort of a double counting will that will that impact you'd be in king will that impact the economics of the deal.
So.
I will talk will partially answer that question. We have obviously when we worked on that deal we were very thoughtful of the impact.
We will that we would eventually have to account for that transaction undersea methodology.
But with that said.
And then expectation that we will close this year.
We're really not going to combat and none of it and they estimate tight. We just gave were exclusive of United inclusive of Belmont because they were on the books at the end of the water.
But we're not going to make any comment on c., so relative to you.
Okay.
I guess does does see so now being out there changed the way you're viewing M&A as a as a strategy in of itself does it make it harder to make.
A deal work in your mind or.
Again sort of like with with putting loans on the books. It Doesnt fundamentally change the way you look at.
Yes, I would.
I would say the answer is no and I would go back and reference what with Jack said about the thoughtful M&A we're doing is.
Long term perspective about gaining market share getty and growing new customer basis.
So an accounting.
New accounting regime will change some reported deal metrics in the short term but.
It's not going to change that strategy and really Csos Barry.
Transaction Bank transaction deal specific.
Jeremy.
I would say one common view I've I've heard in industry discussions is that.
Seasonal and the requirements for longer duration.
Great and reserves for longer duration portfolios is likely over time to discourage banks from holding residential real estate loans on their books for instance, and.
And.
And that would seem to be logical and it makes you then wonder whether.
The economics change in and maybe rate expectations spread expectations change on on certain types of lending.
Because of of that.
We're not seeing very counter to that to the idea that a change in accounting approach.
Would drive one of the.
One of the less leased risky businesses to higher reserves, but that's what it's doing.
Okay and then just finally from me you had mentioned.
There could be broader market concern I guess around the economy, how does that.
How do you how do you view growing the equipment finance and some of the other.
I guess, specifically equipment finance lending in light of that you do you feel that you want to slow that down if we think they're coming to the belly of the cycle or the at the beginning of the end of the cycle or is that.
You are still so expecting to see see good growth in that over the next year.
Well right now we are expecting the economic.
Activity to remain somewhat in the at the levels and in the zone. It's in if you will.
So there is nothing in the data that's telling us that GDP is going to slow or that unemployment is going to increase in the consumers going to slow spending you know there's there's a.
Piece of information like the manufacturing data for instance.
Once in awhile, but generally we feel that went on the verge of a recession.
And we're certainly not changing our approach to any of the businesses, including equipment finance.
We have studied and know that the equipment finance portfolio. We expect will will do well one challenge to that our recessionary environment, but the growth will slow.
As small businesses slow there they are borrowing in those environments.
Great. Thanks, a lot.
Welcome.
Your next question comes from Casey here with Jefferies.
Thanks, Good afternoon guys.
What I wanted to follow up on the NIM I think we're all kind of.
Impressed by the loan yields holding up I was wondering was there was there a pickup in purchase accounting on a quarter.
Very modest about two and a half million dollars linked quarter.
Okay and.
Now on around maybe a basis point to the NIM, but wasn't it was not a driver.
Gotcha Okay.
And then so.
The resi mortgage reduction is there is that did you get the low hanging fruit or is there more opportunities to do that or any other balance sheet restructurings to help to find the NIM going forward.
What really happened in the residential mortgage portfolio has been our strategy for the last three quarters, which is really to be.
The less aggressive on origination rates, so working for wider spreads.
The.
The reduction was larger in the third quarter, just because the level of interest rates dropped and.
Refinance activity picked up so much that we got.
Stance, the greater number of loans pay off and we just slowed the flow of replacement.
With that working for wider spreads.
That is definitely the objective.
That's how we will manage the pace of the refinancing.
Okay.
And just just following up on the deposit side.
You guys, obviously did a good job and being proactive the loan deposit ratio did did tick up over 100.
I know you had that that big deposit kind of.
About the door, but what.
Just give us some thoughts on your ability to be to continue to be proactive with the loan deposit ratio above 100.
Yes, we've you know if you put the clock back three four years ago.
Yes, we were we had quite a few we're quite a long period of time were over 100% and we talked about how hard we are working to to grow deposits.
In this quarter I would.
Besides the 500 million.
Commercial customer that that outflows the loan deposit ratio was impacted by.
The growth in our mortgage warehouse, which hit a record level of almost 1.7 billion that will subside and take up into that pressure off over time.
Where.
Obviously, we manage on a week to week basis the.
Commercial retail government banking deposits relative to the cost and the volumes. So we always strive to keep that number below 100% most almost every quarter we do.
It slipped up 1% thus far.
Okay, Great and just just last one for me just you mentioned the the loan yields coming in above existing.
The mortgage warehouse, obviously, a big contributor to the loan growth. This year this quarter what are the yields there and then.
Shipment finance.
The new money yields there is and is that the bar stuff, that's that's being accretive to the yield.
Sure.
A couple of things the first I would say and we said this on the last quarter the differential between new business yields last quarter in the portfolio yield.
50 about 50 basis points that did contract this quarter this quarters about 30 basis points.
The still positive at nicely positive, but not quite as positive had to do with.
The drop in.
One month, LIBOR, which was about 20 526 basis points.
Linked quarter the.
Mortgage warehouse spreads.
Came in a bid in the quarter, but are a little north of 202% 200 basis points.
Okay. Thank you.
You're welcome.
Your next question comes from Dave Bishop with D.A. Davidson.
Hey, good evening gentlemen.
Hey, how are you doing hey, I'm heading back to deposits and what are your competitors. There conference call. This morning I know.
Got it about an eight point differential between peak deposit costs than current a current rates or you're out there just.
Just curious if you have like a similar number where you've seen.
The overall cost of deposits I guess peak to currently.
Uh huh.
I'm not sure we heard everything you said.
You were asking about.
Our current existing deposit costs relative to new.
Business.
New business and maybe how it compares to where you are I guess, the Pete maybe the summer how far you sort of come off a peak of average deposit costs.
Well.
As you saw average deposit costs.
Came down four basis points in the quarter.
The way, we really think about it is where we're trying to specifically raised deposit either in.
Retail Cds or in money markets and kind of what those specials are so to speak.
And.
What I said in my comments is prior to.
End of the second quarter, we lowered CD promotional CD rates one.
And then in the third quarter, we lowered money markets twice. The for example, today, we have a square raising six months Cds at about a 180 across our franchise, we would be expecting that to come down.
As right now we have a little over 80% chance is what the market price and then for Earth.
That move at the end of the of the bonds. So we will be bringing RCD special rates down and then also our money market promos down as we get a little closer to that date.
But if I think about see those rates today relative to deposit costs.
That relationship is not fundamentally different than where it was three months ago.
Got it might think of the preamble you noted that.
Within the other operating expense category.
There was a number I guess caused by unusual one time type audits just curious in totality how much.
Flowed through the the other expense category this quarter, yes $8 million.
Not to use more as unusual one time I think you mentioned some.
Type expenses.
That was.
Definitely one time not in the run rate.
Okay.
And in terms of the.
The effective tax rate looks like there was little bit lower than the first couple of quarters here anything unusual there maybe some guidance incident.
For the year 2000 form.
No that was just in the quarter, we filed our 2018.
Taxes.
Yes, we have a fairly large.
Low income housing tax.
Portfolio and.
Favorable.
Favorable impact on the tax rate, so a little bit of catch up.
Once all the K ones came in from those investments.
Are you, having followed us for too many years, but it's it's a normal third or fourth quarter event for us.
Got it got it then just one final question just looking through the slide deck.
Clearly capital levels remained well below the well above well capitalized rate, but the.
Total risk based capital.
Is that sort of the governor here in terms of that like the growth profile there.
And just curious in terms of where you see the I guess the narrows market.
Well capitalized.
And how you think about that.
Yeah, we're a company that.
Usually the capital constraint for US is total risk based capital just because large.
Commercial lending book that we have.
Always easily addressed.
When when that time is right with sub debt issuance.
But.
At 12%, it's on the low end historically, black where we're very comfortable with it sitting there today with.
The risk in our our business mix.
Great. Thank you.
Your next question comes from Collyn Gilbert with KBW.
Thanks, Good evening guys.
Most of my questions have been asked and I think Casey hit on a handful of them, but just just back to the loan yield and again I think just trying to reconcile your your comments David about 25 basis point tied in rates would imply a two to three basis point compression NIM you didn't see it this quarter, obviously fared better.
So just dissecting that a little bit more into the mix.
Here is relevant and then also I want you to deposit side, because I think you'd guided to where you'd indicated last quarter that you were thinking maybe deposit costs would still tick up this quarter, but then drop in the fourth quarter. So just trying to piece is altogether. So.
If we just on the loan yields side. So you mentioned, what the warehouse loan yields were 200 basis points over just curious what the yields were new origination yields were on the equipment Finance and then just.
More of your traditional Cnine loans.
A couple of things there Collins, hopefully I get a mall I you know not two to three basis points I thought I said three to four.
I would also I, probably should have mentioned I would say because of the the.
The lateness of the second.
New by the said.
Theres, probably a little bit of repricing left from that move in our home equity portfolio. That's the cycle for a full month.
Have all those prime prime based loans reprice.
I don't have a number for you on that but it's.
Small number but it's out there.
On the.
And actually I don't remember us, saying that we thought deposit costs would tick up in the third quarter I'm pretty sure we set the opposite or reader silence of that.
The and then lastly, just across the you know.
We really have we have three different equipment platforms that are all that are quite different in nature as you know with the lowest yielding.
Doing the larger transactions.
Our original PC LC.
[noise] coupons in that business Ron.
About court.
For water.
Our highest yielding is the old financial federal People's United equipment, Finance, where we can run.
Ill turn 6.5% to 7%.
On average across that business and then lead as we've talked about many times before can run.
7%, seven and a half type range on that portfolio.
Okay, so you're not seeing or you're not seeing much compression that on new origination yield.
Within that segment. It just doesn't seem like there's a lot of variation I don't think from what you have indicated in the past.
Well I.
I would say, there's there's pricing pressure extend that mostly in.
The largest one PCL c., but I would say across those three businesses the managers quite that every day and do an exceptionally good job.
Yes, so theres across we talked many times about how diversified all of our lending businesses are we are seeing.
Pressure in.
Our large corporate.
We talked about mortgage warehouse PCL C.
Commercial real estate is relatively steady.
The first been steady and somewhat we've actually in the quarter had some businesses, where we were able to widen spreads.
Okay. Okay, that's great and then just shifting to loan growth so.
I'm pretty sure all domain name I know, it's wrong again, but on the on the loan growth Guide I thought you guys were thinking before you BNK, 10% to 12% for the year is that correct.
That what you're prioritizing well, yes, okay. Okay. So you are there more last year to date. So just trying to think about and Jack I. Appreciate your comments kind of broadly and how you're seeing your customer behavior in touch, but just curious and mortgage warehouse. Obviously was elevated this quarter, maybe some close during the fourth quarter, but just sort of how you sort of see some of the pay.
Funds trending as you go into the fourth quarter as it relates to loan growth.
Hi, called this is Jeff tangle.
We see the fourth quarter. The pipelines are still I would characterize them as being in good shape.
Pretty consistent with where we saw them coming into the third quarter Theres, obviously, some variables there the mortgage warehouse lending business being a big one.
Some of that's offset by the fourth quarter, historically being a pretty strong quarter for equipment finance businesses.
So we still feel pretty good about the health of the pipelines going into the fourth quarter. We saw an elevated level of payoffs in the third quarter in a number of our businesses.
Which if that does not occur in the fourth quarter would be a benefit a lot of M&A activity a lot of.
Capital markets activity that impacted some of our businesses that that we're hopeful will occur in the fourth quarter.
Okay. Okay. That's super helpful. On that was all I had thanks guys.
Yeah.
As a reminder to ask a question. Please press star one.
Your next question comes from Brock Vandervliet, Yes.
Thanks, Good afternoon.
Hey.
Hi, just going back to a couple of these comments a touched on c., so and the loan to deposit ratio.
It would seem like and that the gross headwind that you you referenced.
Could you accelerate some of that process by potentially selling.
Selling down some of the resi exposure had dilutive to your asset yield.
Somewhat pejorative under C., So as you mentioned.
Create some more shelf space for their L.D. ratio.
Why not why not do that.
We we could.
Last quarter, we were asked about could we do that in New York multifamily and we said, yes, we could.
Good.
Both are profitable portfolios.
So.
We think can talk about it our alco.
Discusses.
Strategies like that from time to time, but we usually get back to.
We're comfortable with the credit risk, we have the capital to support it.
They are making money for us and it gives us.
More time to remix the balance sheet, we don't feel we need to.
Accelerate the remix of the balance sheet, because we don't have all those things I mentioned that up a more overly concerning to us.
Got it okay.
And separately on the funding side.
Is there anything you'd call out in terms of the cadence of CD or FHLB.
Repricing.
In the fourth quarter that would or first quarter next year that would allow you to step down.
Those rates more quickly.
Well I guess I'd say two things one is the.
Wholesale borrowings that we do in the markets are from the whole loan.
Down those cost step down nicely because there.
More market sensitive.
So they will pretty much move with one month LIBOR paused.
On the customer funding side, we're obviously subject to what our competitors are doing.
Across their portfolios retail commercial et cetera.
The good news in that is the industry is being quite disciplined.
As we've talked about on this call we were a little early and some of those moves up but we've seen more.
We've seen other banks.
The aggressive as well, which is a great.
And there's a theres a lot of turn in the CD book, So you think about.
Into the future quarters, if rates drop and and the market.
Lowers rates.
We'll be able to benefit from that.
Yes, Cds mature and reprice.
Oh.
Got it okay. Thanks for the color.
Welcome.
Ladies and gentlemen, since there are no further questions in the queue I'd now like to turn the call over to Mr. Barnes for closing remarks.
Thank you.
Closing were pleased with the strong third quarter performance, which was highlighted by another quarter of record earnings stable net interest margin.
Lower deposit costs.
Continued strong fee income well maintained expenses and sustain excellent asset quality.
Thank you for your interest in People's United have a good night.
Thank you for your participation in today's conference [laughter] a presentation you may now disconnect today.