Q3 2019 Earnings Call
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Well, yes, CB financially <unk> Q3, 20 next year earnings call My name feature and not the operator for today's call.
Hi, I'm sorry.
Later, well conduct question answer session.
The question answer session.
Question. Please press Star then one on your Touchtone phone. Please note. This conference call is being recorded I now turn the call I mean, they can o'leary head of Investor Relations Makena, Larry you may begin.
Thank you Adrian.
Hello, everyone. Thanks for joining us up we're starting to be starting a few minutes late and some of you may now be Edgar system with down. This evening. When we went to file our press release and so we have to make you with that we have.
Who did it in the news section of <unk> at Wells in the IR section of FCB Dot Com a press release.
The summary, slide I'm. The CEO letter, we will also be issuing at my newswire by taking them a while keeps you at all so look for that within the hour.
I'm going to read the Safe Harbor statement, and then Greg is actually going to read the CEO letter one last time left to go down another time in the future, hoping you could have a chance to listen to the theme I look at the flight, but they are on again the news section of TV Dot com and on the IR section as well so safe Harbor.
Greg.
Greg Becker and then back at you know as usual I here to talk about a third quarter financial results and there are other members of management will join them for the queuing up.
The release of close to where I indicated and we'll be making forward looking statements. During the call actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward looking information.
Equally the statements made on this call. In addition, our discussion may include references to non-GAAP financial measure information about those measures, including reconciliations to GAAP measures maybe found in our earnings release.
And I will turn the call over to break that down.
Thanks, Matt good so I'm I'm going to take the CEO letter and just a read through majority of it but I will I'm just kind of highlight some key parts. So.
With that we're pleased to report strong third quarter earnings per share a $5. A 15 cents net income of 267 million and return on equity up 18%.
Our performance is the result of solid operating environment effective execution against our strategy and robots client acquisition.
A penny financial results reflect excellent balance sheet growth solid core fee income and healthy market related gains underpinned by continued stable credit quality.
Our strong financial results demonstrate the power batteries placed the center of the global innovation ecosystem and the ways in which our strategy and values reinforce the foundation, we've laid for long term growth.
Our long term commitment to innovators and investors enables us to understand their business give advice and solve their problems to improve the probability of their success.
The following themed summarized our view of Q3 and the current market environment.
Number one healthy market.
The robust liquidity of our clients and our strong execution are fueling growth and our core business globally.
Number two we've achieved our target.
10% net interest income sensitivity.
Number three.
Core fee income continues to grow strongly across the board alongside solid contribution from weren't.
The investment Securities.
Number four credit remains stable and the risk profile of our loan portfolio has improved significantly overtime.
Number five.
We're maintaining strong capital liquidity, which gives us flexibility to adopt and to take advantage of opportunities in a changing environment.
Strong capital position provided the foundation for a new 350 million share repurchase authorization effective over the next 12 months.
And.
Our preliminary 2020 growth outlook is positive.
With the expectation of solid performance and continued investment in products people systems and processes to support our growth in the future.
Regarding markets.
Venture capital invested remain strong as the third quarter for a total 97 billion invested nearly 8000 companies year to date easily on pace for a second successive year of investment greater than 100 billion given the trend toward fewer larger investments.
The healthy VC activity is reflected in our strong new client acquisition with another quarter more than 1200, new core commercial clients.
This or buckle brew Bucks quite acquisition is consistent with Q2 and continues the trend that has resulted in net new client growth of nearly 70%.
Since 2015.
Our access to the best innovation clients and our ability to increase the likelihood of their success and continue to add value as they grow remain key differentiators for us.
Third quarter exit activity stabilized somewhat following the flood of pent up IPO was in Q2, but remains strong.
VC backed up to values for 2019 year to date crossed the 200 billion Mark for the first time in a decade with more than 80% of all exits year to date occurring be IPO.
Another first to the industry.
70% of U.S. venture backed companies that went public during the quarter Werent SBB Cline.
This activity contributed to approximately 38 million in weren't related gain in the third quarter.
VC fundraising reached 30 billion year to date and appears to be on track for another strong year on top of which the realized returns to investors from this year's Ipos will soon be flowing back into the system right for reinvestment.
You are private equity investment remains strong in the third quarter with the number of deals year to date on pace to match 2018, despite a weaker economic backed by backdrop.
As a result, 2018 PE fund raising year to date has already reached full year 2018 levels.
This backdrop of continued investment fund raising and demand provides a healthy environment for our clients and for US as we continued to execute on our strategy of enhancing client experience.
Moving away they employ enablement.
Dancing risk management, and driving revenue and scalable long term growth.
Let me transition to our balance sheet and total client funds.
Average total client funds growth of 5% to 150 billion, primarily reflected growth in technology with contributions from our private equity venture capital and our international portfolios due to healthy funding an exit markets for our clients as well as the strong new client acquisition.
Average on violent balance sheet deposits increased by 8.1% to 57.2 billion.
Average interest bearing deposits grew by 22% to 18.1 billion due to the success of new products related to our deposit growth initiatives.
Total deposit costs increased by two basis points as our pricing adjustments were offset by strong volume growth.
Deposit costs remained very low at 38 basis points.
Average non interest bearing deposits returned to growth increasing by 1 billion to 39.1 billion.
Non interest bearing deposits now constitute 68% of total deposits compared to 72% in Q2.
We are increasing our full year deposit growth outlook from the low double digits to the low teens as a result of our better in the forecast deposit growth.
Momentum created by our deposit growth initiatives and the continued strong liquidity of our client.
We expect the majority of deposit growth for the remainder of 2019 to occur in interest bearing products.
Average loans grew by 1.4% to 29.8 billion on track to meet our full year outlook.
Growth was driven primarily by private equity capital call lending, which now constitutes 52% of the loan portfolio and by continued growth and our private bank lending.
At the same time liquidity from strong equity funding environment and our continued credit discipline continued to provide headwinds to growth in our technology and life science wanting.
Despite these pressures the pace of loan growth for the full year remains on track with our forecast and linked quarter borrowing activity. In Q3 has created strong momentum going into Q4 as evidenced by period end loan growth of 1.9 billion to 31.1 billion.
During the quarter.
Loan yields declined by 41 basis points during the quarter driven by lower rate.
Portfolio mix lower loan repayment fees and interest recoveries compared to Q2.
As well as the market environment.
Average fixed income investment securities grew strongly by 8.7% 25.1 billion and yields remain stable at 2.58%.
New purchases totaled 5.4 billion at 2.43%. This represented a decrease of 36 basis points from the prior quarter, but was nevertheless accretive to net interest income and help to drive our asset sensitivity lower.
Maturity yields were 2.43% versus 2.25% in the prior quarter.
Based on the current level of interest rates the average tax effective yield on new investments for the remainder of 2018 could be between 2000 between 2.15 and 2.25% and overall, we expect the yield on the investment portfolio to remain flat.
Moving to net interest margin and net interest income.
Net interest margin in net interest income declined during the quarter, primarily reflected strong balance sheet growth as well as the impact of market rate declines in a number of non rate related items.
Net interest margin declined by 34 basis points to 3.34%.
The majority of this decrease 21 basis points with due to growth in earning assets.
This included growth in interest bearing deposits and high quality lower yielding loan categories as well as higher cash balances related to our strong client liquidity.
Seven basis points were directly related to the impact of lower prime and LIBOR rate.
Another six basis points, the decline came from the market environment, including competitive loan yield compression and the impact of interest recoveries in Q2.
The majority of our loans tied to LIBOR reset during the quarter limited impact of LIBOR in future quarters, assuming no additional changes in the forward curve.
We expect Q4 NIM to be between 3.25% and 3.3%.
Net interest income decreased by 1.6% to 523.6 million, primarily due to the impact of lower interest rates.
Two thirds of this decrease about 1.4 million was related the impact of lower fed fund rate on prime based loans.
Cash balances and interest rate swaps and lower rates in LIBOR index loans.
The remainder 9.1 million was from nine or non rate related items, including lower interest rate recovery versus Q2.
These decreases were partially offset by the impact of strong balance sheet growth during the quarter, which contributed an 11.8 million increase and interest income.
Consistent with the comments, we made in our Q2.
19, we are reducing our full year 2019 outlook for net interest income and net interest margin. Following two additional decreases in the fed funds rate in July .
In September .
We expect full year 2019, net income growth in the low double digits versus our prior outlook at the low teens.
Expect full your average 2019, NIM of 3.5% to 3.6% 10 basis points lower than our prior outlook.
We're succeeding in our efforts to manage the impact of rate decreases on our net interest income sensitivity to no more than 10% and a 100 basis points shock scenario.
Primary strategies underlying this effort our interest rate swaps continued extension of our fixed income securities portfolio, and adapting our deposit pricing to market rates.
We will continue to actively manage asset sensitivity to the 10% target.
Based on our expectations for the impact of our balance sheet strategies. The rest of 2019, we're forecasting 835 to 45 million annualized pre tax reduction and net interest income for each 25 basis point fed funds decrease which equates to approximately 2% of our net interest income.
This estimate assumes deposit beta are lower rates between 50 and 70%.
And continued deposit growth primarily in interest bearing accounts.
During Q3, we continued to see strong growth in our core fee income lines as well as gains from warrant investment securities and our investment banking business.
Our core fee income has grown 28% year to date compared to the same period last year, particularly driven by client investment fees credit cards and foreign exchange.
This continued growth in core fee income provides a welcome to offset the downward pressure from rates.
Where our market driven income streams are harder to predict we've seen very good warrant and invest matured security gains year to date, and thanks to healthy funding and xsan environments, where our clients.
While we expect our client markets to remain healthy we do not anticipate that 2020 weren't and investment securities gains will match 2019 levels.
Income from SMB lyric was slower than the third quarter.
Expectations for SMB Leerink revenues are slightly lower for the year as M&A revenues have been weaker than anticipated.
However, the market breasts, we'd be lyric continues to grow and their maintaining consistent market share.
We have solid expectations for that business in 2020, assuming the markets remain healthy.
Moving to credit.
Credit quality remained solid in the third quarter with strong underlying metrics and no change in our outlook for 2019.
Our performance reflects continued growth in high quality loan categories, such as private equity and private bank as well as the gradual improvement of our risk profile, including a decrease over the years of our early stage loans to only 5% of our loan portfolio.
Based on the high quality and short duration of our loan portfolio, we're expecting the impact of Cecil adoption to be primarily reflected in an adjustment to our reserves for funded and unfunded credit commitments related to the requirement to reserve for the life of our technology in healthcare loans versus the one year reserve horizon in place in the current stand.
Okay.
We estimate that day, one Cecil adoption implementation will increase combined reserves by 7% to 16% did the higher lifetime inherent risk in our technology and life science portfolios.
This increase will be reflected in equity.
We expect increased volatility in reserves going forward, depending upon economic conditions and forecasts.
We'll continue to refine our estimates in Q4 and are on track for implementation on January one.
2020.
As we have in prior years, we want to provide our preliminary outlook for 2020.
In 2020, we expect continued solid performance and opportunities for growth even without the help from interest rates.
Our preliminary outlook is based on our expectations for healthy client liquidity and activity, although potentially less robust than 2019.
And stable credit quality barring a significant deterioration in the economy.
In addition to strong balance sheet and core fee income growth low single digit net interest income growth is stabilizing NIM and credit quality consistent with 2019, we're forecasting non interest expense growth in the high single digits.
These expectations assume no future rate decreases.
For 2020, assuming all of our preliminary guidance and the impact of two additional fed rate decreases in 2019, we expect full year net interest margin between 310.
And 3.2%.
And in net interest income comparable to 2019 levels.
Our actual results will be impacted by a variety of factors, including the mix of interest bearing to noninterest bearing deposits.
The mix of deposits to our balance sheet client funds and certain market related factors.
In summary, we.
We posted a solid Q3 performance.
Have a positive outlook for 2020 and outlined long term growth catalyst.
Our continued strong performance in health and liquidity of our clients make us a positive about our business and growth prospects.
As always we're keeping our close eye on any challenges that might arise rise from health of our markets and the broader markets.
Interest rates remain on an area of focus, but we believe our lower asset sensitivity and flexibility with regard to expense growth will enable us to better manage the impact of declining rate environment.
Competition as challenging as is ever has been from banks nonbank financial service providers and liquidity in the markets.
We continue to take every opportunity to raise our game in the face of competition in the long run we believe our unique approach networks and insights will continue to differentiate us while our ongoing investments in products and capabilities will enhance our ability to compete globally.
While the potential impacts of an economic downturn on credit is in many people's minds. In this respect we believe are better than position because we been lowering our risk with fully 79% of our assets in high quality investments and low credit loss experience lending.
In addition to these advantages we have a high quality high liquid balance sheet and a client base that is demonstrated resilience during downturns.
We believe the investments, we're making and geographic expansion enhancements of our digital client experience and diversification of our business.
And with people and systems will provide the foundation for long term profitable growth.
And operating leverage.
In the meantime, we're enjoying the growth and flexibility enabled by our strong capital liquidity and are confident our diversified high quality balance sheet.
We remain focused on being the most valuable partner to innovators and their investors ensuring we remain at the heart of the innovation economy globally. So we can continue to see in support the best new companies year after year.
And forge lasting bonds with our clients as they grow.
With that.
Open the call to questions.
Thank you well now begin question answer session.
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Uh huh.
And our first question comes so Ken Zerbe from Morgan Stanley Your line is helping.
Great. Thank you.
Good evening everyone.
Again.
I guess, maybe could place to start.
In terms of.
Just the tech lending, we've seen a fair amount of volatility and the tech space and I guess, maybe you can also includes a failed ipos.
So one of the concerns is that that could be having effect on your business I know loan growth average loan growth is weaker.
This quarter and you're pretty optimistic about next quarter, but could you just address that the concerns around some of the volatility in the tech space and in is that having any meaningful impact on how you think about growth.
Thanks.
Yes, Ken this is Greg I'll start and Im sure, Mike or Mark May have the things to add so we've had we seemed little impact at all from.
The few IPO that are getting the.
Attention like it's important to note. If you look at the IPO through the course, the you that have gone public.
For the most part with the exception of a skew.
Many you've actually performed very very well and you can look at the amount of money that's being returned back to the limited partners venture capital firms Unlimited partners as a great catalyst for that to continue to grow.
And despite the timing of those ipos that were softer during earlier part of the year again, we've not seen a slowdown in liquidity, we not from clean a slowdown in activity over all the portfolio and we actually don't believe it's going to have a meaningful impact on on the outlook.
It's from our view, it's pretty it's pretty isolated.
Okay.
Great.
I guess and then just in terms of the hedging hedging strategy, but just entered the mitigation of of the impact is how to your down below 10%.
Elaborate a little bit more like are you done trying to mitigate the asset sensitivity at this point as or more to come and.
How should we think about that thanks.
Yes, Ken as Dan I at this point as he said, we're right at the 10% asset sensitivity limit for.
A year period.
And we continue to pay attention to that we think of that is a good level for us at this point.
As has always been at our thought because we can continue to grow.
Over time through that 10% limit so we're continuing to actively watch and manage to that 10%.
Hi, Matt.
But for now where where we're comfortable that were in the right spot.
Got it Okay and then just one last question I want to make sure I understand the guidance for 2020.
So into a if you do get an October cut, which I think is pretty likely add another cut in sometime in say mid 2020.
Is that your guidance that in the and III is going to be stable and nims three tend to 320.
So can we test we took the approach.
As of looking at a fed funds decrease in October as well as December just the just to provide data to scenario.
And that scenarios, where we think it's comparable year over year and that NIM.
Between 3.1 and 3.2%.
Alright, perfect thank very much.
Your next question comes from Aaron Deer, Sandler O'neill. Your line is open.
Hi, good afternoon, everyone.
Just following up on Im Kens question with respect to the to to the operate in an environment sentiment out there I'm just curious.
Is it your sense, because you sound pretty optimistic that that the that the venture committed in general is still been pretty rational in terms of valuation from such was because with some of the pullback. So we've seen and some of these things I would think that maybe.
I would suggest maybe were different other receptor.
Maybe a slowdown in activity like we had back kind of during the 2015 16 period, but it sounds like you're not anticipating that at all.
So we have this is Greg we really havent seen it.
Do I think that we're going to end up seeing some pull back and valuations with some companies yeah, I believe that will be the case.
Do I think there's going to be more discussions around board cables about corporate governance, yes, I think thats part going to be happening as well, but actually I think all those things are healthy in the investors that we're talking too is that they still look at the number of companies and the quality of companies and the upside these companies present and.
There there is talking with a very optimistic tone. So yes, you could see some valuations come down, but I I don't right now my Crystal Ball would say I don't look at this like a early 15 experience that we saw now.
That's right now and again things could change, but I don't see to my and my Crystal ball.
Okay I appreciate that and then.
It looks like had some decent growth in the in the private bank in the quarter, but capital call lines, So kind of leading the way with those inching up toward your kind of soft the ceiling on that what what are the reference you make and too.
Kind of squeeze better growth out of the private banks and so it seems like Thats an area, where you guys could have a lot of upside and and grow in the book.
And this is Mike definitely or maybe there to kind of point that you bring up one is on the let's say capacity the growth for private equity other ones on them the mortgage side of the private bank and let's start with the private bank side now you're right. There's a big opportunity for US there, particularly in the rates are being loaded lottery by opportunities as we continue to grow that we definitely see.
Opportunity in that area. So that's something I think where.
You will see more up in the future with respect to that private equity side as you say that businesses perform exceptionally well if the business, we like and we definitely going to continue to grow mean, when you look at the credit performance. There. When you look at the the amount of capital that we have we definitely have ample room to continue growing that area. So you expect it can continue going.
In there and as you know at the very sizable market in a big opportunity for us. So so we feel very good about where we're at and where we're going to go.
Okay, great. Thanks for taking my question.
Hey, Aaron this is Greg ill just add onto it.
Include the growth has been from private equity in the private bank, but I also want to highlight that technology banking and life Sciences, we've actually had a really strong year for originations.
It's just not translating from originations to funding because of that liquidity as I talked about so what we're seeing is a really good uptake and some of those deposits were talking about which is driving the business are helping to drive the business is actually coming per because we're adding.
In a healthy way technology companies in life science companies interested to transition translating to loan outstandings in that portfolio because of illiquidity environment.
Your next question Steven.
Alex Saphris from JP Morgan Your line is open.
Hi, everybody.
Hey, Steve.
I want to started the loan side, so I'm trying to reconcile the slower growth in average loans versus the very strong growth in period end loans can you walk through that again.
Yes. This is Greg I'll have a couple of comments and Mark is going to add Im sure.
With private equity lending I mean, you do get periods of time, where you can have pretty big swings and it was just a slower growth than the first part of the quarter and you ended up in the spot where just towards the end you saw a pickup and Thats held almond. So as I said in my comments in the and the outlook.
The growth was in the private equity world and Q. to see almost think about is a little bit digesting. If you will so to speak but again as Greg pointed out we're starting Q4 and a really good way where that period in numbers about $1.2 billion greater than the average that we have for two three.
Okay. That's helpful.
On the hedging how much.
In terms of the hedges I worry that this quarter how much of that.
Ah costing them much pressure that put on the margin.
So Steve if you look at the entire hedging pockets right out about 4 billion right now.
And if we look at the the overall costs associated with that it's right at 45 bases 40 or 40 basis.
So assuming we get a fed funds decrease in October the total net cost associated with that'll be down to about 15 days. So in the quarter to answer the questions. Specifically was about a 2 million dollar drag on the interesting some but the overall cost of that program at this point on on a a basis points.
Basis is 40 based one okay and then finally appreciated the C.E.O. letter, calling out the impact or a thoughts are on them. If we do get more rate cuts, but along those lines looking at the preliminary 2020 outlook. If the rate cuts continue how do you think about that expense guidance for your pointing to right now.
Yeah. So you know as it as we talked about if you think about what we're doing on net interesting on the key for Ross's again practically managing the after sensitivity and we've taken major steps to do that with the hedge program starting effectively from zero at the beginning of the year ending no right now it for a million.
Continued extension to the investment securities portfolio in floors in in the <unk> as a word managing that aspect sensitivity.
At the same time as we look at our expense guidance and I single digits.
You know if we do get additional decreases a will look if there is some flexibility at least in project bend and things along those lines, but we still believe that there is an important aspect in our investment and continuing to invest not only in scale ability initiatives, which are under way right now, but secondly to come.
Menu to expand what we're delivering in a digital way to our customers. It's a highly competitive environment and we we we need to continue to invest to do that so we have flexibility to the extent that we need to use it and we see additional rate decreases largely be timing of that project spend more than anything else.
Okay terrific experts, where my questions.
<unk>.
It's nice question <unk>, Abraham and put a lot of some bank of America. Your line is helping.
<unk>.
Just a quick question until it was awful Oh, the deposit mix again, if you can talk about.
Oh cool got anything about 2020 guidance, they're destined assumed that the majority of the good old is coming from and <unk> and to to that and if you can talk to.
Leverage to reduce the funding costs as we get in October and potentially December <unk> declined me show about can be assessed once reduction in the third quarter.
Yeah. So first of all yes, we do expect a continuation of the addition to the positive being interest bearing a interest bearing related. So we think you know on a full your average next year will be in let's call. It <unk> 60 per cent range of total non <unk> <unk>.
The total deposits and that's going to come down a bit from where we're going to exit a cue for as we look at pricing and and and pricing on that portfolio. You did see that we did make some changes in the fourth border. We look at our deposit beta assumptions, we're tracking along.
With them and expectations is that we'll be able to continue to make those changes with additional rate decreases.
In in 2020.
But it and then the it'd be at this point decline we saw in your money market <unk> should that pick up basically anything about next quarter in into a one Q.S. If you get a couple more about eight <unk>.
Yeah, there there's a the just the timing of read decrease effects. So that will naturally drive Ah you know at least some additional reduction as we get into the fourth quarter will also be continuing can to consider deposit pricing action you know to the extent that we get additional rate decreases. So you you will.
Assuming you know just by the passage of time, you will see some additional decrease in the deposit costs.
Recorded and just taking a step back I think the one question that comes up is historically growing known interest banged up all the time, you mean instead of a strong suit for actually be given the our side and given sort of what's happening in terms of the funding Collins into cut the size of the funding <unk> is it.
To assume that the kind of <unk>.
<unk> historically or funding that's not.
Likely as we think about going forward or do you think that we do see somebody explanation in and I began with at some point in the near future.
Yeah, I think you know just like you know moving into a rate increase cycle, you know moving out in in into a rape decrease cycle, a customer behaviors incredibly difficult to predict and I think that you know with these larks dollars funding increases.
You know folks is in that higher rate environments, rather than looking for an interest bearing product you know to the extent that we get caught in October we get another potential cotton in December you know, you're starting to get to a lower raid and we'll be watching customer preference I think I think that's really what it relates to is is.
The rate environment, that's why we enjoyed that benefit for such a long period of time, we're going to continue to acquire funds and it's just a question of at what point you know.
<unk> get to a point, where it matters matters less.
<unk>.
Yep.
Yeah.
And there next question <unk>.
Good evening.
Sure.
Yeah, I guess looking at the preliminary guide for fee income for 2020, where are you really seeing a love that growth coming from and how much of that is going to be dependent upon.
Rebound in Leerink.
So this is Greg so well I I looked at the thing about the core banking sided the house commercial banking side, and then we'll talk about Leerink.
So from a core banking perspective, you're going to see it hmm primarily in three different places right to F.X., you're going to see it in in the Klein investment fees and cards will be the three areas. So this is this is three areas and again, even though the gross looks like it's flowing from last year or from this year.
You basically have to kind of take out the additional rate increases in benefits. We got from declined investment fees. So <unk>, it's really not that different when you when you factor that out of it. So again another healthy your of growth with with S. would be Leerink. Obviously, there's there's three ways to think about it one is whereas there how are they position in the market really.
Two to the market.
Right, so they're partially at the markets stronger they will do better if not they <unk>. Obviously, you know it'll drop compared to that we think next year, it's gonna be a good. Good year then it can they gain market share in the area that were <unk> working closely the team's working closely is again you see I'm really good they're building up the emanate.
Practice, and so to the extent that practice builds out that more that's gonna be I'm stronger and they feel good about that and the last part is again. The reason we brought lyrics onto our platforms is not just what they're going to drive themselves, but it's the cross pollinization in the help that's driven into our life science and health care commercial banking.
I will tell you that the synergies between the two.
It's been exceptionally strong and we've already seen several loans and client fund winds that we can point to specifically having them on our platform and and that is that we believe is going to be a driver for many many years to come. So it's the combination of all three of those things, but yes, leerink, we'll have a in additional.
In 2020.
Okay. Thanks, and then you'd mentioned.
The the success of the exit.
Since this year and then seeing some distributions back to the L.P.'s should we expect to see that puts any pressure on.
On balance sheet funding as you go into the end of the year is some of those distributions are made.
Or is it going to be best buy overall growth.
Yeah, <unk>, so as as we looked at her deposit expectations for the rest of the year, we did factor in some slow or growth in some additional distributions.
Similar to what we saw it last year. So again, it's very very difficult to predict with any certainty. We've incorporated the best adjustments, we can have fun distributions into our estimates on pull your basis.
Okay. Thanks, and then just finally for me you know with the the buyback announced or the or or a new buyback announced could we see that.
Be executed faster than over the next 12 months, if there's a a good market opportunity or you really looking at at trying to have that be executed serve sequentially throughout the year.
[noise] I think it is is dependent upon market, you know market forces and and and.
What's going to happen as we get into the rest of the year. So it's it's really just highly dependent upon what's happening you know from on on the extra channels on we've sat that no 12 month rational just like we did but the previous buyback and what will continue to monitor to monitor that throughout the year.
Great. Thanks very much.
Yep.
Into X. question comes from Chris Mccranie from K.D.U.W. <unk>.
Great. Thanks.
Daniel you guys built trying to cash in the quarter I guess I'm interested in the assumption behind deployment normalizing those levels lower as it relates to your margin in in my outlook.
Yeah. So we have been and you saw it and what we deployed in the corner deploying those investment securities the previous corner with them at about 2.43%.
You know as we look ahead, obviously the deployment rates will be a bit lower so looking at you know on a tax effected bases something closer to let's call. It two per cent to 2.1%.
So we're putting that money to work at the same time the way that we're looking at a deposit pricing and off balance sheet pricing is that we would expect some no migration over additional migration to off balance sheet. The those types of things are not going to happen immediately those are things that happen progressive.
Really over time, but the expectation is you're managing the cash levels down either through deployment or through the management of pricing and pricing products on versus off balance sheet.
[noise], Great and then maybe one more on the client she the fee rate on the way up was about color basis point for 25.
Is there any delay and kind of reducing that rate or is it kind of when we get October it's another basis, pointing it kind of projecting that out.
Yeah. So we've been holding add 20 basis points of of being come across a client buttons from the first two rate decreases that we saw we have an expectation and we've incorporated that in in or a guidance of from <unk> for every news 25 basis point redefine we see about a basis point of rate.
Deduction, so that that's what we continue to expect and we probably start to see that with the the potential October <unk> funds decrease.
Okay, great. Thank you.
Yep.
Question comes to <unk>, each time, you'd be asked to nine or something.
[noise] Oh good evening.
I was [laughter] trying to work on a number of questions.
Do you talk a bit about credit quality to start I guess in terms of just giving us a little bit more of a granular feel in terms of that the net charge offs I guess, so it's about 33 million and a quarter part of that was Oh wait a minute stage companies could you discuss a bit more.
A happy do this is mark add your and so.
They charge off this quarter were hired driven by two loans as you see in the in the release, if you had a chance to get there yet.
And those two loans, we think got into difficulties for reasons very specific to each of those credits those two loans by the way. Our in you know totally different industries different stages of development et cetera, and as mentioned before became troubled for unique factors that by extension we don't believe.
Are indicative of any emerging adverse trends when you set aside those two what's left is a very typical quarter. If you were to compare it to I pretty much any court in the last three four or five years, we will always have a handful of granular investor dependent low in charge off and that again, what you see in the third quarter. So.
It's not too terribly different aside from those two larger ones that again, we don't believe are indicative of any adverse emerging trends.
Okay great.
And I guess going back to the very first question in terms of the dislocation you know seeing among some of the the most noteworthy companies and things <unk>.
<unk> <unk> <unk> in kind of a world that's been a wash in in capital and investment could we kind of flip the script and see a pickup in terms of of lending activity to they they you know core.
Early in Midstage companies.
Yeah. This is Greg I'll start yeah, that's possible, but I think of the question is for there's two questions that right. So one is do we think they'd liquidity levels are going to change in any dramatic way as we said and kind of the script you know do we think.
2020 is gonna be as healthy as 2000 in 19, we said no. We're work at expecting it it'd be a little more temperate and it was but still very healthy when you're out talking too limited partners remember, they're going to get a flood of cash back to them and I think enough of these limited partners have looked in basically.
Said, especially in a low rate environment like this innovation is where the best growth is going to come from and so I don't think from that standpoint, we're going to see any meaningful change in liquidity now again, but softens a little bit from where it was empty that was in 19, where it is right now can we see a pickup related to that because we won't have that.
Funny enough headwind, maybe but I wouldn't I wouldn't count on anything dramatic changing their I do believe we believe that are origination levels will continue at a healthy pace into 2020, and we're obviously working on products that can help increase loaned out standings in that area, but I.
I wouldn't say, it's going to have an impact or be impacted by the liquidity in the market because that won't change a whole lot from our vantage point.
Okay next to the color.
Yep.
And the next question comes from Kerry 10, X.M.D. Davidson your line of something.
It's actually good afternoon.
They just want to go back to a comment mica you made I think with regard to a private equity London and you know plumbing thing on how successful about businesses been you know with good credit dynamics shall we read through that that there is you know that 55% numbers, perhaps not a hard tap and and.
You know as things go you may go through that.
That's right I mean again, we we believe we have ample room and there's a number of ways. You can look at concentration with respect to kind of P.E.S. You know we talk a lot about the loan piece of the the equation again with respect to other total loans, but when you look at as a percentage of total assets or when you look at the gross profit that it contributes it's far less than those you know 55% concentration numbers. So.
<unk>, we continue to look at it we feel very good as you know the credit quality is excellent returns are good liquidity is good. So we <unk> check all the right boxes, but again, we just continue to assess it but as it at this point, we've we feel very good about the business and we're going to continue.
They should declare it would be clarification.
Yep.
And the next question how soon David share of any <unk>.
Hi, Thanks wanted to start with on the competitive environment, you mentioned about how six basis points of the name decline came from the market environment, including competitive loan yield compression I was wondering you know to what extent could competitive pressures continued to weigh on yields and are these competitive pressures in.
Creasing or decreasing.
Yeah. This is Greg and you know is is competition, increasing yet competition is increasing and it's not surprising again when you look at the you know opportunities for growth one of the biggest areas one of the only areas for growth is the innovation economy and so that's what you see when woods inclusive above the.
Private equity business inclusive of the Tucking life science business, it's from banks, it's from Nonbanks et cetera.
We say <unk> <unk> are we believe our differentiation and our strength and we think about our market share our market share has been consistent and we're continue to expand our product. So that we can even stay longer with clients and provide even more differentiated loan products and services, that's what we're doing and.
So you know the one thing about competition as much as none of us likes it it makes us all a better and stronger do I think we would be as innovative in our products and services. If we didn't have competition and know that probably wouldn't be the case and so we look at that as thing. It's just the it's the price of.
Being in a market that is growing and that doesn't surprise us so could there's there'll be some compression sure there could be so compression.
We specifically called out market market dynamics is there's two pieces to it one is just competition. The second one is looking it's marisa perspective, and again private equity services is a great example, it is a lower risk.
Loan portfolio and so as you compete in the market space. There's <unk>, there's firms out there that have there's low risk and there was exceptionally low risk those command, a higher or lower yield <unk>. The market is dictating part of that competition does as well, but the market does based on the wrist. So all those things are factor we think about.
Marching impression related to the market.
Thanks, that's helpful and then shifting to the securities portfolio is the duration at the point, where you're comfortable with the duration or do you expect to extend that further.
Yeah [noise] that this is Dan I think as we add additional securities purchases will continue to extend out <unk>, probably not materially from here.
It came down a bit in the corner, but that was mostly just due to the impact of all the were raped as we bought a we bought kinda out in that four to six year maturity timeframe. So we're comfortable with that and just the addition of security set that four to six year maturity, we'll we'll continue to slowly extend a duration.
Great. Thanks very much.
Yep.
Thank you <unk> <unk> CUNY fashion, not trying to call back off her to crank Becker Chief Executive Officer.
Great. Thanks, again <unk> for the the problems of getting out the press release. It I understand that <unk> is up and running and you can find all the information directly there like you'd normally would've just came up in the last is going to 20 minutes or so.
But I guess despite that a challenge hopefully you guys got enough time to digest, what we talked about you know we look at the quarter. We ended up again they'll really good about the the quarter. We had incredible liquidity, we had great period and loan growth core fee income was strong and the investments that we're making.
We are feeling very very good about and we expect to be introducing a lot of those products and services inclined experienced enhancements in 2020. So we're looking very 42 dozen 29, just because of the outlook that we <unk> outline, but because of the different products and services. We are looking to release in 2020 as well.
So again, what to think everyone for joining the call I'm going to thank our clients for not only trusting us, but I would say inspiring noticed based on what we what they're doing in the market and I always say, we have the best clients have any institution anywhere in the world and the same as through far employees. So one of thank them as well.
Was that thanks for joining us again and have a great that take care.
Thank you nice gentleman <unk> conference call. Thank you separate skating.
Disconnect.