Q3 2019 Earnings Call
Please standby.
Good day, everyone and welcome to the Umpqua Holdings Corporation third quarter 2019 earnings call. Today's call is being recorded and at this time I would like to turn the conference over to Mr., One Farnsworth Chief Financial Officer. Please go ahead Sir.
Okay. Thank you Lisa and good morning, Thank you for joining US today, our third quarter 2019 earnings call with me. This morning are core waiver, the president and CEO .
Corporation.
Turing Nixon, our chief banking officer.
Hey, our chief strategy Officer.
Dave Shotwell, or chief risk officer, and Frank and our Chief Credit Officer.
After our prepared remarks, we will then take questions.
Yesterday afternoon, we issued an earnings release discussing our third quarter 2019 results. We've also prepared a slide presentation, which we refer to during my remarks. This morning.
Both of these materials can be found on our website at <unk> core bank Dot Com and Investor Relations section.
During today's call, we will make forward looking statements, which are subject to risks and uncertainties.
And are intended to be covered by the safe Harbor provisions of Federal Securities Law.
For a list of factors that may cause actual results could differ materially from expectations. Please refer to page two of earnings conference call presentation.
As well as the disclosures contained within or a C filings.
That will now turn the call every quarter.
Okay. Thank you Ron let me begin by providing a brief recap of our quarterly financial performance and then I'll provide an update on for next Gen.
Rob will discuss the financials in more detail and that will take your questions.
Our Q3 2019 financial performance resulted in earnings per share of 38 cents. This is down from the 51 cents. We earned in the prior quarter and a 41 cents reported third quarter or 2018.
The change from last quarter is primarily the result, they onetime 75.4 million dollar net gain that was attributable to the sale of our visa class B stock and high premium debt securities that occurred in Q2 [laughter].
This quarter's financial results include a $4.2 million positive adjustment right into the fair value change of our MSR asset. This includes a positive 7.8 million dollar adjustment related to the fair value of mortgage servicing rights held for sale at the end of the quarter.
We will continue to execute initiatives as mentioned previously to reduce the volatility of the MSR asset.
I'm pleased to report that we generate strong balance sheet growth for the third quarter.
Deposit growth of 615 million represents a very robust annualized growth rate of 11.3%.
In addition, the healthy increase of $352 million in non interest bearing demand balances that we recorded in the quarter represents an annualized growth rate of 21%.
We've made deposit growth initiatives, a top priority and these strong results demonstrate the success of those efforts.
In addition, we also generated strong loan and lease growth of 567 million, which represents an annualized growth rate of 10.8%.
Our commercial real estate residential real estate groups aided by lower interest rates and typical seasonality had strong quarters of quality growth.
Our corporate banking group grew $150 million in loan balances or 13% annualized and Finpac. Our leasing subsidiary grew 36 million in balances during the quarter for annualized growth rate of 10% [noise].
Now for an update on pump <unk> nexgen initiatives.
As evidenced by our strong loan to deposit growth this past quarter, our balanced growth initiatives continue to move forward successfully.
In addition to the robust growth I, just mentioned I want to highlight that we added more than 4000 non interest bearing accounts during the quarter. In addition to the growth of more than 3000 noninterest bearing accounts, we reported in the previous quarter.
In addition, we recorded annualized growth and Treasury management fee revenue of 48% due to the hard work the bankers across the footprint working alongside the global payments and deposits team as we continue to emphasize banking for relationships.
Our human digital strategic priority continues to be a differentiator for umpqua.
The industry's first human digital banking platform go to continues to deliver strong enrollments I'm very pleased to report that just six months since launching go to nearly 10% of our consumer DTA customers have already enrolled.
This is an appeal metric as customers engaged with go to have a higher primacy in retention rate.
In addition, we've introduced our predictive analytics tool for smart leads serving commercial in corporate customers and more than half of our markets. We are seeing significant opportunity for additional fee based products and services based upon consumer behavior.
Our operational excellence excellence initiatives continues to generate results <unk>.
Collectively they have contributed to $26 million worth 5% decline in our total non interest expenses when comparing year to date 2019 do year to date 2018.
Phase two of our operational excellence excellence initiatives are underway will continue to progress made to date on reducing non interest expense. In addition, recognizing the broader rate environment management is currently reviewing additional opportunities for a phase three initiative currently size and an additional 3% to 5% of Auryxia.
Ben space.
I look forward to providing detail on those components and timing of those efforts starting on the January call.
Let's go to adoption builds momentum, we continue to optimize our physical physical footprint last quarter, we announced that we'd be consolidating an additional eight locations. This will bring our store rationalization number to 65 since Q3 of 2017 as always we continue to measure and evaluate performance on all.
Stores and its highlighted previously we are seeing solid deposit growth across the board.
Our focus for the rest of the year is to can you continue to deploy grow to grow deposits and finished the previously mentioned consolidations, we will provide an update on future store rationalization plans in early 2020.
Now back to round to cover the financials in detail.
Okay. Thank you court and for those on the call I want to follow along I'll be referring to certain patient numbers from our earnings presentation.
Turning to page six of the release or slide presentation, which contains our quarterly PNM.
GAAP earnings per share were 38 cents this quarter compared to 51 cents in the second quarter and 41 cents in the same quarter a year ago.
Notable items impacting earnings this quarter were the small positive change in fair value on the MSR asset impacted in part by gain on the portion sold two weeks ago.
Along with the fair value loss on the swap derivatives as interest rates declined this quarter.
And $2 million production disposal costs are recent store consolidations.
Ex these items adjusted earnings were 39 cents per share.
Turning to net interest income on slide seven.
Net interest income increased 1% from Q2, driven by combination strong loan growth and lower premium amortization in the bond book offset by the two fed funds rate declines this past quarter.
Discount accretion on acquired loans remained flat at $5 million this quarter as expenses declined modestly over the coming quarters.
For the taxable investment income line item premium amortization on MBS and Cmos was 6.6 million a couple of million higher than expected due to the drop in long term yields this quarter, resulting in higher prepayments speeds on the underlying investments.
This is a retrospective adjustment it was about $2 million higher than we would expect moving forward assuming no further change in prepayments speeds.
Our interest expense increased slightly based on continued average balance growth and competition for funding.
Recall in the past, we said an expectation for a one to two quarter lag before seeing a drop in interest expense, assuming the fed reduce short term rates.
With that playing out to customers screen deposits increased as expected to 1.19% this quarter and looks at a high watermark in August and start to fall in September .
We are expecting us to decline a few basis points in Q4, assuming no further fed rate cats.
As reflected on slide eight our net interest margin was 3.63% this past quarter.
The margin excluding discount accretion was 3.54%.
With the seven basis point decline, resulting from the two fed funds rate cuts in Q3.
Obviously, a different environment. The most of US we're thinking we see this year, but with an estimated the balance sheet, we'd expect the margin to remain under pressure with further rate declines.
In rather than speculate as to how many may or may not be on the horizon.
Every 25 basis point cut rates, we'd expect about a five basis point reduction in margin all else being equal which it rarely is.
We are making adjustments to the balance sheet to perform better in a potentially lower interest rate environment.
Including extending duration in the bond portfolio.
While reducing premium amortization optionality.
Reducing the cost of high beta deposit accounts and shortening funding duration.
Other moves include reducing more transactional rate sensitive loan production with those resources being reallocated to more profitable balanced commercial relationships.
Moving now to non interest income on slide nine.
We generated total non interest income of $88.5 million for the quarter.
The drop in long term interest rates created a fair value was on the swap derivative of 4.6 million up slightly from Q2.
While we had a like amount of net fair value gain on the MSR asset.
Before I get into home lending activity were please see continued growth and other non interest income components, such as Treasury management fee revenue.
And for mortgage banking as shown on slide 10.
And also in more detail in the last page of earnings release.
For sale mortgage originations increased 73% from the second quarter.
Mostly from a seasonal lift but also boosted by the drop in long term rates.
With this decline in market rates, our gain on sale margin increased to 3.7% based mostly on higher pricing.
The change in fair value. The MSR asset was a positive $4.2 million this quarter, which is a combination of the passage of time charge and changes in inputs as reflected in the lower table.
Included in the $11 million credit for changes to influence was a $7.8 million gain on sale, which closed in early October but was held for sale as of quarter end.
Excluding the portion sold the remaining MSR was valued at 94 basis points.
As discussed last quarter Randall as another potential sale of a similar amount early next year and our positioning the asset and allocating capital to focus on more for relationships carrying deposit balances, which will improve the overall profitability the business.
And reduce potential future volatility to the pinedale from these rate related changes.
Turning now to slide 11.
Non interest expense was wondering $83.6 million up slightly from the prior quarter, but inline with expectations.
The bridge on the Rightside shows and moving parts from the second quarter with the expected homeland and seasonal increase being the largest component.
We had an increase related to a reclass two other non interest income and an increase in group insurance costs offset by reductions in Oreo marketing restructuring and payroll taxes.
No the efficiency ratio was 57.8% on the face of the Pinedale for Q3.
But our internal measure is 57% when adjusting out the security gains and MSR in CV, a fair value charges discussed earlier.
Higher than expected, but reflective of the recent fed rate cats impact on margin.
Also point out the year to date, 5% drop in expense from the phase one initiatives is holding which provides us more opportunity as we look into 2020.
Regarding the operational excellence program as Curt mentioned, our phase two initiatives will result in an annualized savings of $6 million to $10 million next year.
And we are currently aggregating phase three initiatives expected to be 3% to 5% of our expense base.
Turning now to the balance sheet beginning on slide 12, we increased our interest bearing cash this quarter just under three quarters of $1 billion, along with a slight increase investment securities targeting longer duration assets fund with the increase in shorter duration borrowings.
The mix of loans and deposits as shown on slide 13.
Our strong loan balance growth this quarter was centered in commercial and owner occupied real estate along with multifamily residential.
The decline in consumer loans continues as a result of our targeted wind down of the indirect dealer auto portfolios.
Within deposits, we had strong growth in noninterest bearing demand balances supported by over 4000, new customer checking accounts.
Along with an increase in time deposits.
Brokered deposits were down $40 million in public deposits also declined $40 million during the quarter.
Slide 14 reflects the repricing characteristics of our loan and lease portfolio.
Turning to our floating and adjustable rate loan mix remained consistent over the past few quarters.
On slide 15, we've highlighted the geographic diversification of our loan portfolio across the footprint.
Well to provide some selected loan underwriting characteristics for each major area.
As mentioned on previous calls, we're happy with a granular nature of the loan book.
Slide 16 reflects our credit quality stats.
Highlights the strength of our portfolio as shown by the continued decline in nonperforming assets now down to 0.25% total assets and it consistent low level of overall net charge offs.
The provision for loan loss increased to $23 million this quarter in part by funding the stronger loan growth.
Along with a small uptick in net charge offs.
Do you ever right chart shows a level of classified loans in a range of 75% to 8% of total capital.
The slight uptick this past quarter was driven by the AG book reflective of market stresses.
And then the bottom right chart, we breakout or Finpac leasing group net charge offs from that as the rest of the bank.
Turning to leasing component has been fairly consistent ran into 333 to three net per cent for the past year.
Keep in mind that the weighted average yield of this portfolio is a very healthy 10%.
Slide 17 introduces our expectations for the upcoming change to the current expected credit loss or Cecil model to account for loan loss reserves.
While this takes effect at the start of 2020.
We've been prepping for the change for the last few years and are now performed eight parallel runs of the new models.
Granted these estimates are based on their views of the economic environment today and these could change by the first quarter 2020, but for now we're estimating overall increase in our allowance for loan loss to be around 1% of gross loans and leases compared to the 0.73% we have today.
The estimated changes by portfolio are noted in the upper right table with a reduction in commercial reserves offset by increases in the other categories.
The largest projected increase relates to our leasing equipment finance portfolio.
Which carries higher losses, but also has a much higher yield to compensate for it.
So do we typically carry just over two years in charge offs and the reserve historically for this portfolio.
And this increase reflects the approximate five year life of these assets.
The remaining changes are reflected primarily as a duration on the loan.
We'll continue to refine and update ahead of adoption in Q1 2020.
Absent a significant change in the economic outlook, there should be a fair estimation of the overall impact.
Lastly, on slide 17, I want to high capital knowing that all of a regulatory ratios remain in excess of war capitalize levels with our tier one common at 10.9% in.
In total risk based capital of 13.6%.
We've broken out the mix of each ratio with regulatory well capitalized minimums, our in house cushions above well capitalized and what we consider excess capital.
With our quarterly common stock dividend of 21 cents per share the total payout ratio was 55% the score.
Also our tangible book value per share is $11.27, which when you also count for the 21 cents and dividends to shareholders last quarter increased 5%.
Our axis capital is approximately $200 million and will provide us with several opportunities no matter the economic well rate scenario over the intermediate term horizon.
To conclude our focus is on executing all aspects of our Oakland Nexgen strategy, improving financial results in generating solid returns for shareholders over time, including a healthy dividend and with that we will now take your questions.
Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signaled to reach our equipment. Once again that is star one.
Well take our first question from Jeff Rulis. Please go ahead.
Good morning.
Born Jeff you on you.
Yeah, you can you hear me.
Yeah.
Okay.
So on the expense front I just wanted to confirm that with phase one complete are there.
I guess Q4 are there any fees to savings still to come this year you itemize. The six to 10 next year, but are we relatively flat on savings for the rest of the year.
The they'll be a small amount in Q.
For for the phase two component, but the vast majority will be in the 2020 run rate.
Okay, and a comfortable or you know I guess of a base expense level for this quarter. It could we just ex some of the reclass and disposal costs.
Going that the mortgage side is gonna be variable.
Yeah, that'd be around 179 million.
Ballpark ex the Reclass and a this is supposed to cost and I expect that number will drop in Q4, partially due to lower seasonal homeland activity. We typically see in Q4, partly due to some of the phase two components you talked about earlier.
But so should be less than 179.
You can probably look back at the last handful of Q4's get a sense of the.
The home lending.
Delta.
Got you and then that the net charge offs that that increase was anyone category or any trends that you drew from.
From from that number.
Hi, Jeff as Frank named our no that was really centered and one of 3.6 million dollar charge off that was centered in the cnine space on a credit that we had been working out of which is now a completely gone.
Got you still view the the.
The trends as quite positive.
Maybe a little lumpy this quarter, but and and break on the provisioning levels you do you anticipate any.
Given the seasonal impact at least preliminarily thoughts on provisioning of it in the next year.
This is Ron I'll say, you know in terms of Ah.
Obviously cecil's going to change the game went against economic forecasts and so you can see provision spike assuming an economic forecasts a bank makes includes any kind of a downturn well ahead of charge offs coming to fruition Ah. So absent that I would expect it to be consistent with what you've seen a quarterly basis, you're just going to have this more acceleration.
In a downturn and then also more of a credit recovery.
On the front end.
Very difficult to say today, it's gonna be 18, or 22, all else being equal it should be in this range.
But again, it's going be predicated upon individual banks view of economic outlook over the coming here.
Okay.
Thanks, I'll step back.
You bet. Thanks.
Our next question comes from Matthew Clark. Please go ahead.
Hey, good morning.
<unk>.
Yes.
For the Csthree expenses.
Sounds like we'll get more color in January but any sense for whether or not that may begin next year or will it be more of a 2021 event.
Hey, Matt its course, and we're working on that right now as we speak.
[noise], we'll provide that guidance and transparency in January .
You know.
Let me just say, we're working on it real hard right now and obviously, we'd like to execute on some of that in 20, you know a 19 year before we get into first of the year before.
Well give you a more clarity in January so I'm not exactly give me the answer you want but I want you know we're working on it.
Okay.
And then just on the 179 million.
Clean run rate.
To consider for the fourth quarter.
Does that include any disposal costs or any other charges or is that are all in.
That should be all the and actually should be lower than that just given the seasonal decline in home lending activity.
But we don't expect any significant nexus proposal costs in Q4.
Okay, and then just last one for me on the bump up in classified the eight basis points I know it's still.
Relatively low level, but just wanted to get a sense for what oh drove that migration.
Hi, this right now and our again, a migration was really driven by.
The AG space, So the AG space has been really.
Hit with the tariff situation commodity prices being quite low and also labor and really the increases centered in that.
Again, I view the trends is really pretty positive I mean, if you look back I mean into 2017, let's not forget our classified numbers where it.
$345 million versus the two to 17 that we see today. So I think we made we're making pretty good progress and I view that is pretty as being pretty stable still going forward.
Okay, great. Thank you.
Yes.
As a reminder, everyone that a star one well take our next question from Tyler Stafford. Please go ahead.
Hi, good morning, guys.
Alright.
I just wanted also start on on expenses and maybe I missed this in the opening remarks court, but.
Are you guys planning to close that last final round of branch closures in 2020 or is that off the table now.
So you know like like I said, the opening remarks, you know we first of all we constantly review the the performance of our stores I tell you since we made the announcement of doing 30% or hundred remember the exact number was 17, obviously I'm the need for low cost funding is is greater than it was and is.
Interest rates have risen and we've seen greater performance out of our stores were a lot more oh picky and particular about what stores. We consolidate so to answer your question, where a hold through the balance of this year and Brett 65, or 67, that's we made the announcement and we'll evaluate any other consolidations and closures closures into 20.
20, I would that you'd see us do some additional store consolidations in 2020, but we're not planning on doing in the next 90 days.
Okay.
Thanks for clearing that up on the MSR sales how much expense saves do you expect to realize from this first tranche of sales and then the potential second.
Good point again again, the driver that was to shift the a capital allocated in the more relationship business, but there will be some expense reductions mostly variable costs related to the system processing.
Hey, that'd be you know less of in a million dollars on quarterly basis.
Okay got it.
So deep phase three would not include anything related to the MSR exit.
Our next to no not okay. It was.
Got it.
Maybe just simplistically on the on the loan yield side I guess I was surprised the magnitude of <unk> the loan yield compression just given that the variable rate loans are just 28 or 29% or so was I guess.
Was there anything unique about that level of compression this quarter prepay fees et cetera that that we should think about going forward that was a little bit more unique.
Good question, then again discount accretion was relatively flat it was.
Nothing significant on the fee income side, driving that I mean, maybe half a bit too bad, but that's an outsized beyond that point I think whatever reflects it was just the.
Rapid decline in LIBOR.
And the prime based stuff through the quarter and keep my two there's also the adjustable rate loans.
That aren't fully floating but have adjust periods. During this quarter would have been impacted along with.
No new production would come on at lower yields compared to two three quarters ago.
Okay.
Thanks.
Roger just lastly from me I appreciate the details on.
Let's see sold methodology and specifically around the Finpac portfolio I'm. Just curious if if you guys would expect to slow down the growth rate of that or alter pricing at all just given the more.
It is that reserving nature of that portfolio.
Thanks, not at all or just a great return on allocated capital, 10% plus overall portfolio yield I think what this reflects the economic reality hasn't changed the way we account for it. So we'll have some capital allocation for the reserves and.
No then it'll be a non event for specific to that portfolio.
That cover your question Tyler.
Yeah. Thanks, Thanks for that it was just the footnote on that slide 17, I said possible changes to pricing. So I didn't know if that was.
Just a general statement or if that was specific to the to the finpac portfolio given the increase there.
It is a general statement around the portfolio in total and or the industry as we see.
Central pricing changes will obviously reflect that certain.
Categories or products and the loan side in the marketplace can change just given the nature you could see much shortly in terms.
Ah based off the accounting methodology, but I don't think thing has been hard and fast in the market yet I'm expecting we won't see any movement on that front until really 2020.
Understood. Thanks, so much guys.
Yes. Thanks.
Well take our next question from Jackie Bohlen. Please go ahead.
Hi, thank goodness.
I just wanted to clarify the expense base that you just that's for the 3% to 5% that you're looking at the savings on opposite Phase three is should we look at that as a general 179 or is that something that would include their production from base tail.
I would factor in 179, well [laughter] a lot of moving parts right. So you get the 179 core number in Q3, which.
Seasonally higher given the higher mortgage volume will drop off in Q4.
We expect to see the same seasonal playing out over the course of 2020 by quarter.
Face to a would be taken off of that and then there's 3% to 5%. We're talking about is on top of all of that and basically we're looking at that as you know <unk>. How do you manage the bank in a lower lower interest rate environment is gonna be continues to manage your operating costs and your cost of funding and shorten duration. So we're not a we're not hoping for the best on that.
Fretwork and make sure we plan for the potential of a lower rate environment. So we can do we can to help improve earnings quite a good return to shareholders.
Okay. So that's the phase three is died in part driven by the environment that we operate within or is that something where if we were still at a higher rate environment. You would have naturally progressed that level.
Hey, Jackie its core so it's both you know like Ron just said in this low rate environment.
Obviously, we have to be very strict about how we manage or associated costs and he just nailed it right our noninterest bearing deposit growth and all the success. We shown this year are going to continue those efforts that doesn't lora borrowing cost.
Managing our fixed costs.
We have opportunity and let's just be honest, we do have opportunity to to manage down or fixed costs and that will be a part of the phase three initiatives that someone just asked me and so and I'll go to another component that so we weren't we're already working on that I mean quite honestly earlier. This year, we started looking at our cost at our.
Productivity prior to the rate declines we saw it you know early summer. So we feel good about the progress we've made it just identifying these opportunities. So it's a little bit of both Jackie you know we were working on it anyway, knowing that we think we have opportunities and and here comes you know the short and the curve coming off quicker than we thought they don't.
Thing I'd say just.
Another important driver of what we do next years on the continued work and success in our noninterest income we've seen substantial improvement over the last two years and what we're doing a treasury management their commercial and our small business customers and that will be another important piece of hobby generates revenue and he P. S. In a declining rate environment. So those are really the three.
Main drivers.
Our strategic financial focus in this low rate environment, I'm, probably beyond 2020 to be quite Frank.
Okay. That's helpful. Thanks Corey.
And then just my last one for me Ron when you mentioned I am I understanding a static environment. It never winds up being data I five basis points in NIM compression for every 25 basis point decline and my interpretation of either remarks needed that you're going to be actively managing the balance sheet and let you do in order to potentially but do you.
That five basis point is that what you intended to say.
That is correct and also I point out that on the heels of view, we had six fed funds rate increases and then two coming off the table here over the last quarter I talked about last quarter, you spent to see a lag in terms of the cost of deposits that will start to drop here in Q4 and.
Thats incorporated into the five basis points for every 25 it move in fed funds as well so.
But we're doing everything we can to help manage the balance sheet.
To to negate the negative impacts of margin compression and rich sound world.
Okay, and so with that in mind and that does that does include the rate.
Declines that we've already had if we weren't <unk> future rate higher than we have that similar lag, but there would also be included in the future as well correct.
Correct.
Okay.
Thank you.
You bet. Thank you.
Well take our next question from Aaron Deer. Please go ahead.
Hey, good morning, everyone I'm following up on the on the expense inquiries, the the 3% to 5% that could come through phase three.
And then you mentioned potential additional store closings or are those additional store closings included as part of that 3% to 5% estimate that could come out of phase three or is that would that be on top of that.
No they would not be included in that 3% to 5% error.
Okay.
And then I was surprised to hear that's classified ads or increase there is largely driven by bags since.
Your markets don't seem like soybean markets or something necessarily what what type of what type of products are in that book, that's causing the uptick there.
[noise] and freight NAND our.
Really.
A lot of dairy.
Fruits, vegetables, I'm, specifically or apples and cherries, a lot of the Apple and Cherry.
Markets here really export out too.
To China.
And that has been impacted so they're they're looking at alternative alternative routes for those apples and chairs so those would be the primary sectors.
Okay, and then any additional color can give behind just the elevated loss rates here in the and the third quarter.
I think you know we've been and we'll continue to kind of bouncing along the bottom and the elevated loss rate really was centered this quarter in one.
One accounts that we had been working out of that we that we took a charge of $3.6 million on.
And is now completely out of bank.
Aaron its core you know we've traditionally historically operated with.
Pretty short fuse relative to problem credits.
That doesn't change under my leadership, you know the ours credit folks are instructed if we see an issue just do it as quickly scan and run it through and being collected later, great. But we just don't sit on you know slow pay that type customers, we as move into our portfolio. So granular granular excuse me and albeit I know it showed up in the numbers, it's just that we'd be choose.
For this company.
Okay, great. Thanks very much.
You bet. Thank you.
It does remind everyone that is star one we'll take our next question from Michael Young.
Hey, this is branding keying off of Michael Young.
One of branded random.
Hey, how and I wanted to touch on deposit growth of course deposit growth was very strong this quarter matching low growth in a good chunk of that came from non interest bearing deposits.
No you guys are focused on growing operating balances, but I wonder I'm trying to.
See if there were any other factors affecting their growth such as expectations for loan growth coming up in the fourth quarter.
And to see if they're in expectations to prefund that growth.
Hey, Brandon this is a tori next and I think.
The two parts of the question that the first is as Curt mentioned in his opening remarks I just mentioned a couple of times actually even with Ron was there's a very significant kind of bank wide initiative on core deposit growth for the company and we've been.
Working on that for a lot for a few months or few could actually couple of quarters now and are seeing great success with that.
Our commercial corporate banking businesses had their largest.
Deposit growth quarter in a long long time, this past quarter, our retail bank.
Has.
Doubled the one of the metrics. We have is consumer account acquisition per store per month and over the last 18 months they doubled their their production. So there's a lot of really good efforts that are being done by the bankers in the field in all lines of business to grow core deposits for the company.
The second part of your question I think was about loan growth and you know were our pipeline is strong our lending pipeline is strong or deposit pipeline is strong in our core fee income pipeline is is it is very very strong. So we're seeing a lot of really good momentum and and excited about where we're going in future the company.
Thank you very much and I'd, just shifting over to capital management I as excess capital could continue to grow a has.
Strategy change as far as how to deploy that capital do you mean possible increases or.
Page M&A outlook.
Britain has is wrong dirt. Good question I think overall you know, we like we'd like to maintain a healthy dividend payout ratio in that call it 50% to 70% a range.
Buybacks, we've we've intentionally hell to Jess offsetting share issuance over the course of the year. So we've got a neutral change on the share count so in that excess capital of $200 million right. It's given us great opportunity to continue very strong organic growth.
It's been relatively consistent over the past year. So it hasn't increased or decreased significantly I would expect though over the coming year.
Similar to many areas that.
We're successful that excess capital number will just continue to modestly declined on a quarterly basis and.
Ah provide us great opportunity no matter, which way the economy goes.
Thank you very much.
You bet. Thank you.
As a reminder, everyone that istar once you asked a question well take our next question from David Chip or any please go ahead.
Hi, Thanks, a couple of questions for you I'm, starting with premium amortization I know, it's a tough to gauge, but and it's been volatile in a wide range. The past four quarters, what's the expectation your best guess I should say for premium.
The decision in the fourth quarter, if the tenure yield does remain at the current level.
There were down a couple of million.
So in that four to five range.
All else being equal, which unfortunately for the last year it hasn't.
But again the way we account for that is under a retrospective adjustment method so as.
Interest rates change significantly in the corresponding prepayment expectations changed significantly you'll see these swings.
Regardless, so if you want to get into that low 2%.
Normalized book yield it'd be a four to 5 million dollar quarter premium amortization number.
Got it okay and in terms of basis points.
That.
Like for like ours that level would be roughly yeah that book, you'll be roughly two and a quarter at that level.
Okay, and then shifting gears to.
Loan growth that you mentioned about how the pipelines look strong should we still be thinking about mid to high single digit a loan growth over the next few quarters.
Yeah, David This Tory Nixon again, yes, I would I think thats.
A nice.
Nice number to think about for us.
Okay and then similarly on the core fee income you mentioned about how the pipeline. There is strong how does this pipeline compare to you know last quarter or the past few quarters, or maybe even a year ago quarter as well.
So we you know we we've launched this initiative on growing core fee income about rough almost 18 months ago, and there's certainly a lagging the time to build and and to grow significantly and.
To give you an indication there's a few areas, where where we track <unk> really heavily and you know and I'll give you. Some stats on commercial card revenue for US is up 47% in those 18 months, our international banking revenue and FX is up 31% our merchant is up 13.
Per cent, our treasury management fees are up 20%. So there's just nice growth in terms of number of customers prospects existing customers and then just a general pipeline across all of the core fee businesses.
Great. Thank you.
Well for question from Tyler Stafford.
Hey, Thanks for taking the follow up guys Ron Ron to your point earlier in one of the other responses. We have had five or six rate increases since nextshares laid out we've had I guess two cuts now in the middle either the tenure is 50 or 60 basis points lower than I think when you.
Okay. That's been initial nextgen profitability goals, but I'm, just curious given where we're at now how do you feel about on pause ability to hit those its profitability goals either in the flat rate or moderately increasing rate environments or I guess before we should think about phase three potential impacts.
Good and say one of the other big moving parts aside from the 10 years really more than failures occur and being very much lower as well, but just the drastic change over the last year. So.
Obviously NIM today doesn't look like NIM, plus four fed funds moves from two years ago projected.
So with that it'd be on the lower end of that range, but you know definitely that's why we're also looking at phase three and continue to operate.
As efficiently as we can and look at all costs be a funding costs indoor fixed operating costs as Curt mentioned to help offset the impact of margin if rates do decline and.
We'll go back here in rates are increasing and.
Exact opposite happened today, we all think rates are going to decline and that could happen, regardless, we're going to manage the cost structure of the company to ensure we're in the best position we can be.
Okay, all right. Thanks, Ron.
You bet. Thanks.
As a reminder, everyone that as star one well take our next question from Matthew Clark.
Okay.
Hi, Thanks, I'm just wondering how much you had in the way of Cds maturing in fourth quarter at what rate and what's the weighted average read on on new cities.
Good question and you did show the rate volume and else back I'd say on the C.D. side, probably the biggest delta in terms of rate is gonna be some of the broker deposits from earlier in the year rolling off at 25 to.
45 basis points lower depended on the cadence in the quarter in which they came in a but that that office in corporate and a couple of based one drop in the overall customer deposits I.
Laid out assuming no more changes from the fed.
Okay, great. Thank you.
You bet. Thank you.
Thank you and that does conclude today's question and answer session I would like to turn the call back over to run Farnsworth for any additional or closing remarks.
Okay I want to thank everyone for their interests nimble holdings and their attendance on the call. Today. This will conclude the call goodbye.
Thank you that does conclude today's presentation. Thank you for your participation you may now disconnect.