Q4 2019 Earnings Call
And good morning, everybody and welcome to the citizens financial group fourth quarter and full year 2019 earnings Conference call. My name is Brad I'll be your operator on the call. Today currently all participants Arnold Similarly mode. Following the presentation, we will conduct a brief question answer session.
As a reminder, this conference is being recorded.
I'd now like to turn the call over to Ellen Taylor head of Investor Relations. Alan you may begin.
Thanks, Brad and happy New decade to everyone. We're really pleased to have you join us.
First this morning, our chairman and CEO , Bruce My hands on and CFO . John was will provide an overview of our results and our outlook and we'll reference our presentation, which you can find another investor Dot citizens Bank Dot Com and then we'll be happy to take question. I'd also like you mentioned that Brad Conner head of consumer banking and Don Mccree head of.
Commercial banking are here to help us with.
And now for some additional quick housekeeping. Our comments today will include forward looking statements, which are subject to risks and uncertainties and you should review the factors that may cause results to differ materially from the expectations on page two of the presentation and in our 2018 Form 10-K , we also utilize.
non-GAAP financial measure so it's important for you to review our GAAP results on page three of the presentation and to utilize the information about these measures and a reconciliation to GAAP in the appendix Melba handed over to Britain.
Okay. Thanks, [laughter] good morning, everyone and thanks for joining our call.
We're pleased to announce another strong quarter today.
In spite of continuing interest rate and yield curve.
Well I mean change double stable revenue, a strong results and Murphy businesses and attractive long growth of work to offset pressure on our net interest margin.
For the full year, we grew our earnings per share by 8% or was it most of our guidance for 2019 or even though the interest rate yield curve environment turned out much different than we had assumed.
We continue to demonstrate strong expense discipline, good performance on credit and robust capital return.
As we look back on 20, Martine I'm very pleased with the progress we've made in building a great bank.
Gaining customers and market share in both commercial and consumer given our focus on being a trusted advisor and delivering excellent customer experience.
Investments we've made in technology are paying dividends witness our success with citizens access over 20% checked partnerships and the roll out several new core platforms.
We've attracted great talent, we built a collegial customer focused culture and we've developed strong leaders.
The development of an exciting top six program.
Along with several big strategic initiatives designed to grow medium term revenues and renewed vigor around our balance sheet optimization effort give us a great underpinning for success in 20, Twond and beyond.
Looking out at 20, Twond, we anticipate that we will have a moderately good economic backdrop, we anticipate loan and deposit growth.
Well typically consistent with this year, which will offset the impact on NIM of the feds 2019 rate cuts.
We see a stable to modest rise in them over the course of the you're starting in Q1.
Our fee growth should continue to outpace peers, given the investments, we've made and our expanding customer base.
While we continue to make growth investments, we nonetheless are targeting a modest level of positive operating leverage.
Credit should stay in good shape, those Cecil introduces some new wrinkles that John will cover a few minutes.
So to summarize we're pleased with our progress in 21 thing.
We're excited to start the new year with all its hope an all its promise.
Before I turn it over to our CFO John was I would like to note that this will be the last earnings call for our Vice chairman of consumer Brad Conner.
Brad has been great partner and has done a terrific job and positioning our consumer bank for future success, and we wish him well in retirement.
We were pleased to be able to promote from within to fill that leadership going forward a sign up the strong talent, we've assembled at citizens with that over to your job.
Great and thanks, Bruce and good morning, everyone. We're pleased to report solid results this quarter and a strong finished the year with record fee income.
Good expense discipline and steady execution against our strategic initiatives.
We are well positioned for a successful 2020, given our consistent track record of disciplined execution.
Let me kick off by covering important highlights of our underlying results covered on pages five through seven.
For the full year EPS was up 8% with PPNR up 6%, despite a challenging yoker backdrop.
A key driver was fee income growth of 17% with record results across each of our major fee income businesses as we continue to expand our capabilities organically and through disciplined strategic acquisitions.
We also continued to maintain good underlying expense discipline.
We leveraged the benefits of our top programs to fund investments to drive future revenue growth.
For the quarter EPS growth was 1% was up 1% year over year.
This reflects relatively stable net interest income as 4% interest, earning asset growth helped offset the impact of a decline net interest margin.
We also generated record fee income in the fourth quarter up nearly 500 million up 16% year over year highlighted by continued strength in mortgage and wealth and record revenues in capital markets and FX and I are Pete.
We continue to strengthen diversify our business model and the results are evident.
We delivered strong deposit growth and 7% year over year with growth across all categories, our spot LDR was 95%.
Leaving us well position does we enter 2020.
On a linked quarter basis net interest income was relatively stable with good loan growth in the quarter and decelerating pressure on margin.
Accordingly, we continue to manage our deposit costs, well bring interest bearing deposit cost downs 15 basis points during the quarter.
We remain highly disciplined on expenses and continued to execute extremely well in our top programs.
We delivered pre tax runrate benefits of about 125 million for top five which is above our initial list estimates for the program.
And our transformational top six program is well underway with a target of approximately 300 to 325 million in pre tax runrate benefits by the end up 2021.
I'll spend a few minutes on that and some of our strategic revenue initiatives shortly.
Overall credit quality remained strong across retail and commercial and both the nonperforming loan ratio and the allowance coverage ratio showed nice improvement linked quarter and year over year.
We delivered razzi of 12.5% and tangible book value per share was up 12% year over year $32, an eight cents.
On page eight net interest income was relatively stable linked quarter as a pick up in loan growth offset a six basis point decrease in net interest margin.
This reflects the impact of lower rates and higher prepayments on asset yields partially offset by the benefit of improved asset mix and deposit pricing discipline.
On a year over year basis, net interest income was down 2% as our loan growth of 3% help to all largely offset the impact of a 19 basis point decline in net interest margin to 3.06 given rates.
On a positive note, we lowered funding cost by seven basis points, reflecting the improved funding mix from deposit growth and the benefit of lower rates.
In the face of the shifting rate environment and related balance sheet dynamics, we're actively managing our asset sensitivity, which remained broadly stable at around 3% impact to a gradual 200 basis point rising rates with about 75% of this exposure tied to longer rates.
Moving to fees on slide nine.
Our fee based businesses continued to perform very well, reflecting the significant progress, we're making and strengthening and expanding our capabilities, which is helping to further diversify our revenue.
This concludes our mortgage banking and wealth management businesses on the consumer side and capital and global markets in commercial.
Noninterest income hit record levels at nearly 500 million for the for the quarter looks up 16% year over year as our fee income ratio improved 3.5 points to 30%.
Non interest income was relatively stable linked quarter as record results in capital markets and foreign exchange on interest rate products, offset lower mortgage banking revenue, which as expected decline from record third quarter levels.
Capital market. These were up 27 million linked quarter as loan syndication fees were higher with strong volumes, leading to a record number of lead love transactions, which increased 11% year over year.
M&A advisory fees were also higher reflecting a strong contribution from bolstering, which we acquired early last year.
We also continue to gain traction in underwriting fees.
Foreign exchange an interest rate product revenues also reached record levels and were up 14 million linked quarter driven by increased client activity sentiment improved with these using trades engines as well as a benefit from CBS .
Wealth management posted a solid performance with trust and investment services fees up 4% sequentially as market conditions improved.
Mortgage banking fees were lower by 37 million from record third quarter levels, reflecting the impact of higher long term rates and seasonality on originations, which contributed to a 20 million dollar reduction in production revenue.
In addition, MSR valuation hedging results declined by 21 million from higher levels in the third quarter.
Providing a partial offset we're mortgage servicing fees of 4 million driven by growth in the servicing portfolio, which increased by 4% sequentially to over 98 billion as well as by lower amortization expense.
Turning to page 10.
Noninterest expense was down 5 million or 1% linked quarter.
Excluding the impact of the lease transaction than Threeg 19, noninterest expense was relatively stable and demonstrates our ongoing efforts to improve efficiency.
We continue to utilize savings from our top programs to reinvest in revenue generating opportunities.
Salary and employee benefits were down 1%, reflecting the impact of our efficiency programs as well as lower incentive compensation.
Outside services expense was up 7% sequentially, largely reflecting the impact of higher retail loan origination activity and seasonality.
Year over year, non interest expense was up 5% or 4% before the impact of acquisitions, reflecting our funding of growth oriented investments.
Let's move on to page 11 to discuss core loan trends.
Average loans were up 1.5% linked quarter with a modest drag from balance sheet optimization initiatives as we moved $1.1 billion of non relationship mortgage loans to held for sale late in the quarter.
Average loans were up 1.8% before the impact of this loan sale activity.
On a linked quarter basis commercial loans were up 1% as we continue to execute well against our geographic product and client focus expansion strategies, partially offset by planned reductions in commercial leasing.
Retail loans were up 1.7% linked quarter and up 2.4% before the impact of the loan sales activity given growth in mortgage education and merchant partnerships.
Year over year over year average loans were up 3% and adjusting for the impact of loan sales activity were up 4% with 3% growth in commercial and 5% growth in retail.
Overall period at loans were up 1% linked quarter, providing some momentum from first quarter loan growth.
Moving to page 12, we saw nice deposit growth of 1.4% linked quarter and 7% year over year as we benefited from investments we've made over the past several years to expand and enhance our capabilities.
Our DTA growth was 3% on a linked quarter basis, and relatively stable year over year, which compares favorably to industry trends.
Additionally, our citizens access digital platform, which reached 5.8 billion in deposits at the end of the quarter continues to contribute to our funding diversification and the optimization of our deposit base.
Given the rate environment, we continue to aggressively execute our deposit playbook to manage down or deposit costs across all channels, reducing CD rates.
Retail money market promo rates and taking down the savings rate and our digital bank.
We've also been reducing rates for commercial clients, where it makes sense.
As a result, our total deposit costs were well controlled down 12 basis points linked quarter, a nice improvement from the five basis point decrease last quarter.
This includes the benefit of interest bearing deposit costs, which were down 15 basis points linked quarter.
Next let's move to page 13, and cover credit, which continues to look quite good overall across retail and commercial.
Nonperforming loans decreased 5% linked quarter, and 8% year over year and the NPL ratio of 59 basis points improved four basis points linked quarter and seven basis points year over year.
Net charge offs came in at 41 basis points in the quarter up modestly linked quarter, reflecting seasonally higher losses in auto and expected seasoning and other retail partially offset by modestly lower commercial losses.
Provision for credit losses of 110 million was up from the prior quarter, largely driven by continued seasoning and retail growth portfolios.
Our allowance to loans coverage ratio remained relatively stable.
During the quarter at 105 basis points.
While our NPL coverage ratio improved to 178%.
Ill from 171% linked quarter, and 162% versus a year ago.
On page 14, we maintained our strong capital and liquidity positions ending the quarter with a CET one ratio of 10%, which compares well with peers.
During the fourth quarter, we repurchased 10.9 million shares of common stock and including common dividends returned 550 million to shareholders.
For the year, we repurchased a total of 34 million shares and including common dividends returned 1.84 billion to shareholders of 23% from 2018.
Going forward, we continue to targeted dividend payout ratio of about 30, 540%.
Let's move to pay page 15 to discuss diesel.
On the slide we've provided some high level information about our methodology and the key macroeconomic variables that are drivers of the outcomes.
We still expect that they want impact of diesel on our reserves will be an increase in the 30% to 35% range, which represents about 20 to 25 basis points subset one when a fully phased in basis or approximately a five to six basis point.
Starting in fact, starting in 2020.
This range considers the current economic outlook in mix and credit characteristics of the portfolio.
Ultimately the amount of the initial impact will reflect our view of the macroeconomic outlook.
And some fine tuning of our reserve models. So we plan to provide you with the final number when we issue our 10-K in February .
Our estimated date to impact results in 2020 provision expense in the range of $475 million to $575 million with expected charge offs and the 475 to 525 million range.
Let me note that under Cecil quarterly volatility of provision could be potentially higher due to changes in the macroeconomic forecast and the mix of loan growth and run off.
On page 16, I want to highlight a few exciting things are happening across our bank.
First Forbes ranked second among financial institutions and 16th overall under 2019 list of America's best employers for new graduates.
We're really proud of that because it shows that we are doing a good job of developing talent and it's a reflection of all the exciting things we're doing as we build a top performing bank.
We also announced the second year of our leadership level National partnership with feeding America to combat hunger and this is just one of the important things we do to help people in the communities we serve.
Since our last call. We have now launched an exciting new merchant partnership program with Microsoft for their Xbox All access program, which is distributed through Amazon.
We're really excited about this program and our opportunity to partner with great merchants to help build deepened lasting relationships with their customers.
We're also hitting on all cylinders with the work we've done to expand our fee businesses and build out our capabilities.
We have virtually completed the integration of our Franklin American mortgage acquisition, which again saw very strong results. This quarter, the strong originations and improved year over year sales margins.
And in the commercial business, we're very happy with our progress moving up the syndication lead tables coming in at number three for middle market and increasing our number of lead left transactions.
We've also been enhancing our capital and global markets capabilities building on the M&A advisory business and client hedging capabilities and both of these businesses saw record results this quarter.
Also in our Treasury solutions business. This quarter, we completed the client migration to access Optima, our best in class cash management platform.
On page 17, let me provide you with an update on the progress, we're making and our expectations for the top six program.
The top programs have been instrumental in driving efficiencies that allow us to self funded investments and continue to deliver future growth.
Overall, we expect to deliver 300 to 325 million in pre tax runrate benefits by year end 2021.
What about 175 to 225 million of that coming by year end 2020.
Our top six program consists of two parts the first being the transformational program, which is designed to transform how we operate and deliver for our customers and colleagues.
Ill give you a few examples of what we're doing.
We aim to deliver a more customer centric efficient an agile environment I modernizing our IP practices and our cross organization operating model.
Yes, I T work will further modernize our infrastructure and platforms and transform our technology delivery approach.
We are accelerating migration to the cloud utilizing data and artificial intelligence more ambitiously and digitizing end to end processes.
We're converting ourselves to an agile company over the next 12 to 18 months.
This will make a huge difference in terms of the speed to market for everything we do and will significantly enhance our ability to innovate adapt and deliver for customers.
The second part of the top six program is a more traditional improvement program similar to those that we successfully executed over the last five years.
On the efficiency side, we are accelerating our retail network transformation modernizing our branches and rationalizing our footprint to better serve and advice customers.
We are looking at ways to simplify our organizational and improved the way our back office operations support the business and work more efficiently.
Cost to implement the program are estimated to increase or approximately 75 million over the course of year, but we will look for strategies to offset these notable items as we've done in the past.
Importantly, the benefits of top six we'll have to mitigate the impact of the rate environment and ensure we maintain our commitment to delivering operating leverage and improving our efficiency and the way we run the bank.
Moving to page 18.
We expect utilized and savings from the top program to fund the strategic revenue opportunities we're going after.
For example, we're looking to significantly expand digital strategies across the bank to reach more customers.
We plan to expand the products that offer through citizens access to further extend our national reach beyond our branch footprint.
Our first wave of additional products should launch by late this year.
We're also planning to launch a new commercial customer digital offering.
We envision developing a simple integrated self service and fully digital platform to serve small businesses and lower middle market customers with tools to help them run their businesses better and enable bricks frictionless deposit in lending capabilities.
Another example is our effort to leverage the success, we've had with our merchant Vance partnerships to enhance the payment experience at point of sale, while helping customers responsibly make larger ticket purchases.
Taken together these revenue opportunities would require roughly 40 million investment in 2020 about 70% of which would be in capex.
If executed well the investment should really benefit our medium term revenue growth and provide about a 1% boots booster razzi by 2024.
Moving to page 19.
Looking ahead, we're very optimistic about the coming here and the opportunity we have to continue building a top performing bank that delivers for all stakeholders.
The capabilities, we have built and that have delivered success from the IPO up till now give us the confidence that we can sustain our progress into the future.
We have a strong customer focused culture, and an experienced board and management team.
We have a proven ability to execute and a commitment to excellence that will propel us going forward.
Additionally, we have demonstrated strong execution on our enterprise initiatives, such as our top programs, which are quite differentiating and demonstrate the mindset of continuous improvement.
We also have made good progress on balance sheet optimization as we have developed initiatives for both sides of the balance sheet to further build capabilities and optimize our position.
We also continue to make important investments and our future.
We are thinking about the long term, making good decisions about how to prioritize where we spend money and balancing that with the need to deliver progress near term.
As we look out into the medium term, we remain committed to our rafi target of 14% to 16% details in the appendix.
Clearly we've had to contend with a change rate environment. So it's taking longer but we remain confident in our ability to deliver given a reasonable environment.
On page 20, we review our 2019 performance against the guidance, we provided at the start of the year.
And despite a pretty dramatic shifts in the rate environment Berman from the beginning of the year, we executed well across our targets and deliberate overall in the bottom line.
Keith said this overall performance, we're delivering strong fee revenue, reflecting our initiatives to expand fee based capabilities.
Delivering solid loan growth in areas with attractive risk adjusted return profiles and maintain strong expense discipline and stable credit quality, all while returning significant capital to shareholders.
Now turning to our outlook for 2020 on page 21.
We expect modest eni growth of around 1% to 2% as the benefit of 3% to 4% loan growth is partially offset by the impact of lower rates relative to a year ago.
Given our current expectation for the fed to remain on hold through the end of the year. We expect net interest margin to be down in line with 2018 results as pressure on loan yields is partially offset by improvements in deposit pricing.
We expect to continue to leverage our more diversified business model and enhanced capabilities to deliver noninterest income growth in the range of 4% to 5.5%.
We also will target modest positive operating leverage in the 50 basis points range and a stable efficiency ratio by maintaining good expense discipline, while continuing to make important investments to drive future revenue growth.
We expect underlying credit quality to remain well controlled and we currently expect provision expense under Cecil to be in the range of 475 to 575 million the charge offs in the range of 475 to 525 million.
We expect our set one to end the year in the 9.75% to 10% range with a dividend payout ratio towards the upper end of our 35% to 40% target.
Let me note that this outlook does not include notable items, we expect those costs to be in the range of approximately 75 million over the course of the year.
Our outlook for the first quarter on page 22 reflects historical seasonality or for first quarter revenues and expenses.
We are expecting net interest income to be up slightly as loan growth and a stable to slightly up net interest margin are partially offset by a 10 million dollar impact from day count.
The fee income outlook for the quarter reflects seasonal trends, resulting in a mid single digit increase from strong fourth quarter levels that said pipelines our fee businesses look good early in the quarter.
Non interest expense is expected to be up in the low single digits, largely given seasonal payroll tax and compensation impacts.
The provision is expected to be modestly higher in the 115 to 120 million range.
Finally, we expect the tax rate to remain stable around the 22% level and for the CET one ratio to end the first quarter at around 10%.
To sum up on page 24, our results this quarter demonstrate our continued strong performance as we execute our against our strategic initiatives grow customers in revenues carefully manage our expense base deploying new technologies and improve how we run the bank now let me turn it back to Bruce.
Okay. Thank you John Brad operator, let's open it up to QNX.
Thank you and ladies and gentlemen, you would like to ask a question you can press one and then zero on your telephone keypad. If you wish to withdraw the question you can press one zero command again.
I guess speakerphone, please pick up the handset before pressing the number.
And our first question here will come from the line of Matt O'connor with Deutsche Bank. Please go ahead.
Good morning.
Hi, good morning.
The revenue outlook seems a little bit better than expected.
Better than some cares obviously fees as a big.
Out of that you just elaborate a bit on the drivers of fees you at a very good fourth quarter and cap markets targets.
Tough backs, but talk about the drivers on a full year basis, and one of their confidence about high fee revenue growth. Thank you.
Sure.
Yes, John .
See you but.
Matt I think it's been a.
Journey here on investing in our fee businesses and building out our capabilities.
And we have a growing customer base, we're growing households on the consumer side move up the number of accounts some clients we service on the commercial side. So.
Making that all kind of work in harmony, so that those expanded capabilities can get delivered as we become a trusted advisor and provides advice to our customers.
Really starting to see the fruits of that so you can see that hit and accelerate as we go through 2019, and I think as we look into 20.
Theres more juice and 11, so to speak to squeeze on that so with that overview running like give it to John and then maybe Don and Brad you could comment on each of your businesses, Yes, I think thats, well said Bruce I'd say the outlook for 2020, if you if you start looking forward.
You see our expected strength in both businesses and and Don and Brad will comment on capital markets. For example is an area of ongoing strength, we've been making investments and capabilities. There. We I think theres a balance and this is a little bit of a theme of organic investments.
Being combined with the synergies from small bolt on acquisitions that we've done over the last couple of years and Thats evident in the M&A advisory space within cap markets going forward.
We've made lots of organic investments in the global market space and we've had some record results here recently I think two quarters in a row and I RP.
On the consumer side, I'd say that mortgage and wealth are the two areas that I would point to solid expected underpinning and mortgage going forward.
Given that helps to diversify some some of our fee businesses and then and wealth.
Ongoing integration of Klarsfeld in the synergies there combined with the investments in the Epay advisories device space Immunoassay advisors were up 4% over the year and as that the full full year effective that as you get into 2020 in the productivity that you expect in that in that Salesforce.
Looks good along with maybe a more constructive.
Long long mid to long term rate environment for which will help.
Relieve some of the pressure on some of the.
Transaction revenues, we had the wealth space looking forward. So all in we feel we feel pretty good about about both the outlook for 2020 on fees.
Yes, Matt I'll, just amplify a little bit I think John Bruce covered a lot of it but the other thing that I focus on his share gains we are as John said moving up the league tables nicely and all the relative league tables, which says even in a market that was a little bit quiet like the syndicated loan market to a large part of the year, we captured more than our.
Share when right when we're right up there with the big money centers at this point in that sector second thing I'd just point to is diversification weve really diversified out our fee stream. So do you look back three or four years ago. It was really a syndicated loan story on the capital markets side, we've built a nice couple nice equity partnerships we've built.
The high yield business out and when when different markets are accelerating we're able to generate revenues and the third thing is we've just hired a lot of extremely strong people on the origination and and corporate finance side and I think we'll pitching really well in the marketplace and we're winning more than our fair share of business I feel very good about whereas a busy.
Understands and as John said I sit here today.
Type lines look a lot better today than they did a year ago. So we're entering the year quite strongly.
And Brian .
Yes, I think.
Thank you both did a nice job of teeing it up I'll just a couple of things to add I agree completely with what John said on the wealth side I think we have a significant opportunity to leverage the car felt acquisition in 2020, we we had good progress in 2019 belong in that effort was around.
The integration work and building the right Foundation, I think we're really ready to leverage and launch that platform in 2020 and feel really good about where we stand the integration of the capability. We now have to serve the high net worth and ultra high net worth a business and on the mortgage side.
Certainly we may see the Wi Fi activity come down just a little bit in 2020, but we really think we can overcome that.
Significant opportunity in our third party businesses, we've been investing the one of the things that Franklin American gave US was a diversified origination platform, where we now have wholesale correspondent and retail capabilities and we've made the making significant investments in all of those businesses around making the.
The experience better investing in digital capabilities, and we really believe that we're ready to launch those capabilities, particularly on the wholesale correspondent side. So I feel very optimistic on mortgage fraud great.
Hi, Matt of lot of color. Thank you.
Yes.
Operator.
Next question is on your line is open.
Jefferies.
Thanks, Good morning.
Hey, guys on the loan growth side looks really good, especially even on commercial in light of.
Industry numbers that obviously don't look anywhere near as good and I know you talked about.
Balance sheet optimization, continuing underneath and just wondering just how much.
How much do you see still than the uptake of your recent adds in your vertical expansions and what are you just seeing on on the customer demand side underneath that to continue to produce propel, especially on the see an eye side. Thanks, yes, So let why don't I take that.
I think I think it's a tricky environment out there just because competition is really heavy.
And there's not a lot huge demand for new money now with the trade.
First phase behind us.
Sensing already a little bit of more optimism in the client base, but it's way too early to really see it translate into the numbers I will say that our pipelines.
Originations and our pipeline for originations were strong as they have ever been last year. They were offset by a lot of Paydowns. So you saw a lot of working capital efficiency in the form of borrowers and you saw quite a bit of refinancing into the public markets and in the institutional market. So theres lots of puts and takes in terms of loan growth while we.
Our benefiting from is our is our geographic expansions you know we moved into the southeast. This last year, we moved into Texas, and California. So we are adding new clients and that is generating an element of our loan growth.
I would say our core middle market has been relatively flattish than we expected to stay relatively flattish so.
As we kind of go through day to day.
It's really picking and choosing our spots, making sure we contain credit quality, making sure we actually earn adequate returns on on the capital we're deploying.
But we actually like like the like the volume that we're seeing so I.
I think our projection for this year is this like low single digit loan growth I will say that if you look in the underlying numbers. We had we had quite a strong Cree growth last year that was due to several large transactions at the end of the year, which were were purpose built transactions for large corporates, which which popped our numbers a little bit and made our creek, let's look a little higher than we had.
Expected it to be when we're sitting here midyear with but but very safe Greg Greg credits, we like the business, yes sure.
Okay, Great and then one question on deposits. So nice to see also citizens access still growing even with the change in the rate environment can you just talk about deposit pricing and just what happens now that we get to a point, we're hopefully rates are more stable.
Yes ill jump in there and I'd say it this way I mean, I think there we've seen we've seen really strong deposit growth should hasten to add that we're really proud of not only citizens access but also all of the.
Organic work, that's going on in the businesses to drive DTA and other low cost deposits I think thats an than an area of of real.
Benefit for us over the last several quarters and that continues so that's that's very helpful. In terms of the you saw interest bearing deposit costs down by 15 basis points. This quarter, you just really starting to see the impacts of of those rate cuts being or takes a little bit of a lag to see that kick in I would say that.
Yes, we would expect to see.
Continuing prices.
For deposit deposit pricing come down as you look into the first half of 2020 as you get out into later in 2020, you could see some of the that dissipate, but we still see pricing opportunities as you look.
Across not only our branch footprint, but also with respect to online pricing as you head into the early part of 2020.
Alright, Thanks, Larry.
And we'll go now until next question Cuda come from Peter Winter with Wedbush Securities. Please go ahead.
Yes.
Peter.
Ken.
Peter if I could have you press.
One of the zero again.
Let me here.
Let's take than that.
We do have back here in your line is open okay, sorry about that.
Consumer loan growth was particularly strong.
This quarter.
And the consumer overall is pretty strong, which would you expect consumer loan growth to kind of lead the growth.
In 2020.
I'm sorry could you repeat the question is consumer loan growth has been relatively strong in the second half of the year do we expect strong loan growth as we go into 2020, Yeah, Ryan ill gotten started off on that and others can add color, but I'd say it this way more broadly we feel pretty good about the balanced profile of our loan growth into two.
2020 on both the commercial and consumer or retail side of things and I think thats been the strength of hours more recently.
Which we were underweight in the commercial side and as you and I think that will help us as as across varying environments with respect to consumer.
Specifically within consumer again diversification as a goods is a good story there we see some strengthen the resi side in the past and we see that continuing into 2020.
But from a balance sheet optimization standpoint, we see some of those portfolios that we really like from a risk return standpoint, such as education and some of our merchant business is really helping to drive some some uptake.
Over the next year as well.
National hasten to add that that helps balance.
Exposure from a seasonal standpoint.
We also saw it just.
Looks to be relatively relatively good momentum on both sides double edge of Erinle I'll stop there and see if referenced on freight.
What I would add there, which will you started John which is it's well balanced and we're seeing relatively strong demand across almost all the asset classes and you look at the fourth quarter. We had good demand on the on home lending side role.
Location refinanced product with strong we're seeing really good momentum on the merchant side.
We talked about this couple of times already with the consumer just appears to be strong. We're just seeing the demand I mean, we've talked about running down our auto book, which we have done intentionally but even there we're seeing that become a little bit more attractive asset classes are starting to see margins widen out a little bit. So yes. Overall, just good strong I think it's Bruce and I would.
I would flag at Rifai and the merchant partnerships as.
The shining stars as we head into 2000, or we would expect to see growth and it's very attractive from a risk adjusted return standpoint.
We have made investments in our card business. So I think we'll see some growth in part as well in mortgage were.
No the sale that we've just announced that we're going to try to call been relationship mortgages.
Recycle that capital so we've done some of that with auto we'll do some of that in mortgage we're still fighting the trends in helocs. So we still have a little bit a drag there. So theres a few things that are going to be working against us, but I think on a net basis, we'll still have solid outlook for consumer loan growth in 2020.
Thats very helpful.
The 2020 margin outlook of stable to slightly up versus fourth quarter.
I guess, that's assuming no rate cuts in 2020 and the question is what if the fed.
Does cut rates and just what some of the puts and takes to the margin outlook.
Yes, I'll go ahead and cover that I'd say as you mentioned the outlook for NIM is to be has to be.
Up slightly given a couple of things I knew where we're seeing.
Some stabilization on the loan front I mean, we've had a lot of pressure on loan yields as the industry has and we see that stabilizing in the first quarter.
Nevertheless, we still think as I mentioned earlier that we'll see some benefit from deposit costs declining.
That along with the that the issue of day Count when you go from 40 to once you all of that would lead to uplift in the first quarter with respect to NIM.
And we think that that can hold.
And possibly even.
Kind of.
Show some opportunities for improvement thereafter within within 2020.
Now that said to the extent that Theres a rate cut I mean, we are we still are asset sensitive and.
Positively so and so therefore.
That asset sensitivity is around 3% as I mentioned in my remarks, and so we would we would have.
A negative impact to that and we tend to.
Manage that through some of the hedging that we've done.
And what have you and I would just add theater that.
The markets are not looking for any further reductions for for some time.
And I think all of public commentary by fed officials is that.
The east and created looser conditions monetary conditions, and they want to wait and see.
How that affects the economy in the data.
I think we're in the clear for a reasonable period of time before we really have to worry about whether there needs to be further reductions I personally think.
That.
If the if the economy picks up some steam here because of some of those easing some because some of the macro overhangs like trade tension and what's going to happen with Brexit as those things have eased.
Some me, there's probably more of upside breakout bias here.
Downside as we look in 2020, all things considered.
And so our feeling is that the next move might be up if.
If we're at these very tight unemployment levels and inflation is starting to trickle up.
You could see a scenario, where the fed pauses and stays on hold for a long time, but then ultimately feels the need to do some retracement.
Yes, I was just going to add one other point.
With respect to.
A few quarters ago, we shifted our asset sensitivity to the longer end in an environment, where where we think steepening is we haven't of a bias towards steepening of the curve as well and so that to me as a as an important to mitigate into any environment I think historically when youre seeing the fed go on pause.
The two to 10 spread has steepened usually in the range 50 basis points and so we're still roughly half of that and certainly that would create a little kick here too.
Got it.
That's great thanks very much.
And our next question here will come from the line them.
Scott Siefers. Please go ahead.
Morning, guys. Thanks for taking the Guardian.
Hi, Good just wanted to ask a follow up on.
The digital offerings and citizen that citizens access. So you know as you get more time under your belt Emily.
Volume continues to grow what are you finding about elasticity your price sensitivity of of that customers as time marches on.
Okay ill gotten just I'll kick off there I mean, I think we've seen.
Did the beta isn't that in that space are pretty typical something in the neighborhood of 60% to 70% on the way up we've been able to.
Which race that as as rates have come down I think more broadly though.
As we mentioned before this has been a home run for us in terms of diversifying our funding sources and the pricing of it actually has been accretive to our NIM.
With respect to.
Being much better able to optimize our pricing or promotional approaches.
Focusing on deposit primacy.
And and et cetera within that within the branch footprint.
So going forward, we feel like there's pretty good pricing power there, but the whole pointed that platform is more of a strategic deepening with a with a customer segment that we find really attractive and as we mentioned in some of our remarks, we plan to add to that platform.
Later this year and are excited about.
Broadening our approach to that to that customer segment.
Yes.
Extremely well said I think we've learned that betas behave the way we would have hoped on the way up and there is affinity end customers to the good customer experience that we're providing we're finding that theyre, they're quite sticky when we raise rates as rates.
Excuse me lower raises rates come down so yes, we feel we feel quite with another debt.
It's going to.
Add that as well Brad that I think we spent a lot of time designing the experience accurately and making it really terrific for folks and so as long as we're paying competitive rates thats exactly theres no reason really for them to switch and then if we can come along with these rollout of additional products.
Have even deeper relationships that makes it even more sticky as time goes but.
Okay perfect. Thank you and then John if you could expand upon a couple of your comments regarding rate sensitivity. I know you guys have taken some some efforts over the last few quarters to moderate the level of asset sensitive tivity to where you are now I'm curious for any updated thoughts on what the endgame would be.
Sort of a stable rate environment do we want to.
Neutralize the sensitivity or maintain some modest level of of asset sensitivity. How are you thinking about that dynamic.
Yes, I think as you heard earlier I mean, we have a bias that that the fed is likely on hold here and then a bias towards the fact that theres some steepening.
Potential in the yield curve that.
Particularly given the.
The recent events the on trade and entered and other factors in the macro so all of that said I think a low to moderate asset sensitivity position is is a more durable expectation going forward.
As I mentioned earlier, we did.
Yes, this shift some of our asset sensitivity out to the longer and so now were call. It in the 75% range of our 3% sensitivity is really tied to longer rates and.
And so little bit less volatility with respect to the moves on the short end. So we think thats the appropriate positioning and I think that'll that'll.
Service well to manage the.
Idle, it's about issues going forward.
And one thing Scott is that we are constantly running simulations on calibrating, what the market expectations are making adjustments to those hedges on a regular basis. So we feel good about to kind of quality of.
Analytics and the people we have running those analytics.
You have to start with a view as John said and then you tell your position there, but we're constantly looking at all what if we're wrong and what if this happens that we've covered off.
Different scenarios. So so feel good about the capabilities we have there.
Yes, okay perfect. Thank you guys very much.
Okay.
And next we'll go to Erika Najarian with Bank of America. Please go ahead.
Good morning.
Okay.
So the company has outperformed those results and outlook in its clearly reflected in the stock price performance I thought it was interesting that you've reiterated once again your your medium term razzi of 14% to 16%.
Sensors for both 20 and 21 has razzi.
In the low Twelveth and I'm wondering Grayson, John if you could help us with a walk in terms of getting from to your medium term of 14% from the 12.8.
In other words, what is consensus missing in that they don't have even approaching that range over the next three years.
Well, let me start and then you can pick up but.
One thing Erika that.
We like to highlight in the release is the fact that.
With the.
Change in rates we've had.
An increase in the value of our securities portfolio.
Which is a good thing when it comes to book value per share, but it raises your overall equity.
And so the impact of that.
Was 85 basis points from where we ended up Q4 to where we where Q4 2018. So one other things that could really help propel us back towards the 14% in which we had briefly touched in Q4 of 18 was it would be a steepening in the curve and I don't thanks.
Analyst consensus I don't think people really go and model that and carried through to what the impact could be on LCR. So theres. So theres that element that I would just kind of lead off would have been say.
If we got into rate environment, where.
The turf started to steepen and the economy stayed strong next year that would certainly help propel us higher I think beyond that then it's really boils down to.
Insinuating to deliver that positive operating leverage and.
In a way I would say.
Think about 2020, we're still going through a period of transition to deal with the impacts of the fed moves in 2019, and and they'll have an impact as you can see in the guidance and so you won't have as much operating leverage as you've had in the past few you'll have to fight the takes a little bit on NIM. So.
Earnings per share growth won't be as much as it's been historically, but.
To me 2020 is really really important year, because we have cheat up some some very significant efforts we have top six.
And that positions us really well for the future in terms of how we deliver technology in sort of customers and run the bank more efficiently.
And with that we have.
Identified some really great opportunities, we think that we can build on capabilities. We haven't really drew start to invest in these three strategic initiatives, which are outlined in the deck.
Which.
We're.
Duly cautious on how long, it's going to take to build those businesses and scale those businesses and we say that you look out in the medium term and there is a 1% boost to our razzi coming from those initiatives.
What worked really hard to do everything we can to try to accelerate that so.
I think 2021, if we if we execute route well through 2020, I think theres, a fair amount of upside to.
If you're in a constructive environment and we've we've pulled through the top programs we've got some.
Behind these strategic initiatives that we could set up ourselves very well to get back to something where there's more operating leverage and.
At a more rigorous rate of EPS growth, so anyway, I'll stop there and John you can add to that yes, no. That's a that's as well said I'd say just an Eric on terms of puts and takes on that I mean, I think when we look out into the future we see opportunity for Razzi expansion in a number of areas just to just just a couple.
Certainly in the Eni stays the way that were way that we're growing the balance sheet and how we're going to.
Use balance sheet optimization.
With with more momentum there frankly to really drive razzi.
Uptake I think is a real opportunity you heard about top I think caught our top program I think is differentiating it's.
It's driving Razzi improvement, we're going to invest some of that in the strategic initiatives, which will also be as we mentioned, possibly a point of razzi.
Over the medium term and Bruce mentioned, the denominator OCI and capital related items that will be a tailwind I mean, I think all of those things.
We have good line of sight to update there are some takes to that right I mean, I think credit although still quite good and strong I mean, it's things of that.
You see credit getting not exactly fully normalizing, but credit.
Not being quite as perfect as it was a year or two ago end to end the rate environment.
You know is.
Is also a little bit of of.
Headwind to fold the full build and so all those things together give us a lot of confidence in in that statement.
Great. Thank you.
And next we'll go to line up solid Pete has with Tvs. Please go ahead, hey, good morning, guys.
Thank you for the color on the additional color on C.. So thats helpful. I wanted to ask about your Cecil outlook in and maybe this is going into the we talk a little bit for an earnings call, but John .
If I take the midpoint of your true up range 30 to 35.
Two at Hcl ratio, not only triple ratio, but but it may seo ratio of about 144 bit.
And if I forecast that out next year using your provision and your charge off guidance plus your loan growth. It implies that that ratio is kind of flat to down issue a little bit over the course of the year, which suggests you put your net new loan growth has lost content that similarity.
Maybe even slightly lower than what you're back book is so I guess my questions I am I thinking about that right because it does seem counterintuitive a little bit to me that.
You are growing in part of the story that you are growing higher margin segments, especially on the retail side, which presumably should have a bit higher loss content over the life for the loan that you're back book and I guess shouldn't we be thinking that your hcl or your ATRA blow ratio, everyone and think about it overtime undersea so if that balance sheet.
Optimization continues actually migrate to upwards.
Yes, I'm just trying to think about the provisioning guidance relative to charge offs and sort of.
Net new loan growth in the loss content that undersea so.
Yes, all thanks for that I'll add a couple of points first.
As we mentioned, we're still working with finalizing our models and this is all new to the to the industry, but we spent a lot of time on it and have some thoughts that we can share I will add more thoughts.
Talk about this further in future in future calls, but so just to comment on your point.
I think what you have to do is.
Be reminded of two important thoughts one is as we mentioned before we have a pretty diversified loan growth outlook. So when you think about.
Those loan categories that have lower seasonal content, which is the commercial space and call it mortgage.
And if you look at and what our expectation is that commercial and mortgage or are pretty big part of what would what we're doing from a dollar perspective, because those are big portfolios and they're growing it at good rates. So that drives a lot of dollar loan growth.
Whereas the other portfolios that that we're growing from the Dsos standpoint that we're excited about which is on the education and merchant front, our higher percentage growth, but they're not they're off of smaller bases. So when you look at the dollars you're pretty well balanced from an outlook into 2020 from a seasonal standpoint between those loans that maybe have a higher C.
The loan loss content versus those that have a lower seasonal loss content, all that said charge offs on effected and so thats, maybe something you can think about when you when you're looking for that outlook. Okay. That's helpful. So basically because the much bigger dollar value on.
Yes, cnine mortgage which may have a lower loss content that sort of balances out and it really doesnt change your you're you're a triple ratio going forward and that sort of.
We got okay.
Just changing gears, a little bit on deposit costs and the outlook there in your Eni guidance. So for you I think you deposit costs are down.
Since the second quarter by 21 Bips.
On 75 basis points cuts already but 28% beta.
What's kind of baked into your guidance for sort of the.
Sort of the beta on the downside because you're assuming the fed funds rate stays where it's at how much more.
How much more in deposit cost reductions, what's the sort of through the cycle beta that you're assuming.
Yes.
Betas are quite as useful in a period, where you think the fed is going to be on whole right. I mean, when you look at the end period beta as.
The fed Doesnt, which is our expectation the feds on hold but nevertheless, we expect deposit costs to decline in the first quarter than youre going to have an infinite beta so I'm not sure. The in periods makes sense, but in terms of the cumulative beta I think we're getting up towards 40% and may be able to drive that higher in terms of once since the down cycle began and that's in the second quarter. If you use that.
As the base Two Q2 019, so yeah, I mean, I think that as I mentioned other point you made earlier John is the farther away you get from the fed pauses than the less opportunity. There is so we're still going to see some of that in Q1, and then that'll start as we go through the year exactly I'd say I would say one age 2020, we still see opportunities to continue to.
Caused deposit pricing to come down and then the ongoing throughout the rest of the there is still balance sheet optimization activities to to even consider whether theres some opportunities thereafter, but it does dissipate as Bruce mentioned, so thats, that's really the the thinking the other thing I'd just add is that there's a front book back book dynamic on Cds for our term deposit.
It's that are rolling over that's that's has been positive.
Certainly over the last half of 2019, and then we expect that to be a positive dynamic as you get throughout most if not all of 21.
That's helpful and 40% just to be clear that that's on the 75 basis points of my question is more just under 75 basis points that that's been.
Cut already how to think about.
The deposit costs relative to that I guess, the 40% is on that 75 right. Yes, yes. It is it's cumulative on that we're up to that and all those other things would that we just talked about would it would influence that into 2020.
Thank you. Thank you.
And next we'll go to the lineup.
Brian Foran with autonomous please go ahead.
Hi, most of my question been asked but one that comes up sometimes is merchant partnerships, obviously been very successful and it really good initiative for you.
One concern sometimes investors bring up is what it for merchant decides to move the relationship.
So can you talk to how you make the relationship sticky.
Things you do to add value beyond just providing alone.
Any contractual provisions you have.
Anything like that for somebody might be worried about about one of your partners moving over time.
Great question that we do get quite a bit listen.
To be too motherhood, and Apple pie, but the way to make and the sticky us is to provide great customer experiences I mean at the end of the day, what we're doing as we're helping our merchant partners sell more product and we think we've done that in a very big way with all the partners. We've had we've been of you've lost track three or four years now with Apple and we feel like.
We have just a tremendous relationship with them and that we provide a very unique customer experience that has been the entre for us opening up with other partners.
We do look at other things that we can do to deepen the relationships.
Providing data.
Back to those partners and so forth, but at the end of the day. It really comes down to just providing a unique any very exceptional customer experience I think our partners would say that we do that well yes.
Thank you that's it for me.
Okay.
And we'll go next line in Q.
One moment here.
John Pancari with Evercore.
This morning.
John .
Just on the expense side, just a couple quick things there on the.
Comp expense you had a.
Good linked quarter decline in comp expense. Despite the strength that you saw on the capital markets and FX and other fee areas. So can you just talk little about what helped drive that.
Yes, I would just mentioned that.
Even though we've talked a lot about top six really top five from a from a more traditional standpoint has been kicking in.
As you get into the later part of the year and we went out with numbers that were smaller than the 125 that we're communicating today, so we've been able to upsize.
Those benefits with respect to top five and we tend to use those programs too.
Fund investments, we would like to make but also to maintain profitability and.
And maintain our trajectory that we'd like to like to see in terms of going forward. It Kevin.
And down just below 18000, yes, after frankly, I think we'd been up and the high.
Continue to look for efficiencies.
Okay. Okay got it and then more broadly on expenses if fee.
Operating environment does get tougher than you think on the topline for next year or whether its rates or growth or or whatnot.
Can you just talk about your flexibility on the expense.
Yes, so a few things on that I'd I'd say, we have a relatively big strategic agenda in 2020.
Those are we consider them to be.
Critical to maintaining.
Our balance of focusing on the short term and the long term.
And Thats our outlook that said if something were to be if there were some stress that will start to be introduced into the system Theres a significant amount of discretionary investments that we could moderate slowdown in phase somebody yeah, exactly and so.
Thats something that we keep an eye on and.
And thats something that were.
In detail focused on a month to month quarter to quarter basis, what our investment capacity is and that would we would modify that capacity, if if things where these to deteriorate.
Okay got it and then my last one is just on C.. So could you just discuss a little bit of the.
If cecil and itself and the day to impact has influenced your willingness to or your appetite to grow in any of the consumer areas, where you've been growing thanks.
I think it's I think it's not not the number one issue I mean, I think we're trying to serve our customers were trying to invest in the markets that were where we'd like to play and we have a very diversified.
Consumer and commercial lending platform, such that as I mentioned earlier, a lot of the the the way seasonal impacts some portfolios.
Much worse than maybe some others tends to be mitigated through that diversification. So we really focus on providing.
That capability and it's something we'll think about I mean, it is an additional capital.
Charged to some portfolios and we'll just make it part of our balance sheet optimization activities going forward.
I would say China at the end of a day.
It's the economics that were concerned about and so we don't want to withdraw capital because of.
Counting.
Issue.
Having said that where we will look at the new accounting framework and if there's tweaks that we need to make to certain product offerings that could end up with a better capital treatment will we'll do that but I'd say fundamentally we're going to continue to follow the economics.
Got it okay. Thanks, Bruce Thanks, Sean.
Yep.
And next we'll go to Ken Zerbe with Morgan Stanley . Please go ahead.
Great. Thanks.
Two questions. The first one in the press release, you had mentioned that you have several portfolio actions that are expected to boost NIM and ROTC over that those are under consideration are those already included in your.
Financial targets for 2020, or these are part of your top program or these in addition to what you've already analyses. These ken would be incremental so.
Say, we're we're running hard with our balance sheet optimization, and we're constantly trying to develop new ideas and approaches and say in an environment where.
It's hard to make huge progress in the near term on ROTC for the industry are there certain things, we could do to reposition part of the balance sheet that could create some some upward momentum there. So stay tuned on that we're not making any promises, but we want to socialize. The idea that we're looking at some things.
Obviously, we we try to do them in a capital efficient on capital neutral way, so thats kind of the trick of.
And with these be considered more sort of incremental like maybe 10 basis points and ROTC or something more materially to tell too early to tell.
I don't think it's that it would be massive but.
Well, if they're worth doing they should have some visible impact but.
Im not going to say they'll be massive by any stretch.
Got understood. Okay, and then my second question just in terms of your see tier one targets, obviously it looks like your medium term targets match largely your 2020 targets.
He is it fair to assume that.
Once we are way into 2020, and certainly into 20, Taiwan the capital return.
Becomes a much smaller piece of your overall sort of.
Our or we are.
How you think about I guess.
The capital return could be a lot lower than what it wasnt years past I mean, obviously I know you're doing a lot to bring that you see tier one ratio by 40 50 basis points per year and it seems at this point, it's it's going be a function of your are we rather than excess capital return.
Yes, Hey look there's still.
We're still looking to be friendly to shareholders in terms of our capital return but.
Increasingly we're going to we're going to look to the organic growth and where we're allocating our capital to drive earnings performance and so I do think more will come from the numerator and getting to that.
With the exception potentially of the OCI impact from a steeper curve, but.
We will still look to.
I think prioritize organic growth and having a strong dividend payout ratio and.
If we have capital after that we'll return to shareholders, but I still think that can still be a pretty good payout ratio going forward. It just won't have the same kick in tailwind that it's had as we've been on the glide path for the last four or five years.
Alright, great. Thank you.
Yes.
And next we'll go to Gerard Cassidy with RBC. Please go ahead.
Thank you good morning, Bruce good morning.
Morning.
Don can you share with US you had success growing your portfolio in the new markets that you pointed to earlier can you share with us what kind of industries that you're seeing this growth in the commercial loan book and then second what are some of the strategies you're using to win these new business.
So a couple of things just to refresh peoples.
Memory as we went into new markets, we execute we articulated a strategy that we wanted to bank larger more financially flexible company. So it is not a middle market strategy, because I'm very worried about smaller companies and adverse selection. So the credit underpinning is mid sized companies the real driver.
Of the gross is I and I wouldn't I wouldn't say, it's any one industry, it's pretty much across the board, but what we've done in each of the markets is hired people that have been long standing senior participants with clients in those in those markets.
They're bringing clients with them because of their relationships and as we interview and as we talk to the teams.
We're very focused on who can actually individually move clients from from bank. The bank and then if you. If you think about disruptions that are going on in the industry per se. There's a lot of clients that are looking around for.
Other other.
Thanks to work with them. So I'd say, it's one who we hire two is the intensity with which we're covering these markets.
Three it say.
It's a broad based industry stat strategy, there's a fair amount of of activity in.
In the southeast, which is driving a lot of it because were were longer there.
In terms of a presence on the ground, Texas is beginning to come in a little bit that's not an energy strategy. We have an energy team already we have for years and California is very early days and the other thing we've done.
As we've upgraded in the Midwest and brought a new head of the Midwest in because we havent been satisfied with the progress we've made in those markets.
Very good and then.
Circling back Bruce on capital or capital return I should say, obviously, you guys had a nice increase in the dividend today. It looks like it's about $1.56 annualized now which is about I guess between 30, 540% of 2020 earnings estimates.
Is that the long term kind of dividend payout ratio. We should think about 35 to 40, what would you consider similar to some of your peers that are no talking about 40% to 50% dividend payout ratios over the longer term.
Look I think it's important to have a good yields on the bank stock and so have a good dividend payout ratio. So we've always aspire to do that when we took the company public and I think we're getting it up to around 40 and for now I think thats a good level to be yet, we still have significant organic growth opportunities.
I want to make sure were balanced in terms of how much we pay out and how much we retained to support growth. So.
Thats, where I see it for now.
Great. Thank you.
I think we have.
We're going on a bit here. So maybe we have time Brad for one last question sure. Thank you and that'll come from Brian Klock, what Keith.
Please go ahead.
Good morning, Thanks for letting basically then.
Follow up on seasonal.
John I guess, when you're thinking about the what.
30% to 35% impact on a day one.
Gross up to the Hcl, what's the impact on the commercial that's embedded in that so is there to decline in the commercial sale.
Yes, I mean, more broadly where we're not really gone outlined by line here, but sure Theres a theres a reasonably large decline on the commercial side I think thats true for most portfolio as you see out there given the way we handle incurred loss typically versus where Cecil would articulated and then you that's offset by some of the portfolios that are.
Maybe more longer duration on the consumer side.
So to be similar to what you're seeing some of your there appears to have broken out commercial versus consumer impact on day, one said.
But a big something similar to them.
No I don't I don't know focused yes.
Our numbers, but I mean, I would say I mean, I think that's that's that's.
Shouldn't be come as a surprise that that's a really see so when you took about lifetime losses. You know you have if you have long duration loans youre going to end up with a higher charge for the longer duration stuff on the consumer side and.
And then less on the commercial side and back to the balance I mean, I think overall.
We're not seeing a lot of big change in our outlook in 2020 in part because a lot of this this stuff has been diversified across our our broad lending base and so that's really I think one of the messages you could take away and I think Brian If you look at.
The industry and that and what analysts expected based on composition of portfolios.
And they had us kind of peg in this range I don't think there's any big surprises folks who have more consumer loans have a higher.
Bump to the reserve in the ones, who have less obviously are lower so I think it's playing out probably the way most analysts and investors thought it would.
I appreciate the time guys. Thanks, Okay sure.
Well.
Im going to thank everybody for dialing in today, we certainly appreciate your interest and continued support have a great day.
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