Q4 2019 Earnings Call
Ladies and gentlemen, good morning, and welcome to key Corp's fourth quarter 2019 earnings Conference call. As a reminder, this conference is being recorded I'll now turn the conference over to the Chairman and CEO Beth Mooney. Please go ahead.
Thank you operator, good morning, and welcome to Keycorp fourth quarter 2019 earnings Conference call joining me for the call or Chris Gorman, President and Chief Operating Officer, Don Campbell, Our Chief Financial Officer, and Mark Midcap, our Chief risk Officer.
I do it's our statement on forward looking disclosure and non-GAAP financial measures. It covers our presentation materials and comment as well as the question and answer segment of our call.
I am now moving to slide three.
I will provide some overview comments on the quarter and full year results and then Don will provide a more detailed look at our results and outlook and then Chris will discuss key priorities for 2020 and beyond.
As you have seen with our headlines. This morning, he had a good quarter, which greenwich's what has been another successful year for our company as we continue to grow invest for the future and deliver on our commitment.
For the fourth quarter, we reported GAAP earnings per share a 45 cents.
And our EPS results for the quarter were 48 cents, excluding three cents from notable items related to a previously disclosed fraud loss and a pension settlement charge.
To provide a consistent view of our financial trends and prior period comparison My remarks. This morning, we'll focus on results exclude notable items in all periods.
Importantly, we delivered positive operating leverage for both the quarter and the year and this was our seventh consecutive year, a positive operating leverage which places us among a select group of peers.
We continue to see strong balance sheet growth this quarter with both loans and deposits up over 4% relative to the year ago period.
Our relationship based business model continues to position us well with our targeted clients, which results in more clients and expanded relationship.
Total revenue was up linked quarter, but down slightly for the year, reflecting the impact of lower interest rate Donald discuss our revenue outlook in his remarks, but we believe we are well positioned for the rate environment and have opportunities to grow both our spread income and fee revenue.
Expense management has been a real bright spot. This year full your expenses are down 3% from the prior year as we completed our 200 million dollar cost reduction program and drove further savings through our continuous improvement effort.
This helped improve our cash efficiency ratio by 140 basis points year over year.
And although we have been focused on reducing expenses.
We have continued to invest a portion of our cost savings back into business to drive future growth and.
Let me touch briefly on two of those investments Laurel road, and our residential mortgage business.
We acquired Laurel Road in April of last year, and our loan originations during the year totaled $1.8 billion well above our original expectation.
And these are high quality loan largely focused on medical professionals that provide us an opportunity to build broader digital relationships with these clients overtime.
Our residential mortgage business is another area, where we're seeing strong return on our investment a.
Originations for 2019 were 4.3 billion up over 120% from 2018 with 1.5 billion being originated this last quarter.
We are seeing record activity and pipelines are poised for continued growth into 2020.
Now turning to credit quality are trained trends remain solid this quarter with net charge off of 31 basis points for the year, excluding the fraud loss, which remains below our long term over the cycle range.
Our nonperforming loans declined slightly from the prior quarter and our other credit metrics, including criticized and classified loans remained relatively stable.
We believe that our steadfast commitment to maintaining our moderate risk profile and strong credit underwriting, we'll continue to serve us well.
And we have continued to maintain a strong capital position, while returning a significant amount of our capital to our shareholders through dividends and share repurchases during the quarter, we repurchased $240 million of common shares and declared at 18 and a half cent quarterly dividend up 9% from.
Last year.
And before I turn the call over to Don Let me just say again that this was a good quarter for key and clearly demonstrates the strength and resiliency of our business model across the company, we continue to add and expand relationships, which drove growth in loans deposits and fees, our business model and into.
First rate hedging also position us well as we move through different business cycles and rate environment.
And expense management remains a priority as we continue to identify opportunities to improve efficiency.
And finally, our CEO transition continues to proceed smoothly with Chris assuming the CEO role May Onest, Im confident and Chris and the leadership team are fully engaged and committed to deliver on our long term targets maintain our moderate risk profile and ultimately deliver value for our shareholders.
And our results and our bright future would not be possible without our talented and diverse team across our company I want to thank all of them and share with you how proud I am of the entire key team.
With that I'll close and turn the call over to Don.
Thanks, Beth Im now on slide five this morning, we reported fourth quarter net income from continuing operations of 45 cents per common share adjusting for notable items, including a pension settlement charge and additional cost related to a previously disclosed fraud loss in July of 2019 earnings per share was 48 cents or adjusted results compared to 40.
Eight cents per share and both the year ago period in the prior quarter.
This quarter, we recognize an additional charge of $16 million in our provision related to the previously disclosed fraud incident importantly, we do not expect material losses from this incident in future periods.
I would also point out that no collections have been applied against or loss, but we do expect recoveries to be realized later this year.
Cover many of the remaining items on the slide in the rest of my presentation.
Now turning to slide six.
Total average loans $93.6 billion up 5% from the fourth quarter of last year, driven by growth in both commercial and consumer loans consumer loans benefited from strong growth from Laurel road or residential mortgage business and indirect auto.
Laurel wrote originated over $800 million of student loan consolidation loans this quarter, and we generated $1.5 billion of residential mortgage loans.
Investments we have made in these areas are clearly driving results and importantly, adding high quality loans to our portfolio.
Linked quarter average loan balances were up 2% were primarily driven by momentum in our consumer business.
Hi loans in the fourth quarter were relatively flat, reflecting the timing of various bridge loan repayments, which are consistent with our business model.
Importantly, we have remained disciplined with our credit underwriting and we have walked away from business does that does not meet or moderate risk profile.
We remain committed to performing well through the business cycle, and we manage our credit quality with us longer term perspective.
Continuing on the slide seven average deposits totaled $113 billion for the fourth quarter.
$5 billion or 4% compared to a year ago period up 2% from the prior quarter.
Growth from the prior year and prior quarter was driven by both consumer and commercial clients as well as additional short term deposits in our current quarter.
Total interest bearing deposit costs came down 13 basis points from the prior quarter, reflecting the impact of lower interest rates and the associated lag in pricing.
We would expect deposit costs continued to decline further throughout 2020.
We continue to have a strong stable core deposit base with consumer deposits accounting for 65% of our deposit mix.
Turning to slide eight.
A couple equivalent net interest income was $987 million for the fourth quarter 2019, compared to just over $1 billion in the fourth quarter 2018 $980 million in the prior quarter. Our net interest margin was 2.98% for the fourth quarter of 2019, compared with two 3.16% in the fourth quarter 2018.
3% for the third quarter.
The decrease in net interest income from the fourth quarter 2018 reflects lower interest rates and higher interest bearing deposit costs as well as a decline in purchase accounting accretion.
These declines were partially offset by higher earning asset balances.
Compared to the third quarter net interest income increased $7 million or 1% driven by an increase in average, earning assets and a relatively stable net interest margin.
Our net interest margin this quarter reflect both lower earning asset yields and the benefit from lower deposit costs with our interest bearing deposit cost down 13 basis points from the prior quarter.
In the appendix of our slide deck, you can find additional information on our asset liability positioning we've continued to actually hedge to reduce our exposure to declining rates executing approximately $3.5 billion, an interest rate swaps and floors in the fourth quarter.
Since the third quarter 2018, we have entered into total swaps and floors with $21 billion.
Today, our net interest income impact for 100 basis point parallel to decrease from current levels is approximately 1%.
Moving on slide nine.
Noninterest income was $651 million for the fourth quarter 2019, compared to $645 million for the year ago quarter and $650 million in the third quarter.
The increase from year ago period reflects higher operating lease income consumer mortgage fees in corporate services income.
Other income this quarter reflected a 22 million dollar reduction related to the market related credit valuation adjustments tied to consumer customer derivatives.
This reduction was partially offset by various gains.
Compared to the prior quarter noninterest income was relatively stable a seasonal increase in corporate owned life insurance and a solid finished the year on investment banking was.
Business was largely offset by the decline in other income.
Our investment banking revenues came in slightly below our expectation as certain transactions were delayed into the first quarter of 2020, setting up a strong pipeline going into this year.
I'll now turning to slide 10.
Expense management continues to be a very positive story as we have delivered on our expense and efficiency commitments fourth quarter reported noninterest expense was $980 million, which included $22 million of notable items in $18 million pension settlement charge recorded in other expense and $4 million a professional fees related to previously reported fraud loss.
Yeah.
The year ago period also included notable items totaling $41 million related to a pension settlement charge inefficiency related costs. No. Notable items were reported in the third quarter.
Adjusting for notable items compared with a year ago period, noninterest expense declined $13 million, reflecting the successful implementation of keys expense initiatives across the franchise, partially offset by the addition of Laurel Road in April 2019.
Compared to the prior quarter adjusting for notable items non interest expense increased $19 million business services and professional fees were seasonally higher this quarter and we had an increase and incentive compensation import attributed to the quarterly increase in our stock price, increasing our stock based compensation by $8 million.
These increases were partially offset by lower intangible amortization.
Moving on to slide 11, or credit quality remains strong and we continue to be consistent and disciplined in our underwriting. So I said earlier, our provision and charge offs. This quarter included $16 million from a previous previously disclosed fraud loss.
The charge was result of payroll related payments for employees of clients of the fraudulent company.
Again.
Expect any further material losses related this previously disclosed fraud event to be recognized in future periods and we do expect recoveries to be realized later this year.
Excluding the fraud loss net charge offs were $83 million or 35 basis points of average total loans in the fourth quarter, which continues to be below our over the cycle range of 40 to 60 basis points.
On a similar basis again, excluding the fraud loss the provision for credit losses was $93 million for the quarter, which exceeded net charge offs, reflecting continued loan growth.
Nonperforming loans were $577 million this quarter down $8 million from the prior quarter nonperforming loans represent 61 basis points, a period end loans compared to 63 basis points last quarter.
Criticize loans also declined this quarter.
Overall credit quality remained strong loan originations in both.
Commercial and consumer books continue to be of high quality and relationship businesses.
Turning to slide 12 capital ratios remain relatively stable this quarter with a common equity tier one ratio of 9.43% at the end of the fourth quarter.
As Beth mentioned earlier, we remain committed to our capital priorities, including returning a significant amount to our shareholders.
In the fourth quarter, we declared a common dividend.
18.5 cents per share. We also continued to repurchase common shares with $241 million repurchased this quarter.
On slide 13, we have provided our outlook for the full year 2020.
Our performance in 2019 and reflects our expectation for another year of positive operating leverage and continued momentum across the company.
Guidance range definitions are provided at the bottom of slide.
Average loans should be up in the mid single digit range driven by growth in both commercial and consumer balances.
We continue to benefit from our distinctive commercial platform and the recent investments we've made in our consumer businesses, including Laurel Road, and our consumer mortgage business.
Average deposits should be up in the low single digit range.
Net interest income should be up in the low single digits. This assumes solid balance sheet growth lower deposit rates and continued benefit from our asset liability position.
Noninterest income should be up mid single digits, reflecting growth and most of our core fee based businesses.
We would expect the whole noninterest expense relatively stable in 2020, excluding notable items, reflecting our culture of continuous improvement and our focus on efficiency, while allowing us to continue to make investments for future growth.
Using the midpoint of our revenue and expense guidance ranges for 2020. This would result in our eighth consecutive year of positive operating leverage placing us in a select group of our peers for our cash efficiency ratio. It would show continued progress that will place us just slightly above our targeted range of 54% to 56% for the.
Here.
Proficiency outlook reflects the meaningful decline we have seen in both short term rates as well as little long into the curve. What has not changed is our focus on expenses and as I said, we expect to hold expenses relatively stable, which includes additional cost savings that will allow us to invest back in our business.
Moving to credit quality, we've seen nothing on the rise in the changes our outlook net charge offs to average loans should remain relatively stable with a second half of 2019 and below our through the cycle target a range of 40 to 60 basis points.
We expect our loan loss provision will exceed net charge offs reflected continued loan growth.
The adoption of Cecil will impact points human will result in an increase to our provision for loan growth.
Our assumption as the economy is relatively stable throughout the year not requiring any further adjustments to the ending allowance.
Our guidance for our GAAP tax rate would be in the range of 17% to 18%.
One more item not included in our guidance is our share count from 2018 to 2019, our average share declined by 50 million shares.
The decline would be slightly list for 2020, given the higher share price and the impact over 2019 capital plan.
Our guidance also assumes some variability over the course of the year first quarter will reflect normal seasonality, including a lower day count and an increase in personnel expense driven by heightened employee benefit costs.
And finally will remain confident in our ability to achieve our long term targets with the bottom of slide, which we believe will translate into greater shareholder value.
Before I turn the call back over the operator, Chris will provide some comments on our results. This morning, and our outlook and priorities Chris. Thank you Don I would agree with best in Dod that this was a good quarter and a very successful 2019 for key this is especially notable given the challenging rate environment our performance clip.
Straight at the strength and resiliency of our strategy and our business model Importantly, we continued to make investments to drive long term growth sometimes at the expense of near term earnings and efficiency. A Great example is lower road not only has this acquisition exceeded.
Our initial expectations, but we believe we've only begun to realize the potential of Laurel Road building long term digital relationships. It's a great example of strengthening our franchise by building scale in a very targeted way.
As we look forward our priorities will guide our decision, making in 2020 and beyond first we will continue to invest in order to build targeted scale in our distinctive and proven business model.
Technology technology, and digitizing our business will remain high on our list of priorities.
Secondly, we will continue on our journey to improve productivity and efficiency, which will drive positive operating leverage third there is nothing more important than maintaining our moderate risk profile. This is an area, where we underperformed through the last downturn and we are committed to outperform through the net.
Business cycle.
And finally, we will be disciplined with our capital as you've probably heard me say, we're focused on the return on and the return of capital.
I will close by saying that I'm very excited about keys future as Beth mentioned, our leadership transition continues to go very smoothly, we have a great leadership team and we are well positioned to achieve our long term targets. We believe our valuation does not yet reflect the strength of our company and the pro.
Gross that we have made I am committed to delivering on our commitments and building value for our shareholders with that let me turn the call over to the operator for instructions for the Q in a portion of the call operator.
Thank you, ladies and gentlemen, if you wish to ask your question. Please press. One then zero on your telephone Keypad. You me withdraw your question at any time by repeating the one zero command.
You are using the speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question you May press. One then zero at this time and one moment. Please for our first question.
And we'll go to Gerard Cassidy with RBC. Please go ahead.
Good morning, everyone. How are you good morning.
Ben can you share with us and maybe Chris as well.
What are you hearing from your business customers. We've heard some of your peers talk about a change of sentiment among commercial customers in the fourth quarter and I was wondering if you guys or any of that in your fourth quarter numbers.
Yes, I will briefly address that and then I'll turn it over to Chris to further augmented.
But I do think as we go back and look at the summer when there was so much anxiety flat.
In the economy and signing that was impacted by what we're going to be various trends around trade interest rate.
Global growth.
We saw a strengthening of sentiment in the fourth quarter as a number of these things both got clarified specifically relative around trade and than just the impact of the cumulative month the economy continuing to perform well so settlement strengthened as we went through the ended the year and obviously consider consume.
We're sentiment are with the strength of.
Climate and labor market ended the year strong as well.
Yes, that's the only thing I would add to that the consumer is very strong and we see that in our mortgage business, we see that in our local road business as we look at FICO scores 767, 70, very solid on the consumer side on the commercial side Gerard to your point and best point, we did see what I think is.
A pivot to more constructive kind of mindset and discussions in the last 45 to 60 days the challenges still remain in that area. We're not seeing a lot of capital investment yet I would anticipate that we would at some point and also the biggest challenge is continuing to be able to go.
Out and hire people those are kind of the two challenges, but I do agree with the premise your question that it's gotten.
Thats gotten better as we got through brags, Brexit and also the some trade discussions.
Very well and then Don you touched on a couple of times in your.
Prepared remarks about the losses associated with the fraud. Two part question. One is in the Postop now it's about six months from from the discovery what have you guys learned from that at.
Issue and then second you talked about recoveries on an as you can give us a guide on how much should think you might recover.
Couple of things, what we have learned.
Maybe ill provide a little bit additional clarity as to what happened as far as losses this quarter that.
We have made the decision as we entered into this discovery that we were going to honor payments are going to employees or employee benefits related to employees of customers.
Of the fraudulent company and so we want to make sure we had good money for good people.
And so we had some outsized payments occur after that July 9th time period that.
Reflected in this additional $60 million charge this quarter and so we think it's the right decision for us as a company but.
I would translate to that we do not expect to see any further material charges going forward from this and continue to work with the the.
The bankruptcy courts, the restructuring agent Thats on site and also the.
Forensic accountants as well.
And as far as the recoveries going forward, we're still subjected to the legal process. So we are not in a position yet to start to realize some of the benefits for those recoveries, but.
As I highlighted briefly that we do believe the loss we recognized this quarter is temporary and the future recoveries should more than offset that that the probably don't expect much until second half of this year as far as the Buffalo from that.
Very good. Thank you. Thank you.
Our next questions from can Houston with Jefferies. Please go ahead.
Okay. Thanks, Good morning, Hey, Hey, Don You know you mentioned in your comments you had the better the excess liquidity and you mentioned your lingering exposure rate changes I'm, just wondering as you're growing the consumer book and fixed rate product that it how do you expect that liquidity to get plowed back into earning assets.
And do you expect to grow the Securities book anymore is that are reasonable size. Thanks.
I would say that we would expect as we highlighted the see mid single digit kind of loan growth and it's going to have a bigger contribution from a consumer loan growth and so we're we're very excited about the we've also highlighted the we expect to see deposits up low single digits and so you'll start to see a re mixing of the overall balance sheet.
Long term, we target our loan to deposit ratio to be in the 90% to 95% range and we're well south of that today. So we've got to a lot of room to move that the liquidity position down and remix into more loans and so.
That's why we feel comfortable with our guidance as far as relatively stable margin and the.
Could have some potential upside if that liquidity level gifts absorbed quicker than what our forecast would suggest.
Okay and then one question on the efficiency ratio you mentioned that you expect to be a little bit above the top end of the 54 56, if rates stay flat from here, what would need to happen to get back in inside that range and tick on an annual basis.
What we've talked about was is it to with our midpoint of our guidance ranges that we've established it does show positive operating leverage and with a positive operating.
Leverage I can say that very well with a positive operating leverage it will help drive that efficiency ratio down and so thats part of our guidance and so we do think we'll make progress toward that in 2020.
And that's what's needed to continue to achieve that from from from here that.
If you would just look at the rate environment that was in place in October of 2018. When we initially set this goal and also when we reaffirmed in January of last year.
We're seeing a bigger impact as far as rates on our net interest income and if we would have had that rate environment in place throughout the year. We would have been inside that range here in the fourth quarter and also our outlook for 2020 would be inside that range. So thats really the sole contributor that.
We are achieving our expense targets than we are making progress as far as growing the overall core business, but.
Realizing that in the near term impact of the lower rate environment.
Got it thank you Don Thank you.
Next we'll go to Scott Siefers with Piper Sandler. Please go ahead.
Morning, guys. Thanks for taking my question.
I'm just a quick question you mentioned earlier in a sense reason most of or I guess, the preponderance of growth will come continue to come from the consumer side.
Just as you guys look at things at what point, we anticipate seeing.
Heavier lift on the provision just due to the complexion of growth.
Yes.
Well this year will be an interesting year for all banks because of Cecil and I would say that.
The provision for loan growth should be higher on a relative basis compared to what wasn't incurred loss method, because the reserves required or higher that being said the categories that were expecting to continue to grow our very high FICO scores, so whether its residential mortgage or the lower road loans or even our indirect auto even the season.
Our reserves are not that significant and so we think that there will be some pressure there but.
Not as much as you might initially assume.
Scott, It's Chris the only thing I would add to that is our starting point, obviously, we've been working really hard to be a more balanced bank between commercial and consumer.
And our starting point is such that we think those are those are asset classes, we can really grow.
Okay perfect. Thank you and then.
Maybe Chris if you could just give.
From an updated thoughts on the outlook for the investment banking business I know Don had mentioned that a couple deals might have gotten pushed into the first quarter from the fourth quarter. So presumably the pipeline is pretty strong, but just overall thoughts on how 2020 might play out.
We feel good about where that businesses as Don mentioned in his comments.
We did have some slippage from things into the fourth quarter into the first quarter, but obviously the trade off for that as we go into the first quarter with strong pipelines, we feel good about the business Scott.
Okay perfect. Thank you guys very much thank you.
Our next question from Peter Winter with Wedbush Securities. Please go ahead.
Morning.
Good morning.
Did ask about the fee income.
It was flat in 2019, and what some of the drivers art to get to the mid single digit.
Growth rate for 2020.
Sure a couple of things there one and 2019 as you recall in the first quarter of 2019, we had a government shutdown, which really impacted on a negative way the investment banking debt placement fees, we only had $110 million in that quarter up until that is the first quarter tend to run around $130 million or so and the and.
R&D revenues and so that was a direct impact also linked year that and 2018, we sold off or insurance business, which also had about a $20 million drag as far as.
The year over year fee income growth and so that also had a negative impact from that perspective.
Going forward, we think that fee income will we'll see some strong growth from investment banking debt placement fees, not only because of the pipeline, but because we have.
Outlook that doesn't include a government shutdown and so we think first quarter should be off to a good start on a relative basis.
We also expect to see continued growth in residential mortgage fees. We've seen some very good growth. This year, we had $4.3 billion in originations and that's more than double what was year ago and so we expect to see continued trajectory there as far as growing that business.
The third category, which had some noise in it in 2019 as well was our cards and payments related revenues that we launched a new cash back car, which had some negative impacts as far as the first year startup of that product along with a wind down of a previous joint venture we had there and so our expectation for 2020 would show growth.
Glory as opposed to relatively stable level, there as well so.
Are excited about the momentum and our fee based businesses and Thats why we we show a outlook that has mid single digit kind of growth for the year.
Thanks, very helpful. And then Chris if I can ask about Laurel road, obviously, the origination activities much better than.
Even you guys were expecting can you talk about some of the opportunities that you have to deepen those relationships on the digital side and when when we would start to see some type of impact.
Sure. So theres a three phases to at one is to make sure. We're doing a really good job and the student loan refinance business and obviously thats hitting on all cylinders. So thats working the next phase is the notion of having of mortgages. So we're in the pilot process and we'll be rolling out throughout 2020.
The opportunity for people.
Complete online experience to go out and get a mortgage nice thing about that Peter is we're also going to we're going to actually transport that across key so that will have a benefit for the rest of our company and then lastly, we're in the very early stages of this but we believe as I mentioned in my remarks that.
We have the opportunity to realize holistic digital relationships with these more than a million.
Healthcare professionals that are out there isn't available market.
Great I could just squeeze in one more housekeeping.
How much was the paydowns on the commercial side.
From the bridge loans this quarter.
Total Paydowns for bridge loans were approximately $1 billion. This quarters, they were outside as compared to the normal levels, but as we highlighted that's part of our for ongoing business and so we will expect some.
Timing differences throughout the various periods as to those.
Events occurring.
Okay. Thanks for taking my questions.
And ladies and gentlemen, just a quick reminder, if you do have a question. Please press one zero at this time.
And next week on line of an John Pancari with Evercore. Please go ahead.
Good morning, good morning, good morning.
On the efficiency ratio expectation that 54 to 56 I understand you expect to be just above it.
For 2020 can you talk about.
The key inability of that range.
In terms of timing, if we don't get rates I know you answered to Ken.
You had originally expected a better rate environment, what we've seen so if we assume that we don't get.
Any change on the rate front, what is the timing around that range, what's the reality about when you really see.
That is achievable.
John are you talking about for the full year or by quarters or it goes we we don't provide quarterly guidance I would say that we would expect to see ongoing improvement this year compared to 2019 and further improvement.
In 2020 that to know if you use the midpoint of the guidance range. We still have a 56 handle to that or efficiency ratio number and so I think we're making sizable progress toward that and we continue to focus on that generation to the positive operating leverage the drive the earlier level. So I think were good there.
Okay.
Alright, Thanks, and then separately on the.
On the seasonal front the could you just talk about your.
How Cecil May have impacted your appetite to grow on the consumer side is there any difference in how youre going to be treating some of the exposure that you put on the books in terms of longer dated consumer loans. Thanks, Yeah sure that we continue to look at that I would say that the good thing about the consumer loan products that were focused on we're focused on.
Very high FICO scores and so very low default factors associated with those customers and through that any type of economic scenario and so we we do believe that it's still is the appropriate risk profile for us so really hasn't impacted our origination strategy that.
It does have a little bit higher upfront cost when you booked alone compared to the incurred loss method, but.
Economically we still feel that's the right move and excited about the returns and the growth that we're seeing from from from those areas.
Okay. Thanks, if I could just ask one more on the on the margin side. I know you had indicated that you do expect some incremental declines in deposit cost.
So for the margin outlook relatively stable versus the fourth quarter level, So does that imply that.
You expect some decline on the on the loan yield side or is it a mixed factor that can help keep to.
So I will not.
Or do you see some form of earning asset decline there in yields.
We could see some slight resetting of the loan yields at some of the fixed rate loans. The the current go to rates or slightly below what the the portfolio is so we should see some migration there.
In the investment portfolio that overall rate came down by about two basis points this quarter.
And that.
We'll see some some continued slight pressure there that our current.
Purchase yield is slightly below where the overall portfolio is and so that will put some pressure.
With all that consider we do expect to see the margin relatively stable in deposit costs should come down to help offset that other pressure.
Got it alright, thanks, Don Thank you.
Our next questions from Erika Najarian with Bank of America Merrill Lynch. Please go ahead.
Good morning, good morning.
And wanted to follow up offline Kens question.
So market feeling good about.
Some sort of revenue stability and growth going forward, which if the revenue outlook disappoint.
Clearly if it falls outside of your range is there room to.
Take expenses down in order to generate positive operating leverage or does your stable expense outlook.
Pretty firm plans in place for 2020.
A couple of things when we we've always talked about it if the growth prospects from an organic business perspective aren't there we can pull that lever to pull back on the investments the pull a reduced the expenses overtime and so part of the challenges that we don't have that same flexibility. If some of those are rate related like we experienced in 2019.
But we do have levers there and then the second thing is is it to those revenues that were forecasting growth rates too many of them have some variable expense component to it and so if the revenues are delivered we won't see the increase in incentive compensation that we're forecasting in other areas like that and Chris any other thoughts there, although I think I would add to that.
Erika is we have a lot of plans that involve investment and so as we look at this plan.
To the extent, but the revenues don't show up as we would anticipate we have the opportunity to either differ investment or reevaluate investment so.
We are committed to providing positive operating leverage and we'll pull the levers that we need to.
Great and just as a follow up question.
To John's land questioning earlier, how much more room do you think barriers to lower deposit costs from here.
I would say near term even in the Rick.
Label rate environment for the next few quarters, we could see a four to six basis point kind of linked quarter decline in deposit rates.
Some of that is related to what we what we talked about last quarter that we have some.
Promotional rate money market deposits that will reset after either a six month window, our 12 month window, and that's about $7 billion and as those reset that will help provide some benefit as far as driving those deposit costs down.
Got it. Thank you. Thank you.
And with no further questions I mean, as many I'll turn it back to you if you have any closing comments.
Again, we thank you for participating in our call today and if you have any follow up questions. You can direct them to our Investor Relations team at Q1 6689 for two to one that concludes our remarks and thank you again.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
We're sorry your conference is ending now please hang up.