Q2 2020 Citizens Financial Group Inc Earnings Call
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Good morning, everyone and welcome to the citizens financial group's second quarter 2020, <unk> earnings Conference call. My name is perky.
I'll be your operator today currently all participants are in the listen only mode. Following the presentation. We will conduct a brief question answer session. As a reminder, this event is being recorded.
Now I'll turn the call over to Doug Levy Senior Vice President Investor Relations, Doug you may begin.
Thank you Bercy. Good morning, we're really pleased to have you join US first this morning, our chairman and CEO sense on CFO John would.
Providing an overview of our result, and we'll reference our presentation, which you can find I didn't that you're not citizens Bank. Dotcom, then we'll be happy to take question Brendan Cofflin head of consumer banking and Don Mccree head of commercial banking Oh figure for white collar workers.
Our comments today will include forward looking statements, which are subject to risks and uncertainties and you should review the factors on page two of the presentation that may cause results to differ materially from expectations.
We also use non-GAAP financial measures. So it's important to review our GAAP results on page three and use the information about these measures and their reconciliation to GAAP <unk>.
And with that I'll hand, it over to Bruce.
Okay, Okay morning, everyone and thanks for joining our call.
The second quarter unprecedented challenges it can be in tax trimmed acquainted virus widespread restructuring to people's lives and the economy.
Once again I'm pleased that citizens is rising to the occasion and delivering well all stakeholders, you're taking great care at customers in colleagues, while posting strong results demonstrate the diversification and resilience of our business model.
We also announced further commitments to diversity and inclusion along with initiatives to promote ratio equity and social justice.
Our financial performance in the second quarter feature tremendous revenue generation and strong profitability in our mortgage business.
We made an important investment in acquiring fight in American mortgage company May 28 chain in order to gain scale and diversify origination channel in the business.
We've made investments in talent customer experience and digitizing and streamlining the business, which has positioned us well to capture the market opportunities we've seen in middle of last year.
Starting with the thing about work during the low rate environment and disruptions arising from the pandemic.
Overall, our fees were up 28% year on year.
For some sequential quarter.
It's stable net interest income revenue was up 7% year on year and 6% sequential quarter.
You did a good job on expenses, which resulted in 5.9% positive operating leverage year on year.
4.9% underlying efficiency ratio and PPNR growth of 15% year on year.
[laughter] charge offs as our credit cost him to a record quarterly earnings on $1.14.
As expected however, we've built our credit reserves longer seasonal.
Sure duration in the macroeconomic conditions since the close of the first quarter.
Our shelf for loss ratio is now 2.01.
That's 2.9% excluding launch.
In addition, we are selling a long duration student loan portfolio, which frees up additional reserves for reallocation.
Yeah, good coverage Dallas, the credit risks in both consumer and commercial portfolios.
On a certainty on the pop of economic recovery remains.
We have updated the granular information on credit portfolios, including some additional metrics in the appendix through our earnings presentation.
Taking a lot.
The strong PPR generation and reduction in commercial line draws during the quarter helped improve our CET one ratio to 9.6%, which is up from 9.4% in the first quarter.
We had a very liquid balance sheet during the quarter average deposit growth of 12% sequential quarter, 8% spot.
Our spot there will be aren't at quarter end was 87.5% or 84.5% excluding PPP loans.
So overall, we have a very strong capital liquidity and funding position that allows us to use our balance sheet in support of our customers.
We continue to track well on all of our chief strategic initiatives for 2020.
Working Robert refreshing, our strategy to incorporate key trends and learnings from the crisis.
Thanks for taking advantage of some of the opportunity you see.
Prices bought position for future growth.
Oh, you enter families are coping with the current challenges and remain healthy insight.
With that let me turn it over to job for a thorough review of our for Nationals John.
Thanks, Bruce and good morning, everyone.
Let's start with a brief overview of our headlines for the quarter.
As Bruce said, which was an outstanding quarter for citizens against a difficult operating backdrop.
This allows us to having to the second half a year with good momentum and excellent balance sheet strength.
The resilience of the franchises on flat, we generated 55 cents, yes on an underlying basis.
This is driven by record revenues and fee income given record mortgage fees, which offset headwinds and several other food categories.
Net interest income was stable linked quarter getting strong loan growth, which offset a 22 basis point decline in margin.
This was driven by whole rates and higher cash balances that we did well in cutting deposit costs in half.
We increased our allowance for credit losses to 2.5 billion, which translates to an hcl coverage ratio of 2.09% next PGP up from 1.73% last quarter.
We show excellent balance sheet strength, ending the quarter with a stronger CET one ratio of 9.6% up 20 basis points linked quarter.
Our liquidity ratios also improved actually ended the quarter when LDR of 84%, excluding PBB long and we remain in compliance with the LCR.
Also our tangible book value per share has over $32 at quarter end up 4% compared with a year ago.
Now, let me move to the highlights of our underlying results covered on pages four and five.
Even in the midst of the cover 19 Bend and an another strong reserve build our results highlight the resilience of our diversified business model.
Yes. It 55 cents was down 41 cents year over year, but up 46 cents much quarter.
If you at all or a 790 million was a record a 15% year over year and 17% linked quarter.
And then addition to another exceptional performance in mortgage banking. We also saw strong underlying performance I oaky and improvement in capital markets result.
Average loan growth of 6% during the quarter, reflecting PPP lending and the impact of the commercial lines Ross, we saw last quarter, which benefited eye and helped offset the impact of the more challenging rate environment.
Yes, we have just for the sales PDP and why Undrawn average loans were up 1% linked quarter.
Moving to page six I'll cover net interest net interest income, which all quite well the final remark.
Net interest income is stable linked quarter as the benefit of 8% interest, earning asset growth and improved funding costs was offset by the impact of lower rates.
Net interest margin decreased 22 basis point corridor, and the impact of lower rates and higher cash balances, partially offset by lower deposit call and outside outsized growth in DTA and other low cost deposit.
About six basis points at the margin decline related to higher cash balances in the quarter given strong deposit flows as consumers and small businesses benefited from government stimulus and corporate clients don't liquidity.
We were especially pleased with our progress on deposit cost, which we drove down 37 basis points during the quarter I'm more than 50% decline.
Our total interest bearing deposit costs were 48 basis points. If he ended the quarter.
Got compares to 34 basis points back in Threeq 15 at the end of the lab short period.
Clearly, we have a near term opportunity to continue to produce these costs.
Moving to page seven I'll discuss piece, which really should benefit from the work we've been we've gone to build capabilities and diversify our goodness.
Non interest income was a record up 19% on a linked quarter basis, and 20% year over year.
Record results in mortgage banking were partially offset by continued headwinds when they get to totaling 19, another few categories.
On a sequential basis mortgage banking fees increased by 74% to 276 million, reflecting continued strong rifai lock volumes.
Then record high gain on sale markets in particular.
Capital markets. These 61 million increased 18 million from first quarter.
And strong DCM activity, and a 13 million mark to market recovery on long trading assets.
Foreign exchange and interest rate product revenues increased 5% linked quarter before the impact to CDK.
Interest rate product sales led the way as clients, we position for a lower rate environment.
Yeah improvement was 8 million in the quarter.
Just ended up in service services fees were lower by 8 million linked quarter, given the rate environment and the effect of the equity market decline on managed money Lebanon.
So just trying to get through card fee categories were down significantly compared to first quarter, reflecting a full quarter impact of the shutdown and impacts from stimulus money to consumer customers.
On a positive note, we see debit card activity roughly back to pre pandemic level and credit card activity in June only down about 10% compared with last year, a significant improvement from the over 30% declines we saw in early April.
Turning to page eight.
Underlying non interest expense declined 2% linked quarter, largely driven by seasonal impacts in Q1 on salaries and employee benefits.
Salaries and employee benefits declined 30 million or 6% linked quarter, largely reflecting seasonally lower payroll taxes.
Equipment and software expense and outside services were higher linked quarter and reflect increased technology spend and investments in growth initiatives.
Yeah, let's discuss loan trends on page nine.
Average core loans were up 7% linked quarter.
Now these driven by the full quarter impact of the commercial lines were off at the end of the first quarter and the 4.7 billion enough PPP, if I need to our small business customers.
Before the impact of loan sale lined Robin PPP love core commercial loan growth was up approximately 1% linked quarter.
The 7.2 billion of postcode commercial laundry large have been substantially repaid and we're down to 1.8 billion by the end of the second quarter.
Overall utilization is down to approximately 40%, 50% at the end of the first quarter.
Core we don't loans on a linked quarter basis for stable with growth in education, and other retail offset by lower home equity balances and the transfer of approximately 900 million of education loans held for sale.
We are building an originator distribute model for our kind of consumer assets.
Which will generate revenue an increase our balance sheet flexibility over time.
Moving to page 10 deposit growth was exceptionally strong in the quarter.
We saw robust average deposit growth of 12% linked quarter, and 15% year over year outpacing loan growth and driving our average LDR down to 89% excluding PDP as consumers in small business has benefited from government stimulus and clients still entity.
These strong deposit flows came in lower cost categories with average GDP growth of 25% on a linked quarter basis, and 33% year over year.
We continue to aggressively execute our deposit playbook to manage down or deposit cost across all channels.
We weren't able to cut our interest bearing deposit costs by roughly half this quarter down 46 basis points to 48 basis points.
And down 82 basis points year over year.
Let's move to page 11 and cover credit.
We continue to assess the impact of the carbon 19 pandemic and are closely monitoring the portfolio for area as a potential risk.
That said portfolio performance is progressing largely in line with our expectations, but with a somewhat more adverse macro backdrop that we saw at the end of the first quarter.
Net charge offs were stable at 46 basis points in quarter as increases in commercial were partially offset by improving retail reflecting the impact of forbearance.
Nonperforming loans increased 27% linked quarter, driven by 192 million increase and Marshall, reflecting cobot coated lockdown impacts and an 18 million increase in retail.
The nonperforming loan ratio of 79 basis points increased 18 basis points, we quarter and 17 basis points year over year.
However in spite of this increase the nonaccrual coverage ratio remained strong at 255% at June 30.
We increased our seasonal credit reserve coverage ratio for 1.73% in one Q2, 2.09% into Q, excluding TPP lives.
This is 36 basis points increase was primarily driven by a net reserve build as we haven't 17.
In addition, approximately 100 million up reserves associated with a plan sale of student loans were reallocated to the remaining loan portfolio.
Perfect and reserve that was 417 million or 19, 90% into Q1 goal.
On page 12, we provide detail on customer forbearance, and the PDP and I think program.
We continue to work directly with our customers for system through these challenging time.
He is encouraging trends.
The average FICO score of our retail forbearance customers remains high at 725.
At approximately 93% of these loans for current when they entered forbearance.
We also continue to work proactively without commercial clients ramping earlier, where needed in the form of covenant modifications will offer PPP applications as well as granting selective temporary relief on principle and interest payments.
I'm also pleased to say that through June 30, we help our customers received 4.7 billion in P.P. loans, which has allowed us to help support over 540000 jobs.
84% of loans made well below 100000.
Moving to page 13 to discuss our seasonal methodology and reserves.
We have summarize the key aspects of our macroeconomic scenario, which is a foundational element of the she still reserve estimate.
At quarter end, we elected to use it may 13th Moody's baseline as RP scenario.
Similar to last quarter, given the uncertainty of the continued economic outlook. We also considered other movies and internal scenarios.
In general our aggregate economic scenario was more severe than that you've seen one Q.
Good to see dropping GDP into Q is followed by a gradual recovery in the second half a year and into 2021.
This scenario plays out provision requirements over the second half of 2020 should be more reflective of net loan growth and incorporate a smaller bill.
However, if the pandemic impacts are deeper work it takes longer for the economy to recover.
Or government programs are less effective than we expect then we could require further additions to reserve levels.
I'll, maybe 14 as I mentioned earlier, we feel well position to manage through the current environment, the strong capital and liquidity conditions.
Our CET one ratio improved to 9.6% of 20 basis points linked quarter, given our strong results and a reduction de risk weighted assets.
Additionally, during the quarter, we issued 400 million of tier one qualifying preferred stock, which in combination with the increase in San Juan Jos a 40 basis point increase in tier one capital.
Strong deposit growth outpaced loan growth, which improved our liquidity metrics and drove the spot LDR, excluding TPP loans down to 84%.
Turning to page 15, let's look at reserves and capital versus stress muscles.
Are you see all of 2.5 billion represents a very strong 52% of our modeled losses using if that scenario.
And is now 30% up the stress losses in two.
2020 do best.
In addition, when adding excess capital about our preliminary FCB, a 3.4 billion to our Hcl, resulting 5.9 billion is 120% of our estimates and 88% as the fed losses.
These levels are further fortified by the additional coverage from the PPR we generate.
On average we generated approximately 35 basis points of set one capacity per quarter over the last six quarters.
On page 16 short summary of the fed stress test results.
The fed estimated our PPNR, a 2.3% of average assets, which is well below peer median of 3.3%.
We believe this ignores the steady and significant progress we've made for improved our PPNR since the IPO for.
For example, our PBM hard to assets for 2019 has improved by approximately 37% since the IPO to 3.7%.
Importantly, this compares to a stable 3.7% in actual PPNR two assets during the first six months real life stress in 2020.
The fact, the estimate of our credit losses at 5.6% was right on top of the peer median and down from 6.1% in 2018.
However, our estimated company company run severely adverse credit loss rate of 4.2% is significantly lower.
We believe that modeled result, and the 3.4% preliminary FCB is elevated above what our business model would imply.
As such and as we indicated in our Ctr release in June we have submitted a request to the said to reconsider our preliminary Essi day.
On page 17, I went to highlight some exciting things are happening across the company.
While we are first and foremost focused on helping our clients were looking forward and continue to work towards building a better company.
We continue to execute on the transformational program and are making steady progress towards our target.
Planning is underway to add significant new transformation initiatives, including the end to end digit digitization of customer interactions and operations as well as other initiatives to adapt to the post cricket 19 environment.
We're also moving forward without major strategic revenue initiatives, while considering new opportunities arising from the current environment in an effort to drive higher revenue growth coming out of requests.
Moving to page 18, we provide some commentary on how key categories are shaping up for full year 2020 compared to the prior year.
We expect net interest income to be broadly stable as loan growth, it's offset findings will decrease in NIM due to lower age.
Noninterest income is expected to be meaningfully driven by the exceptionally strong results in mortgage which more than offset weakness in other key categories related to cover 19.
We expect several key categories to benefit from a return to more normal activity levels in the second half, which will help cushion in moderation in mortgage revenue.
Non interest expense is expected to be up modestly, particularly given higher compensation tied to stronger mortgage production had an impact from carbon 19, which includes governor lending programs and customer reception.
Provision expenses, the greatest potential from variability and remains dependent on the path as a recovery.
We've got solid loan growth driven by the impact of higher line draws in commercial during the first half and government programs like PPP as well as increased demand in education and merchant financing.
Our capital position remains robust with our regulatory capital ratios are expected to improve further over the remainder of the year driven by net income growth.
A moderation and RW artisanal fragrance and the second half and the suspension of our buybacks through year end.
Looking forward, we expect to remain well capitalized and feel confident we can continue to maintain the dividends at the current level.
Now, let's move to page 19 for some high level commentary on the third quarter.
We expect anti to the up modestly reflecting TPP benefited on NIM.
Excluding PDP loans loan growth is projected to be down modestly due to the full quarter impacts of the decline in commercial loan commercial loan line utilization second quarter.
Excellent PV and then is expected to be broadly stable with the benefit of lower deposit costs being offset by ongoing rate headwinds.
Fee income is expected to be down in the mid to high single digit range, reflecting lower mortgage banking fees from the record levels, partially offset by recovery and other fee categories.
Non interest expense is expected to be up on the low single digit range, reflecting higher origination related cost levels and the mortgage business.
We currently expect a small deserved bill.
Provision expense will be highly dependent on an updated view of the economic recovery and portfolio performance.
Finally, we expect average wants to be down in the low single digits given the paydown commercial lines are all starting the second quarter, excluding the impact of line draws PPP and loan sales, we expect long growth to be broadly stable.
To sum up our profitability capital and liquidity position remained strong and we're delivering well on our t. initiatives for stakeholders and let me turn it back to this.
Thank you John.
Operator, let's open it up for today.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time.
By repeating the ones, who will comment if you are using a speakerphone. Please pick up your handset before pressing the numbers. Once again, if you do have a question you May press. One then see well at this time and one moment for the first question.
And our first question comes from the line of Scott Smith with.
Type of Sandler. Please go ahead.
Good morning, everybody. Thanks for taking the cars.
I guess, just sort of a top level a question on reserving and adequacy and methodology. There's of course, so many moving parts now with the the vast uncertainty and then the fed sorted through it.
Mentioned, the things with the you know there sort of earnings Sufficiency test, but just as you look at the number you know, 2% certainly very very strong and.
A big from the first quarter, but as you think about things you know what what makes 2% the right number.
This is say some move up the empty too like two and half percent given your own loan mix outlook et cetera, How do you arrived at that conclusion, given given all the moving parts.
Sure, Let me start and then I'll flip it to John but.
If you look at it Scott first off exit PPP loan. So, it's really 2.09%, yes, and folks you're referencing that are in the mid twos typically have very sizable card businesses and we have a de minimus card business and so if you strip out.
The card from the on the other banks the reserves on their card book there generally around 2%. So we feel that were right in the packed with with everybody else on that basis. So so you can't just looking at a direct.
At a high level number you have to actually Peel back and looked at the individual portfolio and see what the coverages and if you look at coverage by each of our consumer portfolios and then by RCR region or see an i. I think we feel quite confident that we have adequate reserves for the scenario.
Laid out.
And that China is the key you have to go through this process of choosing to face scenario contrasting with some other scenarios thinking about the impact of the government stimulus and how long it lasts and.
With the benefits are thinking about forbearance and what benefits that's providing so there's a lot of assumptions that go into.
Arriving at a new scenario when we went through that whole process and this is what we come up with.
You know if it turns out down the road that reopening slow in that scenario.
Extends the recovery from what we assumed this time.
There's always the chance that we'd have to take out to take a further look at reserve build we did include in the slide deck on slide 13, just a little table that says sweetie.
Pad.
Another if you wanted to use up 10 basis points of set one we gain another 24 basis points and Hcl covered so the two nine we go to to 33, so I take the broad point. There is that we feel we have very strong levels of one we feel we have a very robust.
You know ratio.
We're also pleased that are P. PNR is staying strong and resilient through the stress periods and so it's still all those elements that give you confidence that you have ample capital to absorb any credit losses.
That will flip it to job Yeah, I think you captured at various I'm just maybe.
Had a couple of points, we get worse in our scenario and I think though that was prudent quarter over quarter.
But we have we did see that that the consumer ends up being extremely resilient.
So what just given the impact of older stimulus and forbearance. So so consumer I'm, just really then been performing well. So that's been factored into our numbers from a commercial standpoint, you you'll notice in our materials that we increase that that amount of reserves significantly we took that up from 1.2%.
The 2.16%. So we think that that was prudent and we think that's an appropriate way.
To express where we can we see things at the at this stage and then as Bruce mentioned any sort of to look at reserves in concert with capital just in the Cecil World.
Our our number is 2.09% you when you compare that to others that ex card and then you layer in our capital at 9.6, when we looked at that and the totality. We feel this is an extremely strong approach to.
Your reserving and not managing our capital.
That's perfect. Thank you for the thoughts and then if things slip one more and you guys have always done a very nice job of sort of getting ahead of things with your your top programs always always having something in the tank to support your PPNR now of course, the current top program is much bigger than than past ones, but just given that the change from.
What we would have contemplated so a year ago. When when this was a first put out there is there any chance to sort of revisit.
Things, maybe get a even a bit more aggressive on on the cost savings or things like that.
Yeah. So.
We did indicate in the material set we are focused on.
Some new ideas based on things were seeing through the whole pandemic period, but particularly the increased use of digital channels.
And what that portends in terms of accelerating conditional across our businesses.
And we think that offer some some meaningful upside in terms of efficiencies.
Cross really distribution operations and technology, so in the process of scoping that out.
And there's there's other aspects.
So if a virtual advisory and other things.
You know how we work in terms of how much remote and how much office space, we need there's number of things that we're looking at that I think offer some big potential for savings down the road I did mentioned last quarter I think that we have this effort call. So cold war on paper.
Brendan here is a championing theres a lot of paper in the consumer banking so.
Numerous opportunities I think to.
The increase the scope of what we're doing.
Yes, I might add that we kind of put all of our top six initiatives through the lens of oppose covert world and where we're headed and validated that not all of the we're where we underwrite path, but we may even be accelerating when all the things that we're doing with next gen tech and converting to a natural workplace ways of working.
And then broadening it out as Bruce mentioned this is that if we see new opportunities in Wichita Digitization space.
That's perfect. Thank you guys are.
Yes.
Thank you and our next question comes from the line of can use them with Jefferies. Please go ahead.
Thanks, Good morning, guys HM.
It was wondering if you just give us a little bit more detail on some of those fee drivers on the mortgage business outstanding again, and you talked about expectations for to come down a little bit, but Don just what you're looking out for in terms of the balance between gain on sale and origination and then also you mentioned the expected improvement in some of the other line items, but if you could.
It really just walk us through service charges, and what you're seeing as far as an activity is that how that came through the quarter and how you're expecting it to transact. Thank you.
Yeah, Yeah, I'll go and start and maybe Brendan may may want to chime in here, but just from a mortgage banking standpoint that phenomenal phenomenal quarter.
Really the second quarter. The story goes about margins I mean, when you look at how we recognize revenue it's basically on hopefully adjusted locks and those were strong I mean at elevated levels, but not too different than first quarter really it was about margins that were basically doubled from one Q and that's about as high as it's ever been.
Certainly record for us and possibly for the industry. So thats what was happening in the second quarter. When you look out into the third quarter.
You know, we still see strong locks, possibly even higher who knows well see and hot spot margins coming down off a record levels. I mean, we suspect that margins will hang in possibly above once you levels, but we'd be hard to predict that we would be able to sustain the margins that we saw in Q2. So that's why you didn't have you start.
Haven't another strong quarter for mortgage so maybe a maybe tempered and moderated from where we were in Twoq is in the mortgage standpoint, and then you know into service fees and card area. We're seeing at the end of the quarter some better uptake in terms of activity and maybe I'll just turn that over two to bring them to add some color that yeah. I think you summarize mortgage.
All jobs all that much there on service charges the headwind will be happens around NSF and you can see at our results.
Similar growth in DTA from the stimulus and a lot of that money is still sticking around which has an attack in adverse impact with NSS. So we believe that will be largely temporary but we'll have some persistent pay into the rest of the year assess balance parking sticks out and ends up burning off through the year and into into next year.
On card fees debit card as John pointed out in his prepared remarks, so basically back to almost par from year over year and credit card is getting there we've got a little bit of pain and credit card with some slowdown essentially out of balance transfer initiatives just given the state of credit while we make sure we've got our arms around that before we turn it back.
Got any growth engine in the in the card books at the level. We had once the economy stabilizes then we feel confident enough to turn it back out of the second half a year and that outside of just lastly on well fees.
We had a bit of a reduction in well just given the market pullback with our managed money book, which is as started to recover as Mel So we've seen some tailwinds in the second half of your with that and sales at all but dried up in Q2 with our branches and appointment only mode and we see the real material pickup.
Then sales both managed money and transactional sales. So we do expect a bit of a rebound in wells fees in Threeq, you and the second half of the here.
Got it and just one question on deposits the growth at period end is almost as good as it was on average how do you assess the stickiness of that and whats coming in existing customers versus new customers. Thanks, guys.
Yeah, I mean, yes, they figure out exactly spot spot growth in the and the second quarter was quite strong.
9%.
If you were 10% so you're right, it's likely it's been hanging im extremely well.
Down a bit from the average balance growth and 12%, but hanging quite nicely I think what we're trying to do is to monitor the.
The behavior of consumers and enter commercial customers. So on the consumer side, we had stimulus, peaking he balance parking.
Tax deferral unemployment I mean, all of those forces. So basically we lease back that's a moderate over the remaining part of the year, but it really depends on the level of stimulus and what's happening with sending the GP dollars and then on the commercial side. We have also PDP in line drops right inside.
So those lines also come down by a lot will they continue to continue to run off so I suspect that you'll see that moderate through the rest of the here highly dependent though on further fiscal stimulus and and customer behavior.
Thank you.
Thank you and our next question comes from your line of Ken Zerbe with Morgan Stanley. Please go ahead.
Great. Thanks.
I guess when we start off in terms of the student loan portfolio the $900 million the so.
He is talking about the rationale for doing that.
And also does this represent any change in terms, how you're approaching the business.
I wanted to start off here, you know I think I think that really the broader context.
Is really balance sheet efficiency.
And balance sheet optimization, so what we what we endeavoring to do certainly in the mortgage business, we have a pretty highly highly twod originated distribute model and we also have loans and by portfolio mortgages on balance sheet.
And that is the we believe that the appropriate balance is to have some balance sheet.
Ability for consumer assets and some ability to distribute that paper. So we're doing that in the mortgage space at horse. Many companies are as well, but we're looking to be able to migrate to that kind of balance over time in the student book in the auto book etcetera and so.
Student is an area, where we have.
But pretty solid origination capacity and capability.
And we have identified an opportunity to get to begin to migrate into the origination distribute.
Arena, if you will with student and.
Therefore, we.
With with.
With that has a good pilot transaction will be better equipped to balance portfolio lending and and sales going forward and importantly, we're keeping the customer relationship and the sale. So it's truly just balance sheet optimization, while maintaining the strategic customer relationships that we think it's a good good approach so with that I'll maybe.
You see a brand new in China.
You've covered at wells as usual.
I would add as in the student portfolio there's.
Theres multiple different products under there what is our student loan refinancing product.
And then the in school portfolio is as the balances moved to held for sale, which is significantly more capital intensive than thats. The one rifai portfolio. So.
Both of which we think are still very distinctive for us and customer acquisition, given you start to see some market pull back with some of the big bigger lenders.
Curtailing their originations over the last quarter. So we still do believe were variable bullish on it we think we've got some white space here to acquire customers and optimize the use of the balance sheet as we Kevin hopefully get gain on sale over time with our position, Jeff I would just add to that.
This portfolio that we've moved to held for sale is very attractive from a yield standpoint. So we think we can get.
Good price ultimately in execution on this and at the same time free up the reserves that we were holding against it. So in effect, we've taken about 100 million, we're reallocating glad to other portfolios, which augments the actual reserve build that we took.
So from a timely standpoint, all the things John said about strategically this makes sense, but it helps us up boost our CET one ratio that helps us.
Move those reserves elsewhere to other portfolios and continue to bolster our reserve coverage ratios.
Alright, perfect and then maybe a second question for you just to put you on the spot a little bit about provision expense and I will say, but it's really encouraging to see provision expense may be very much under control this quarter, but when we think about provision expense going forward given your guidance I know, it's really hard to pin down numbers and im not trying to necessarily.
But when you're talking about less reserve build and higher in Ceos, I think there's a scenario where your provision expense could be higher from second quarter, it could be lower than second quarter could be meaningfully lower than the second quarter.
In still fall within your guidance.
Given what you know today.
Is there.
We would you expect to provision expense to be meaningfully lower or some kind of in the middle.
Yes, I'll go and start off there I mean I.
We mentioned in our outlook. This is just highly depended upon a variety of factors right, I mean, where where.
And you know kind of May we fell a certain way in June we saw a little differently.
Things you know April we felt really a lot worse, so things are going to.
Really play out over the next 60 to 90 days in terms of what's going on at the rate of trade infection around the United States the weight of closures.
And I think you got to look at that you've got to look at how our portfolio performed well when the consumer remain resilient well well our commercial outlook.
Remain as expected I mean, there's just so many factors I just think that there's there's a lot more that we don't know than what we do know about what our provision could actually be why don't we were sitting here in September we just feel like.
More broadly if things play out the way, we expect that provision going forward would naturally given the way Cecil worse being more closely tied to.
Loan growth than large scale going forward. So I mean, I, just you kind of for all that together and it's very difficult indicate what that essentially.
I would just also add.
But it's kind of.
Like the economy is recovering reopenings are occurring.
The trend line is up but it's really in a sought to founder.
So you're trying to go from month to month, and if you feel starting to feel pretty good and then what's you're not feeling quite as good but.
We put away a lot in the first half of the year and I think we're cautiously optimistic that equal reopening process, even though we're seeing kind of the sawtooth at the moment is still.
Moving progressing.
In a positive direction in the second half of the year. So I think that would argue unless something else happens that.
I would kind of the trend line of the provision was the biggest during the first quarter. It was smaller and the second quarter.
Good to see a scenario where that continues on into Q3 and then into Q4 at this point.
Perfect very helpful. Thank you.
Thank you and our next question comes from the line of Uh Huh.
The Taryn with bank of America.
Of America Merrill Lynch. Please go ahead.
Hi, good morning.
My first question. Good morning. My first question is for you for clearly all the work that you did see diversify our revenue stream is paying off in Spain, Tina GAAP EPS going from three cents last quarter to.
53 cents this quarter and I am setting up the question because clearly what surprised.
On the fast results for the industry is the introduction of an income task and so as you think about.
Net earnings power going forward and your comments on no see chart provisions.
No it would be great to hear from you in terms of.
What you believe the dividend sustainability is if the fed continues to extend the income tax beyond the third quarter.
Sure.
And let me just first pick up on the efforts to diversify.
So model, but.
You know, we aim to be good stewards of capital and I think all of the fives.
Fee based acquisitions that we've done three in the M&A space Francona in the mortgage space and then clar filled in the wealth space up and really terrific football met our expectations and.
Our helping to bolster that fee income, which is really helpful and in this type of environment.
So we'll continue to look through those opportunities. We've also made a lot of organic investment in people and capabilities and technology to bolster those.
Areas as well.
When I look forward when we when we put out the the the commentary around just the Feds PFS results.
You said, we're quite confident that we can continue to sustain.
This level of dividend through the year.
And so if you looked at the guidance that we're giving the results we had today.
Certainly to the third quarter outlook, and then to the broader guidance for drilling for the full year.
Thank you.
Adjusted your models and you'll see that that that's the case that there's going to be ample headroom to to be able to sustain the dividend where it is.
Well, we won't comment yet on.
2021, because clearly we tend to recalibrate an offer guidance at the outset of a year on or January call, but again, I think that resilience that you're seeing there's no reason that that shouldn't also continue into next year.
Got it and the second question as I am I in a anyway scoured the Q before the call I'm wondering if you could give us a little bit more detail on the loss sharing agreement.
Clearly, it's part of a disconnect in terms of co run losses versus outside the fast losses.
Maybe it's also part of why you're getting the questions on <unk> on whether or not a 2.09% allowance is adequate. So wondering if you could share with us in a little bit more detail you know how much of your consumer loans does have that's a loss share agreement and when the charge offs, how does the loss share agreement work.
Pretax.
I'm going to start off and maybe branded where you're going to add here Erica.
Just to.
The point that we're making and that we've observed is that it with the fed is that in the card space. There are revenue in loss sharing arrangements that.
Our maybe not predominant, but certainly exist and the sad has seen in the last round the de fast recognize that that at that that that they exist and has begun to take.
Specific accounts for that in their their projections of losses in card and so generally the way to think about is that we have very similar arrangement a revenue loss sharing arrangements with respect to our merchant finance activities with varying terms et cetera, and and really our our pool.
And is that as that those need to be recognized as well even though these are not technically hard assets. So that that's the main message on that nobody else I'll turn it over to branded to answer for you to react to the other points that I, just don't make Tony just chime into that Sean though but.
If you have the loss sharing didn't obviously the stress losses of looking at individuals in a downturn slips to looking at your counterparties ability to pay and cover the loss sharing.
The marquee partner that we have as Apple, which I think last time I check those pretty damn good credits so.
If you if you make that substitution that would be very beneficial to to the loss loss picture interest other arranged things like that so.
That's just one element we actually.
You have arguments that we've put forth on PPNR. It we have.
Arguments even beyond that on.
On the credit side, but.
The way we've commenced that process and we think that the fed is.
We talk we commend misadventure actually opening this up and allowing for the dialogue around.
These results are being modeled accurately because they really matter today before it was more of a hospital digit deep how are you doing but now in the FCB construct.
Right and so even though we're fine we'd like to bring our numbers back to be more representative of our peer group traditional regional bank, which is what we aren't so there's a number of factors.
That are causing us to be elevated.
Good has started to deliberate and then we've submitted our materials and.
We'll go to serve hearing on these issues random.
The only thing I would add is.
Yeah, we don't disclose all the ins and outs of the.
Arrangement partner by partner, but as you look at hallowed stress, it's an unsecured assets. So if left without a loss sharing to survive the merchant partnerships and stress that your credit card when you add them on.
Projected distress like a secured asset or even better in some cases, some since I'm guessing significantly better.
And then if I look at it independent from the loss sharing arrangement that portfolio in real terms not picked up by the fed debt early innings here on forbearance, but.
That portfolio, the merchant portfolios actually in single digits basis points, and forbearance, almost almost nil and.
The delinquency has been extraordinarily stable and so it's performing as if it's a suit the pride asset without really a recession got our auto round at right now which is incredibly good early signal I would think a lot driven by the innovation in the customer experience divided how the automatic payments are set up so independent of the dialogue around that fed results.
The underlying asset we believe is it's really well under control and performing quite quite well.
Yeah.
Got it thank you.
Okay. Thank you and our next question comes from the line of Gerard Cassidy with RBC. Please go ahead.
Good morning during loose.
Good morning.
John can I have a couple of questions around the poor balance on numbers.
I apologize if you've already mentioned with what percentage of the loans and forbearance are making payments I know it's different by category. Both on an with you have any color there and then second.
Do you have a sense yet said when their policies supporting forbearance may change, we're acquiring banks like your own to acting you know reclassified the loans.
In two different category.
Great and put more capital against that.
Yeah ill cover those points Gerard so have you mean, the payment data is coming in and we we haven't really talked about it overall, but just category by category I mean, the picture we're seeing.
North of 50% and a couple of categories in terms of came and we think about.
A payment made within the last 60 days you could talk about a resi mortgage portfolio being north of 50%.
It would seem with our card ball.
You can see.
Large percentages in some of other categories like auto and home equity, maybe just short of 50% as well in terms of having made a pain and even while im forbearance in the last 60 days. So so that's that's actually extremely good story and and it could be just kind of a convenience for certain customers, but just as often as I just safety net and maybe.
In certain respects have continued to make payments so thats not as it relates to.
Really deck that there's a intersection of the regulators the cares Act and.
As the as it relates to how we account for forbearance, but.
By and large there's an expectation while theres a.
480 days that would be permissible.
Before we then.
Bringing it back to starting the clock on non accrual and non accrual or basically.
It's approximately 120 years thereafter, so so thats one of the reason why this is getting pushed out a little bit on the consumer side lots of stimulus.
Well, keeping an eye on round two extension requests and were.
A lot of that.
The level at the road wants to come off Port warrants, which customers are starting to come off of as now.
And then the clock starts taking as it relates to.
Delinquency statistics on non accrual, which are all pushed out into frankly early 2021, as we see as we see the calendar and how it all shapes out given at the thing started in late March early April.
Just in technical question on the forbearance.
Our older loans accruing interest even the ones that are not making payments.
We are appealing, but we're also putting up reserves against those accruals separately.
You know to to be prudent as it relates to.
So we don't want to put up a bunch of accrued interest receivable that later I'll have to get written off so we're one quarter into that.
And we have to have separate reserve outside of T cell to just kind of prudently in short the data Cooper's receivable number doesn't get too large and we'll continue to do that going forward.
Very good and then just quickly at least what's the biggest in year in terms adjacent to the southern reserves results for the the C and D fast.
Members versus the year internal models, where do you see the big glaring differences and we are hopeful are confident that you could really good things your guys with.
Well I'd say the biggest fund that we'd reference over the years has been how they model PPNR.
Which you know if you you have to view us in a historical contest context.
Where we were owned by RBS, which had its challenges and citizens was forced to shrink its balance sheet, which in a high fixed cost cost base.
Causes profitability to fall dramatically.
So when they were picking up data they picked up initially they overweighted that period right. After the great recession, which really harmed us in the banks you got park actually got a benefit.
You know when you play a forward and look at when you get into a stress environment. The next time, we wouldn't be forced to shrink our balance sheet, you've made a lot of improvements to our profitability and the other banks wouldn't get that TARP benefit. So it was kind of a double whammy, we had some banks with inflated estimates on keeping aren't we decide to negative line.
The fed announced that they have.
Triggered their model and are now putting more weight on recent periods, but we think there's still picking up some of that has period and so.
You know our principal argument would be for us given the journey that weak demand given all these improvements we've re leveraged balance sheet, we invest in our fee based businesses, we've done acquisitions like Franklin that it's it's not providing an accurate picture of who we are and that's that's worth a lot of bases points in terms of.
The kind of peak just to.
Trump drawdown on the impact it had us on Sep.
And then further the things that John mentioned, there are some specific things on credit like the loss sharing on these merchant portfolios that are getting picked up as well so I.
I can't tell you.
I think they're listening I think we put good arguments forward I think if truth and justice prevail, we should get something but to try to say.
Whether I'm confident or not I said I'd, just say I don't know because it's too early to tell.
Well good luck with that and good luck back okay. Thank you.
Thank you and our next question comes from the line of Matt O'connor with Deutsche Bank. Please go ahead.
Good morning.
Britain in your prepared remarks, you talked about taking advantage of opportunities out there and obviously that they're not more that's now and you mentioned.
Effort to accelerate that at all and look at the cost base.
But is there anything else that you are kind of referring to when youre, making that comment whether it's organic.
Acceleration from growth efforts or looking from an inorganic perspective.
So why the physical elaborate on that common sure I'll start maybe John can add to it but.
What are the things Matt.
We've been very focused on is our street become our strategic initiatives. He did a very deep refresh of our strategy to try to look at.
Where do we see trends and opportunities in the marketplace.
Maybe.
Our fully service by other competitors, and then where do we have capabilities and strengths, where we would have a right to win.
Quote unquote.
And we came up with three significant initiatives one was our national digital bank is to try to obtain citizens access to the next level.
Second was to leverage what we've done in the merchant space to to have new offerings for merchants, including also offerings that go direct to consumers not to give them a financing flexibility and choices.
Third was to build out a small business.
Lower middle market platform, Richmond information and services.
We think those businesses would really benefit from and coming through the pandemic. We tried to refresh snows in say are they all.
Are they are all three full systems go do they make sense and are there things that we should do to even push harder on some of these things and I'd say, they're not the good news is that every one of those things is fitting to target. We think there's still a very big opportunity there.
I think we can probably get more out of the digital bank than initially anticipated probably get more out of merchant finance than anticipated I think to the one that's had to stay in shackles, a little bit has been the business Bank initiative, just because of all the effort and focus around PPP and that may.
Hi, good some a little bit disarray. So we've had to pull out of our people to just stay focused on the PPP program and I'll now the forgiveness aspect to that so that'll be a little bit of a delayed start but we still like.
The potential there.
So so I'd say those are the those are the real.
Unique opportunities that we see we do think like virtual wealth advice is another one that we're looking hard at we've been able to operate.
Well from a remote standpoint to this period, we do have an integrated digital and banking.
Platform that.
Frankly hasn't had a lot of take up but if we.
Marry that in play around with the formats and potentially have.
The robo as kind of digital service, but augment that with some folks with great here to provide advice into different price points that could be an interesting proposition as well.
On anything you want to add to that yeah, I mean, I'd say that yet.
It does really well stated that I'd, just reiterate our enterprise programs and top six and so which are opportunities for us to continue to drive value and then as Vince mentioned earlier, we've we've done well and we've been disciplined with respect to our fee based acquisitions and we continue to have interest.
And filling in gaps and job diversifying that see revenue.
Profile going forward and so that's another thing that we remain interested and personal.
And any updated thoughts on Central Bank deal I mean, my take where a lot of play out, but obviously, you're sitting here with a lot of capital if it little bit of preferred.
And generating good taping ours, you mentioned, so yeah from banks out there are kind of <unk>.
Ready for deals that they emerge over the next several quarters and.
Wondering what your thoughts on that yeah, I'd look I know I don't really see us making any.
Initiatives in that in that direction for for a while so.
At this point I think just.
Following through on all the change programs we have.
The investments that we're making is going to be higher our area of focus.
And keep delivering here, if we have a good credit outcome than.
We should benefit and be better positions down the road potentially to do things like that but certainly not in the near term.
Burner at this point.
Okay, that's very clear thank you.
Yes.
Thank you and our next question comes from the line of Saul Martinez with P.S. Please go ahead.
Hi, Thank you a good morning, thanks for taking my question Mike.
So John I mean can you give us more color on what.
TPP assumptions are embedded into your guidance for the third quarter in for full year, because if you do you do see a significant amount forgiven in the third and fourth quarter, which seems a little bit earlier than than maybe some of your peers.
As indicated who were suggesting is going to be a little bit more back loaded, but if you can help us understand.
Maybe some of these assumptions for overall forgiveness timing and just help us spring frame. This in size up the potential benefits and how much of your NII is is being buttressed by TPP and how much is sort of being driven by core growth.
Yes, sure I'll throw a few fall Q.
Thats out.
And.
And you can add to but the so we basically we have an assumption approximately 75%.
The loans will be forgiven in 25%, we'll go to term Netsuite I think pretty typical but that's that's our the way we think about it and as it relates to the profile through the rest of the ever do think that.
More will more will be forgiven in Fourq you didn't break here.
Yeah overall, yeah and say yes.
Maybe a few months ago, we might have thought otherwise, but things have really knock on as quickly as maybe we thought it was going to go 60 days ago or when this thing all started out so we do have that layered and Matt I'd say that in general.
We are when we're thinking that you.
You know up to up to a half of.
That 75% could come in and the second half.
The rest of it would come in next year.
This is one of those highly volatile things that we're going to keep a close eye on which is why throughout our materials. We often the time to try to articulate what things look like accident day and because it's just so much volatility there so.
Okay.
Okay. No. That's super helpful. So just to clarify than new 75% about happen. How this year second half of this year versus next year with little bit this year, a little bit more tilted towards.
At quarter than the third quarter is I guess, that's that's a summary of it.
Yes, good sorry ill call it maybe up to 15.
Nothing et cetera.
Okay awesome.
Just.
You know switching gears, a little bit and you know maybe I'm over thinking this on.
On the reserving and the reserve and your assumptions on provisions.
But but why well why is the guidance implying.
One is build in in the third quarter.
And it did you know in some of your some of your peers that we've talked about your best their best guess is sort of you that you know.
Fully reserved based on your their assumptions of where the world is going to be in with their lifetime losses and abuse. It is it simply that or are there methodological points that.
The limit how much you can get ahead of it or is there something more fundamental driving that or is it just some element of conservatism and you just want to.
Prepare the market repair people for the possibility of that it if the economy.
Worsen is a little bit just you know it little bit more color and just want to make sure I understand what you mean by.
Reserve building, what's driving that.
Yeah, I mean, I think that as we said it our remarks, we're balancing to overall concepts and see so one is if you had your scenario here accurately forecasting that performance on your portfolio than you technically you would only be providing for a long rough and so on one hand.
You would be the leasing in many respects reserve.
On the other and we're cognizant of you know we did this in the first quarter that should have ensuring the first quarter, where everyone belt, but then having an adult again in the second part are things got worse are cognizant of there's so much uncertainty.
That that we've articulated including the performance of our portfolio can deviate from our outlook, including our mid the macro scenario in the us into may baseline from Moody could be worse, when they get to September baseline as well as our other internal scenarios that we look out in the way that we we forecast.
Our our loan growth.
Trajectory could be could could vary there's just so many variables that we're trying to balance it by saying Hey, listen there's when you look at the probability weighted.
Outcomes of all of those scenarios you know, it's very possible, we could have a build that deal could carry.
Could I forgot outside of loan.
Stock, which was we would be required for loan growth and that would fit that bill could vary for all the reasons that we said.
And that's really get the color around.
That reserve build could exist and could be lower than it was this quarter.
Yeah no. Thanks for that just about a quick one then on on on the reserves you did see even.
These even without the sales when you kind of moved reserves round, where sooner books Ramsey.
So.
I think.
Reserve ratio seemed down and you really buttress reserves on CRT and and Cnine is that.
That's just a function of the consumer books is performing better than you expected in two debt as an opportunity to maybe shore up your commercial reserves, how do we read that sort of recalibration there.
Yeah, I mean, I think there I think that's right I mean, I think there with all of the Forbearances stimulus that's been out there you know I think.
Without improvement I mean, how consumers and customers have become very flush with cash and we've done a pretty granular analysis of our customer bases balance sheet and mark what their cat with our cash levels aren't showing up in all of our DTA and everything else and that the credit quality.
Of our backlog and consumer has improved.
At the end of the second quarter as compared with the end of the first quarter.
So that has been really an offset to the fact macro is actually worse. So you know so we've had one on one hand macro worsening, which all else equal we have caused the need to increase reserves and in consumer has been more than offset by those factors that I just described.
And separately.
The commercial customer base as actually we were seeing some stress and strain there. So that's actually additive to the worsening.
In a worsening macro.
Ireland, and therefore, we had a meaningful increase in commercial build required as a result of that.
Great Thats very helpful. Thank you.
Okay. Thank you.
[laughter].
Thank you and our next question comes from the line of Peter went to with let's split Securities. Please go ahead.
Hi, good morning.
Hi, guys.
I've done a lot of work.
Hedging to protect the margin attends the lowest short term rates, but.
Long end of occur continues to be under a lot of press I'm. Just wondering what are some things you can do to protect them them from a lower for longer rate environment night I heard you on the deposit side, so lot of opportunities there, but just wondering what else is there.
Yes.
Just comment on that I mean, I think that that our via cell program.
On the asset side of the house, where we've been.
Optimizing our in our portfolio investments in the education in merchant space has been an area that has that has gone quite well.
Even auto these days in terms of the pricing in auto has really become a much less of a drag it is actually flipping over to be contributing the NIM space. So we remain on that asset side. This is been a little pioneered as hard and it requires it's a multi multi year process to really reshape the pause while he asset side of the.
Balance sheet.
That is clearly a big opportunity.
I'd I'd really double down on the point that you made on the on deposits I mean, when you think about where we were in Europe or you know deposit costs I mean, we have clear opportunity to actually.
Lower our deposit costs in the very near term.
The next couple of quarters below where we were ins or even with the fact that theres a tail into the fact that all her Cds haven't reprice yet.
So what I really emphasize that as an opportunity and then lastly, I mean, we haven't we have a pretty balanced book I mean, our fixed.
Portfolio versus floating is about you know kind of equal to about 50 50, and so we do have.
The NIM is buttressed by the fact that we have gotten that fixed duration in the loan side and the fact that we do have hedges that remain in effect actually through the large majority or large part of 2021. So theres a number of factors that we haven't slaves to try to.
Project net interest margin, but but more broadly I mean, you know margins come down into didn't deserve environment, we think will moderate or we could be a good tools to to really.
Moderated but.
We're going to be you know Nevertheless, you can't really defy gravity forever and we're going to me going to be at the same time.
Watching us pass it to talk a little bit to the fee face and onto the two expenses reduced.
Demonstrated strength and expenses and so really we look at it has PPNR resiliency.
Our overall going forward.
Hi.
And just if I could follow up on loan deferrals I'm just curious.
Have you made any changes to the process when a customer comes to extend.
On a deferral.
And then secondly, which asset classes.
Finally in the most pressure.
To extend these deferrals.
Yes, I can take that so we we've got a full process around the first 90 day forbearance rolling over to another 90 days, what we try to do with engaged with the customer and kind of walk them through the pros and cons from their perspective.
Sending it you're going to capitalize interest you're not paying down. Your principal are you doing this for a safety net reason or do you really actually needed because here impaired and try to coach them through if they're doing it from a from the perspective just.
And the idea of thinking that that may be better to reengage and start paying back as you would be better on a long run pay less interest.
We've got some success doing that but at the end of the day, we've made the decision to be a little bit more liberal with our customers and with the uncertainty in the economy and reopening yep in question on the speed and timing if the customer ultimately really watch that safety net of another 90 days to ensure they land on their feet.
For that they don't get notch.
Not that knocked off a little bit than were ramping that.
Extension of forgiveness, I would say that.
We've seen about 20% to 20% of the forbearance portfolio already role.
And the majority vast majority or reengaging in and payments right away. So.
We're pleased with the early results, it's early innings, but bigger vintages are going to start rolling through here in the mid summer. So we'll know a lot more on the next 60 days.
Okay great.
We've got one last time for one last question. Thank you.
And my last question comes from the line of Brian Klock with Keefe Bruyette <unk> Woods. Please go ahead.
Hey, Thanks, guys. Good morning, Thanks for squeezing me in.
That's one real quick what on the expense I just want to ask Jon on the has done a really good job on controlling expenses.
And definitely has environment, it's pretty difficult.
So good work on that and I just want to think about the math.
For the full year, you're saying it can be up modestly year over year.
It seems like when you put in your third quarter guidance that you're implying some level of operating expenses, that's probably near.
But then it's closer to 900 million and and that's.
Pretty alone carloads that there were a events so is that math make sense and that the sort of run rate to set up for next year for the fourth quarter.
Yeah, I mean, I think you've got to look at you know we said, we said that we'd be up modestly in 2019 versus versus 20, I'm sorry in 2020 versus 2019 and no. There's there's investments that are being made on the platform.
There is.
2020 is it's a big mortgage origination year. So there are significant expenses you know of course that you have to incur when you're generating the revenue levels on the beside that we are so we were keeping but keeping an eye on that but it's that it's offset by the investments that we're making going forward in threeq Q.
Yeah, we said.
Again, we did reference the mortgage expense.
Number, but as I mentioned before.
We're taking.
Looking at all of this and the top.
Top six.
You know.
Arena 2021 is a big year for top six in terms of what we expect to accomplish there and we're looking for ways actually add initiatives to that program and too.
Possibly look for ways to continue to manage those expenses.
Yup.
That's great. Thanks for your time guys appreciate it.
[noise] okay.
I think that.
Exhaust all the questions I do want to thank everybody for dialing in today.
We always appreciate your interest and support.
Good day, and everybody stay well thank you.
Thank you, ladies and gentlemen that does conclude your conference for today. Thank you very much for your participation you may now disconnect.
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