Q3 2020 BankUnited Inc Earnings Call
Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
[music].
Thank you for standing by and welcome to the Bank, United Inc. third quarter earnings Conference call.
This time, all participants are in the listen only mode.
So to speak a presentation that will be a question and answer session to ask a question. During the session you would need to press star one on your telephone please.
Please be advised that todays conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your first speaker to Susan Greenfield Corporate Secretary. Thank you. Please go ahead.
Thank you Kim good morning, and thank you for joining us today on our third quarter results Conference call.
The call. This morning are watching our chairman President and CEO. That's we do ask our Chief Financial Officer, and Tom Cornish, Our Chief operating officer.
Before we start I'd like to remind everyone that this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 that reflects the Companys current views with respect to among other things future events and financial performance.
Any forward looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plan. After there is expectation inclusion of this forward looking information should not be regarded as a representation by the company that the future plans.
Miss or expectations contemplated by the company will be achieved.
Such forward looking statements are subject to various risks and uncertainties and assumptions, including without limitation those relating to the company's operations financial results financial condition business prospects.
Attitude and liquidity, including has impacted by the cold like 19 pandemic. The company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information future developments or otherwise a number of important factors could cause actual results to deployment.
Serially from those indicated by the forward looking statement.
Information on these factors can be found in the Companys annual report on form 10-K for the year ended December 31st 2019, and any subsequent quarterly report on form 10-Q for current report on form 8-K, which are available at the Fccs website Www Dot C.C. Dot Gov would.
With that I'd like to turn the call over to Raj.
Thank you Susan and welcome everyone to the earnings call.
I was 90 days ago, when we last talked to you. We're seeing the same format I'm happy to be back at my level at least at the current time basis.
And Tom and Leslie yard at Miami Lakes, It's it's nice to get away from their game called.
Last week so.
The environment I, just want to remind everyone that we were able to July we.
We have seen the worst off the why behind US. It was a recovery in New York is doing well, Florida was beginning to spike in cases.
Like pretty sharply and we were quite nervous at that time. So the good news is that spike was controlled.
And numbers came down and we did not see an impact on the economy in Florida as economic activity continued well.
Yeah. We are 90 days later I feel like this is a big hurdle, we're seeing a different kind of spike this time, not so much in Florida and not so much in New York, but generally overall in the country, So I'm, hoping to sustainably and.
What follows on the economic front, we'll also be taking a board you will not see much of an impact.
Like its happened three months ago and that this becomes a non event economically speaking, but I'm also hoping that this was not round hogs day and you're not talking about this 90 days down the road again so.
So with that I would like to just.
Just say that our stance is generally in the economy is cautious optimism a there's a number of things that have gone into right direction over the last quarter. If you compare what happened in Twoq and Threeq you. So were very happy in optimistically looking at those numbers at the same time we are.
We're taking a big dollar book of caution given all the uncertainty that still exist with the virus.
And as well as the political realities, we have an election in less than a week.
We have a stimulus bill that everyone's been talking about forever I doesn't look like it's going to get done anytime soon so there's a fair amount of.
Uncertainty out, there, which which adds to our cautiousness with that I would quickly jumping to our earnings walk you through we had we did over the last three months.
The we came out with $66.6 million helped earnings although third quarter with 70 cents a share. This compares to <unk> compared to last year you were at 77 cents a share this quarter and just compared to last quarter. We were an 80 cents I.
I think the street expectations were in the low to mid Sixtys to slightly better than expectations now given the fact that this is Mike.
About six months from the biggest Shaw.
Do our economy in living history, I think that's he's a pretty decent numbers based on what is actually happening 2020.
Our PPNR continues to grow nicely year over year. So it didn't decline a little bit from last quarter and Leslie will talk to you there isn't any one big thing that one stood at just over a million yet or a million dollar which adds up to a slight decline compared to last quarter back down over the longer term compared to a year compared to last year.
Sure.
PPNR. This signed was honored in 50 million I think in third quarter of last year was 102 million.
And for nine months, our PPNR was 323 compared to three or nine for nine months last year I've always said you know from quarter to quarter, there can be a wallet.
Volatility in a good direction in fact, Directionally you should really look at any one quarter or an annualized you should at least have 12 month view.
And and you know that that kind of evens out seasonality than an add on things that happen from time to time.
The Big story here, just like on what credit or is that on the balance sheet is about deposits. We again had a very strong deposit growth quarter, but what's more important than just the total growth in deposits is really what kind of deposits came in so we had a d. the edgar worldwide $906 million that's it.
15% growth over the last quarter and now our deposits our D.A. deposits stand at 26% of total deposits. If you'll remember just to do with two and a half years ago. When we started pushing DTA. We were in the mid teens. So it's a it's a big a change in our deposit portfolio.
For the better over the last two and a half years, our bucket ones getting down to 57 basis points, that's a 23 basis point drop.
And.
You don't.
The changing mix helps but we also know that running off of the CD book and also we took down a a lot of money market and savings rates, which which helped reduce our cost of funds by 23 basis points, that's 57 basis points for the quarter we.
We actually ended the quarter, even lower because that's the average oh.
At a point in time Leslie I think the number was 49 basis. Once wave. If you think I'm wrong about 49 basis points. So we did hit a four handle literally on the last day of the last two days of the quarter. So what's starting the fourth quarter already got 49 basis points and based on what I can see so far the first three three and a half weeks of the quarter.
We are the trends that you're seeing in third quarter to continue and so you should expect growth you should expect deviate growth and you should expect a continued drop in caustic, while maybe not 23 basis points, but it's certainly a pretty solid number.
That's correct.
A little bit about the loan portfolio that side of the balance sheet of the last quarter. We had reported a 3.6 billion and for peoples of the loans have been granted the initial.
Three month deferral, so updated through October 25th that's what the last day that we could pick up before we couldn't pencil down.
For commercial loans.
On September Thirtyth residential loans residential data is a little bit older.
983 million or 4% of all of our loan portfolio was either on a night you did a formal or hadn't been modified or wasn't some process will be modified so those three buckets add up to $983 million now.
As you all know insignificant portion of our residential portfolio, even though they are technically have a deferral they actually still paying as as as usual. So if I back those loads out did that night 83 drops to 788 or 3.3% of loans that fall into one of these three buckets.
So that compares once again do 15% were granted initial 90 day deferral.
Quickly going to be you know and again like I said lots of people dig deeper into the NIM declined by seven basis points from 239, who do 32, largely because they've got some portfolio came down and and all our excess liquidity.
Liquidity was deployed in India investment portfolio, rather than in the loan portfolio investment portfolio grew by 607 million and loans declined by 69 million loan demand is fairly weak.
With the exception of anything to do with residential there. Fortunately saw wrote the warehouse business and the residential business as well.
Our provision was $29.2 million this quarter that compares to 25.4 last quarter. So basically in line reserves were now at 115, 1.15% there were eight.
112 basis points last quarter. So again, you know pretty steady.
Book value.
Has increased to $31.01, a which is.
Basically very close to where we were before photonics on December 31st we were at 31 33, So we're pretty close back to it a part of what helped here was obviously, we saw continued improvement in the.
In the OCI.
If you remember we had a pretty big Mark on the investment portfolio in.
March where we had a negative 250 million round numbers, a mark that have been drilled to just negative two and a half million last quarter and now we're up a positive 62 million. So all of that helps a bit.
I couldn't go to book value and tangible book value.
Capital CET, one capital was 12.1% in full quarter, 2.5% of the bank.
We have four second need to pay our 23 cents dividend. If you recall, we have increased the dividend in February.
Yeah, and even before we got a question on share repurchase a we are not yet.
Buying back stock, we still think we need more optimism and more stability out there before we Oh current do share repurchases as an option I think that will be a discussion point that the board meeting in November and probably again in February but I would take that will probably be a at least until fourth quarter before we move.
This given what we're seeing over the next few weeks, there's still a lot of.
Moving parts of the economy.
Npls, that's what you're going to be surprised ratio. The NPL ratio was down just a little bit from 58 days due to be a big influence compared to 60 last quarter. If you carve out the guaranteed portion of SBL loans.
It was a 46 basis points compared to 47 last quarter.
Npls again at 84 basis points, but again, if we exclude the guarantee portion of let's be alone there were at 66 basis points.
So year to date net charge offs.
Our at running at 25 basis points, we took a $24 million in charge off this quarter 22 of that 24 was one credit that we had to talk to you about for some time a this quarter had gotten to work out around this time last year we.
We had been collecting nicely every month, we weren't bringing this balance down but as I told him.
Payments stop.
And to be honest.
What started looking at one side or the credit loss is beginning to look more and more like a fraud loss so were pursuing.
The guarantors, and where new litigation, but we've taken a fairly big charge off and are fully reserved for this loan.
Risk rating migration will continue to see risk rating migration this quarter, particularly the substandard accruing category.
We take pride in basically the fact that it wouldn't be see risks we call. It out we don't try and kick the can down the road. So that's that's the directions and doing all the risk people. If you think a there are signs of stress, where there was in cash flow revenue or liquidity or leverage or anything or you call. It the way you see it so.
That's you know you will see that in the numbers are quickly in terms of Oh.
Just operational matters.
We are still pretty much remote.
We did start very selectively opening up a couple of our offices in long Island and Westchester, We did a allow about 20% of people to return.
More as a as testing the waters than anything else it is voluntary and people.
Please who want to come back and come back and enforcing taking all kinds of precautions to make sure everyone is safe, but a large part of our employee bases in Miami Lakes, and we haven't done that and it'll probably be at least a month or two before be.
Do anything in Miami Lakes Theres, No reason due to be heroic in terms of bringing everyone back. So that's that's my stand on that on that front.
Not much we're not going to update on 2.0 of the low hanging fruit on the expense side. As you know has already been harvested and will continue to go after more its more expensive or wherever we can on the revenue side. We did launch the commercial part program. It was delayed by just a few weeks and he was launched in August I'm surprised.
Given everything that's happening we were able to hold a timeline and also on Treasury management and payment side, a water increasing that that suite of products. So all is well above 2.0, and you know in an environment. Like this you know the priorities that I have asked the team to focus on one obviously sporadic you have today.
Manage our credit book.
And two is in the long term you know we have to keep building our Diego we want to be an operating bank not just a place where people want money and where you're seeing that.
This is not just accidental that that level of growth is coming in of course, the environment is healthy.
But there is a lot of investments that we made over the last year or two a lot of effort that will supplement that is paying off and and you know that $900 million of media growth. This is a quarter in which we're supposed to have like frozen because people get money BP a PPP money was running up and instead of a and if some of the good run off and some of it will run off.
In the future, but despite that just see nearly a billion dollars of media growth in an environment, where all you know hiding under events and not really going out and you know socializing with clients, that's a pretty pretty impressive number so with that let me turn it over to Tom will talk to you a little more about the balance sheet and then lastly would take off.
Uh huh.
Right. Thanks, Roger Roger I'll start off with the deposit side, we we certainly weren't hiding under our bet on the deposit side as you can see there. We're very proud of the fact that we had an idea growth as Roger mentioned of 906 million.
For the quarter and you.
Even beyond that number it was encouraging to see as the same trends we saw last quarter in the quarter before that growth is really very broad across all of the operating teams in the bank all of the business lines are developing significant new operating Treasury management business.
And that certainly led to a strong quarter, the nine or six for this quarter. We continue to allow higher cost deposits to runoff for the quarter as time deposits declined.
By $843 million and that left us with a total deposit increased 527 million Roger mentioned the PPP [noise].
Hi deposits.
Well, it's difficult to be precise about this we estimate that about 300 million of our current base of noninterest DTA on the balance sheet at quarter end is related to be you PPP loans, where we still see the proceeds in the borrowers checking accounts at this time. So good portion of it has been used but we still think we have about $300.
Okay.
As Raj mentioned the cost of total deposits declined to 57 basis points. This quarter on spot rate. The 80 why on total deposits was 49 basis points as of September Thirtyth down from 65 as of June Thirtyth and 142 basis points.
Number 31 2019.
Got rate on interest bearing deposits were 65 basis points on September thirtyth.
Reduction in the cost of deposits. This quarter results are broad based across all product types all lines of business.
And we have a very significant effort and methodical effort go.
Going forward to continue those trends.
As of September the Thirtyth 2000, 21.5 billion of the Cds at an average rate of one point 67 or.
Not yet reprice since the last ice crowd in March.
So we'll see the majority of those reprice over the next couple of quarters and Additionally, some of the Cds that matured and repriced early and this current cycle that we're in we're probably reprice again, that's our next maturity dates that we should see some added benefit from that as well.
As we look across the sales opportunities in the bank and the pipelines.
I think we continue to see healthy pipelines and opportunities for for deposit growth across all of our business lines.
It's somewhat more difficult to size deposit pipelines and loan pipelines.
Normally when you fund the loan you fund the balance at the at the inception, usually deposits take a little longer to develop but we do expect noninterest PVA to continue to grow in this quarter and for some time now for the year, we would expect total deposit growth to be in the low double digit number. So let me let me switch to.
The loan portfolio.
Aggregate total loans declined by 56 million in the third quarter.
That's a little bit of a disparate story across different areas of the bank. We saw continued growth in the mortgage warehouse business.
Outstanding balances grew by 90 million for the quarter.
Commitments grew by 357 million actually grew the commitment base to an all time record for us and that business line as of 930, the residential portfolio grew by $363 million in the third quarter 264 million of that was in the Ginnie Mae early buyout segment.
Switching over to the more standard commercial area.
Areas of the bank C. and I loans declined by $254 million as new originations were not sufficient to offset.
Prepayments and lower line utilization right now, we're seeing line utilization from our corporate clients. It kind of a historic low for the bank, which actually we think is in this current environment, that's probably a good thing from a credit quality perspective.
Three declined by $97 million.
For the quarter as the New York multifamily portfolio continued.
Its downward runoff as we've had over the last.
12 to 14 quarters or so although at a somewhat slower pace of balances.
Balances and Pinnacle Bfc franchise and equipment were also down for the quarter by $161 million.
We look forward. We currently expect these trends to continue.
We think total loans are likely to decline in Q4, leading to an overall growth rate for the year and the and the low single digits last couple of calls we spent some time just talking about strategy on the credit side.
Our strategy really has not changed significantly in the last couple of quarters were continued to be highly selective about new originations until were more comfortable with the long term trajectory of the economy and the impacts of the healthcare crisis.
We're taking the position of increasing facilities to existing clients were seeing some industry segments, where there are certainly growth and we're seeing some clients and what I would call more mission critical.
Industry segments, where actually the M&A market is better valuations at this point are more favorable for acquisitions as they've been in a period of time and we're continuing to fund into those opportunities as well we're more.
Cautious around totally new relationships as the you know the opportunity to know those clients and visit with those clients and review their operations physically are more limited and.
In this environment. So we are pursuing some new opportunities that we consider to be very.
Very very high quality balance sheet credit opportunities and especially those that are in the industry segments, where we have the.
The most capability and also those in our for US I think the best long term deposit opportunities.
Opportunities in the near future.
On PCP, we recently opened up our portal and we're starting to take forgiveness applications from customers, we expect PPC forgiveness to be largely a Q1 21 event.
38% of our PPP loans by unit count or under the 50000 dollar level and eligible for the ex Sta expedited forgiveness process.
Like to go into a little bit.
Now more detail on some of the deferral information and refer you to slide 16 in the supplemental deck.
We'll talk more about two different time frames and this part ones, where we finished 930 and one is Raj mentioned as an update as of the 10 25 number so from a commercial loan perspective 234 million of commercial loans were still subject to either the first or second 90 day differ over.
As of September Thirtyth.
246 million of commercial loans.
Modified under the care Zac and another $220 million of commercial loans were in the process of modification.
All of this totaled about $700 million or approximately 4%.
The total commercial portfolio as of September the Thirtyth.
This number is relatively consistent with the 696 million that we reported on our commercial loans that we had received second deferral request on our last call. So that's played out just about how we thought it would play out.
As of October the 25th.
Improvements in this area $152 million of the commercial loans on short term deferral had resumed payments loans on short term deferrals declined to $74 million and loans that had been modified or we're in the process of being modified and Theres AG totaled $493 million.
In aggregate this was down to 567 million from 4% to 3.2% of the total commercial portfolio at 725.
Not unexpectedly.
The portfolio segment that has been most impacted has been our hotel portfolio within our Cree business line were 47% of the segment was on deferral or have or had been modified as of September thirtyth.
12% or 76% of the franchise portfolio.
It was also on deferral as of September Thirtyth compared to 74% that were granted the initial 90 day deferral and 25% for which a second deferral had been requested when we reported to you at the end of the second quarter. So the numbers have kind of come from 74% to 25% to 12.
Sort of the trend line of the 76 million.
On short term deferral at September Thirtyth.
A very positive note $74 million of that 70, Sixs now resume payments in October.
Onto the residential book.
Residential excluding the Ginnie Mae early buyout portfolio 395 million of the loans are on short term deferral, an additional 21 million had been modified under longer term.
Repayment plans as of September Thirtyth. This totaled 8% of the residential portfolio down from 594 million or 13% of the residential portfolio as of June thirtyth.
Also note, 49% or 195 million of the residential loans on deferral of continued to make payments during the deferral process or deferral period loans.
Loan showed on this on the slide that I referred to as modified or in the process of modification under the cares act through those for which the 90 day deferral period wasn't going to be quite enough to see them through this economic.
Phase I think particularly those in the more heavily impacted.
Industry segments are going to be there, but which we believe the longer term modification will equip them.
Yes, and through this period of time most of the cares Act modifications have taken the form of nine to 12 month interest only periods for those loans.
One of the switch a little bit to talk about the real estate portfolio and a little bit more adept as it relates to rent collections during the third quarter someone coming to give you. Some data this samples of some of our larger loans within each of the asset classes within decree segment and these represent the average.
Each of the three months of the third quarter.
So if we if we look at different asset classes.
In the office segment.
We're seeing rent collections for our loans that we sample than the 90% range, both Florida and New York are saying about consistent with that number multifamily is also performing.
Well, averaging in the low 90% also well in both markets retail as we've talked about earlier is probably the segment, where we're seeing the most and diversity among Reits collections.
That are high quality properties in some of our larger loans are still seeing rent collections in the ninetys that that's that's a fairly broad category, we're seeing rent collections that are running anywhere from.
40% to 45% up into the mid Ninetys, depending upon property location.
Type of asset it is tenant base.
And so forth.
Within the industrial segment, you know that.
Continues to be a very high performing segment and essentially rent collection and industrial is near 100%.
Switching a little bit more to hotels right.
Right now.
All of our hotel properties in Florida are now open which is which is a big positive and two of the three properties are now open to New York in the Florida market for the third quarter were seeing occupancy generally in the 40% plus range.
As high as 45% for September some weekend spots higher some some property that's predominantly leisure and beach.
Even higher than that New York is still suffering obviously business travel is down significantly in the New York market as I said, two or three or open occupancy is low but at least it's starting to rise.
Switching to the franchise.
Segment for a moment and restaurants, the QSR casual dining space, we're seeing kind of mixed trends, depending upon service model stores with well defined delivery pickup or drive through models. In most cases, we're seeing double digit year over year increases at this point thats, particularly prevalent than some of the stronger pizza.
And checking concepts.
While.
Concepts.
Below that are generally in the flat sort of range, maybe to slightly down and in store dining in store dining casual remains probably the most chat.
Challenged within that segment same same store sales declines are still on a national basis that are a bit heavier than than what I noted on the on the fitness.
Front, we saw improvement in the in the third quarter in terms of the number of stores that are now opened 84% of our finance stores are now open for business.
Really on the New York, New Jersey in California stores remain predominantly closed at this time, so that's 84% of our stores and on sort of a dollar average basis of exposure that would be about 70% of the overall exposure that we have so and what we've seen that.
Market is memberships are coming back to utilization is coming back and stores that were opened 678 weeks ago are now reporting more favorable resort results in stores that are opening up in the last couple of weeks are starting to see some coin as well so.
We see improving trends overall in the fitness area as well so that kind of covers the loan portfolio and will turn it over less lean out to give more detail on seasonal and quarterly results. Thanks, Tom. So I know you guys are all just.
Switching to dive into another conversation about seasonal so that's where I'll start.
Overall, the allowance for credit losses increased from 1.12% in loans to 1.15% of loans this quarter.
I'll refer you to slides nine through 11 of our supplemental back that give you. Some details on our economic forecast on changes in the reserve and the composition of that reserve.
A few offsetting factors impacted the reserve this quarter, we saw $10.6 million increase is related to the economic forecast, even though generally we've seen improvement in economic conditions, our economic forecast Committee selected a forecast scenario. This quarter that was just slightly less optimistic than the scenario that we see.
Record in Q2, which led to that.
Charge offs at $23.8 million reduced the reserves and the net impact of risk rating migration and increases in specific reserves offset that an increase the reserve by $27.3 million.
We had an $8.1 million reduction in the amount of our qualitative overlays, which at least in part is offsetting that increase due to risk rating migration as some of those qualitative factors are being added.
Captured in the quantitative reserve estimate however, we did think it was prudent to hold on to a large portion of the qualitative overlay that we put in place last quarter due to the level of uncertainty that's still out there around the virus the election et cetera, we want really comfortable with reducing all of those quality cannot release this quarter.
Some of the key economic forecast assumptions I'll remind you. However that the models do you ingest hundreds if not thousands of national retail one regional and MSC level economic data points. So the ones I'm going to give you provide really only a high level insight into the nature of the forecast, but the forecast scenario, we chose shows national lending.
Following an increasing to just over 9% by the end of 2020, then trending down and averaging 8.4% through 2021 and continuing to go lower from there right.
Real GDP declining 4.3% in the aggregate for 2020 in increasing 3.5% any aggregate for 2021.
The S&P 500 index remaining relatively flat close to 3000 through 2021, and then trending upward with volatility trending down slightly to under 20 through the end of 2021 and the fed funds rate that basically stays at zero at least 10 to 2023.
The franchise finance portfolio continues to carry the highest reserve level at 4% followed by Cree at one point Sixx and see an eye at 1.3.
Reserve on the residential portfolio did increase this quarter from 19 to 27 basis points. This was related primarily to changes in the economic forecast, particularly the unemployment outlook towards that model is extremely sensitive and some changes in modeling assumptions about loans on forbearance.
Slide 23 through 26 in the deck provide some details about risk rating migration for the quarter as I think we would expect in this kind of a volatile and evolving environment as more information becomes available about the impact of the pandemic on specific businesses. Our total criticized and classified assets did increase this quarter.
There was a net decline in special mention loans of 386 million well substandard loans, mostly in the substandard accruing category increased by 816 million.
Already those downgrades were actually migration from special mention to substandard not unexpectedly we saw the largest increase in the Korean retail and hotel segments.
In terms of criticized and classified assets. The total increase in Cree and criticized and classified was 276 million, which was $168 million decline in special mention all the $445 million increase substandard and again most of this related to the hotel and retail property type.
And you can see what went on in the rest of the portfolios on the charts on the slide.
And I won't go into those details right now nonperforming loans remained relatively flat quarter over quarter totaling $200 million at September thirtyth.
As expected and as Raj mentioned earlier, we saw continued recovery in the fair value Mark on the investment portfolio this quarter.
Recall at the end of the first quarter the portfolio with a net unrealized loss position of about $250 million that improved to a net unrealized loss of 3 million at June Thirtyth and at September the portfolio is actually in a net unrealized gain position of $62 million.
Yes, the NIM did decline this quarter to 32 from 239.
Last quarter, we had guided to flat.
Main factors that influence that decline with the deployment of liquidity into the bond portfolio, which while accretive to net interest income on the whole. It certainly was not accretive to the NIM.
But in a period of challenging credit environment and needed loan demand, we saw that liquidity deployed into securities, which had a negative impact on the NIM.
Yields on interest, earning assets declined by 22 basis point, there was a 10 basis point decline in the yield on loans and a 48 basis point decline in the yield on investment Securities. We had resets of coupon rates on floaters amortization and prepayment of higher yielding mortgage backed securities and purchase of new securities at lower prevailing rates at all.
Contributed to that decline.
The average rate on debt securities that we purchased this quarter with about 150, ranging from a low under 1% for some agency floaters to a little under 2% for some of the private label Securities that we bought.
Rates on our commercial loan originations this quarter were in the 330 to 350 range.
Total cost of deposits declined by 23 basis points quarter over quarter with the cost of interest bearing deposits declining by 26 basis points.
Of note the cost of our FHLB Npls borrowings increased by 24 basis points. This quarter is the driver of that is simply that the advances that were paid off this quarter, where the shorter term lower rate advances a significant portion of the advances remaining on the balance sheet or hedged in our it a little bit higher rates. Most of these hedges run off over the course of two.
2021.
The sub debt raise that we did in June also impacted the NIM for the full quarter in the third quarter.
Just a few high level comments about non interest income and non interest expense the impact of PPNR this quarter.
Gain on sale of loans was down as that we didnt really have a lot of SPM loan sales our whole Sta machine has been focused on TTP loans for the last couple of quarters lease financing income as we had guided to previously has trended downward and will probably continue to do so in the near term as assets coming off lease are being released.
That lower rate.
Increase in deposit insurance expense is related directly to the increase in classified assets, which impacted our assessment rate.
Just mentioned that we continue to have a robust liquidity situation, we haven't experienced any liquidity stress since the onset of the pandemic and I think that's true across the industry.
Now I'll shift for a minute to our expectations for the fourth quarter on the NIM, we expected them to be flat to possibly up a couple of basis points as the cost of deposits will continue to trend down the yield on earning assets will also continue to trend down, but we do expect as of right now the NIM to hold at this level, even with some expected content.
Growth in the bond portfolio.
From a balance sheet perspective, as Tom said, we expect the net runoff in loans in the fourth quarter likely some growth in the residential portfolio and we expect loan growth for the year to come in at low single digits deposit growth, it's a little harder to predict with precision, but we do expect the growth in both total deposits and noninterest DTA in Q4.
With some continued run off of the time deposit portfolio, leading to overall low double digit deposit growth for the year.
And again, we are likely to continue to see some securities growth in Q4 as liquidity is deployed into the bond portfolio.
Expenses, our expectation for the Q the fourth quarter is relatively flat to the third quarter, but we may have an adjustment to variable compensation expense.
The fourth quarter, just depending on how full year results come in.
The provision I know you guys wish I could want me to give you a number and I wish I could it'll depend to a large extent on the economic forecast we're looking at in December.
And that in the absence of any deterioration in the economic forecast any provisioning in Q4 would relate primarily to any further risk rating migration or changes in specific reserves, which could go either way. It's just too early to predict but right now I'm not expecting any across the board reserve builds going forward the tax rate is expected.
Come down a little bit for Q4 to between 20 and 21%.
With that I will turn it over to Raj to make any closing remark.
Hi, guys. Thank you for bearing with us they take a long time.
Given this subject to makes me want to put out to you.
We'll open it up for questions.
And you don't Delavan do anything you want to get into.
Operator, if you make a question.
Thank you Sir.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key please stand by while we compile the culinary roster.
I show. Our first question comes from the line of Jared Shaw from Wells Fargo Securities. Please go ahead.
Hi, good morning.
The chart.
Maybe just sticking with that with the credit or starting with credit.
Let's see here and your comments on provision for fourth quarter, but as we look at the the loans that youve proactively already risk graded down that are still on deferral as those as those come off of deferral or as you see more of a permanent restructuring happened do you still think that the the allowance captures that that impact.
Just that when you're talking about in terms of.
Potential additional risk rating migration or is it really is already internally risk graded those the the allowance capture side and as we see.
Barge offerings have a restructuring that there shouldn't be a big impact to the provision.
Jared it's hard to dimension that because it's kind of a loan by loan thing, but certainly I think it's likely in the fourth quarter.
I don't want to even say likely I think it's possible in the fourth quarter that there could be some additional risk rating migration that could lead to some provisioning in the fourth quarter, but again I wouldn't expect broad based reserve building.
This is a very fluid environment, and we get new information every day about.
About what's happening and what's going on with borrowers businesses and how they are being impacted by current events from the current situation. So it's a pretty fluid situation.
Okay.
Thanks for that color and then just shifting to to the deposit side.
Well I guess when you look at the growth that you've been seeing how much of that is coming from the national deposit.
Group versus sort of blocking and tackling within the within the footprint and then as we as we look forward looking at the interest bearing deposits how low do you think.
How low do you think we can we can get in terms of.
What you're actually paying on time and money market and interest savings straight into second.
So it's very hard for me to say, how low can we go clear.
Clearly there is room to run the fact that we are already in the Fortys.
And as I've said in the past.
I would reaffirm the fact that.
The cost should decline into the.
The middle of next year. So there is a lot of runway for us to take those down.
Now not 43 basis points a quarter, but.
But something lower than that.
The deal first question I would say.
The growth in da added a little bit about suppose pretty widespread New York, Florida, Nashville, everything come together.
It wasn't any one place where I can say well, that's where it came in and Thats been the case for some time now because we focus so much on this across the board that is coming in from from every direction and the only thing that is shrinking really is the retail CD portfolio, which were doing deliberately.
Okay. Thanks, and then just finally from me any more specific update on what you're seeing in the near city multifamily and retail side.
It seems like Thats still being hit harder than the than the broader national platforms with what your thoughts are there.
There in terms of timing for ultimate resolution or stern Sir.
Tommy I'll talk about that.
I would say first you know that Theres actually three asset classes. When you look at that Theres multifamily only retail only in multifamily that's mixed with retail and it.
If you look at our multifamily portfolio today in New York its.
It's about a billion to a little over billion to we expect to see that continue to decline with fourth quarter.
Tore it is but the overall.
Performance in that portfolio I think is good our portfolio is.
Predominantly in.
Rent regulated.
Type units, we have a relatively modest exposure to free market in free market is particularly the upper end is where you are seeing.
Higher local vacancy numbers. So when you when you look at national headlines about vacancy in the New York multifamily market. They they tend to throw out one number and that number is not.
Indicative of all segments in all geographies within the New York market. So.
We see that portfolio.
Continuing to decline a little bit probably down another $70 million or so.
Seeing depending upon what inventories look like in Q4, the retail component.
It's a little tougher.
We are seeing some improving trends in rent collection, but I think retail and New York.
It's certainly going to be a challenging place to be.
For a while until led economy starts to to move out of it we have little.
Exposure and what I would call High Street retail, which I think is the most difficult part of the resale market. So you know Madison Avenue Park Avenue type.
Property is not really our retail exposure it tends to be smaller retail that's also attached to some of our multifamily exposure.
And that's.
An interesting while those are not per se credit tenants. Those are the tenants that are actually working with the asset owners to make payments we tend to see in the.
The larger segment, where you have national retailers those tend to be the ones that are really aggressively pushing non payment right. Now are smaller local tenants are coming up with payment plans and paying two or three times, a month and whatnot, but collections.
Or better so that's kind of how I would summarize.
New York multifamily and retail right now.
Great. Thanks, a lot.
Thank you.
Our next question comes from the line of Steven I'd like suppose from JP Morgan. Please go ahead.
Hey, good morning, everyone.
Okay.
So I wanted to follow up on the deposits also you guys have had really good success in transforming the deposit base, but if we look at the strong deposit growth is coming at a time, where just about every bank has good strong deposit growth right as customers have said I'm more liquidity is there any way to tease out from the growth numbers whats market share gain success of BK.
2.0 versus just clients sitting on more than.
Got it.
Yes.
Yes, I don't know how you do that.
Maybe number of accounts or something like that.
Yes.
Our new account.
New client new logo is kind of is our internal binocular for that so one of the things that we see is our new logo generation across all of our business lines is very strong so while we while we do see.
Certainly some larger corporate accounts that are sitting on higher degrees of liquidity than they might have before.
When we track new logo.
New logo success across all of our lines of business. It is still historically you know much.
A much stronger now than it has ever been before and that is broad based and every line of business.
Thank you Stephen as we do quite a bit of analysis transactional analysis around activity in those accounts.
To try to have a better understanding of what might be excess funds versus operational funds, but those numbers are quite ready for prime time, I'm not not at the place where I can make that public but I also think that.
Largely you're right. There is a lot of liquidity in the system right now if companies started investing or spending that money is going to stay in the system. So we're going to be on the losing into some of that and on the receiving end of some of that I think the only thing that is really going to pull that liquidity out of the system as the fed and they haven't made any noise.
Thinking about doing that.
In other words, Steve think about this.
The we look at the payments that are flowing through the bank and they are up very very strong not just this year, but they've been a very strong growth look for about three years. So if it was just the same old guys, sparking money, but does that help.
Everyone has lot of liquidity.
The operational metrics when they start to the growing very very strongly we.
We don't publish them because there is no sort of set way of putting these things out, but we'd look at them internally because actually believe it or not there is.
There is a flip side to it which is cost what do you have a lot of payments going through you need more operational support. So we're budgeting right now and that's a good problem to have and so if we want a lot of people to use the bank for their wider than the association everything else, but it also means that we have to keep investing in the operational support needed.
To put that media business.
Okay. That's helpful.
As we think about 2021 seems like the industry is going to struggle with pre tax pre provision growth and I know you said as it relates to became 2.0 adult the low hanging fruit on the expense side is already been plot.
So I'm not looking for guidance, but from a high level do you think there's enough still to do on the expense side, where you guys could see at least some pre tax pre provision growth next year.
There is so that it's harder to quantify and harder to sort of commit to and timeline. So for example, we.
As part of 2.1 of the things was automation and we looked at the stuff that we had to automate that were 50 different functions and we went ahead and automated that but it should stop there that should be part of our culture, we should constantly be looking at processes and say, okay listen I automate more where can we deploy more our PA and.
It shouldn't just be a project right going forward or should we just part of the discipline and.
And there's lot of stuff that is sold manual and the company.
We did the easy ones and now we're getting onto the harder ones and we'll keep doing it and that should be just part of the budget to take those dollars and you probably read vessel sales or in other parts of the company to Gil.
Gil Investor long term.
On the branch side, we do want to take a look at the branch footprint again, but I wanted to wait at least until that is sort of the new normal the merges right right now we're not in a normal environment right now we're in a weird environment. We don't know what usage will be and what client expectations will be I'm, hoping that we get there by first quarter or whatever.
If we get there we take a long hard look and say okay. Now in the new World. This is how many clients come in or not come in and we can decide to other another six or 12 branches that we can consolidate.
The other thing I would say nothing.
And about 2.0 that I think we'll start to see materialize more in 2021 is some of the revenue pieces.
We did launch our commercial card program in August as planned we haven't really seen women revenue.
First of all amount of revenue from it yet some of the things we're doing on the fee side will hopefully also contribute to PPNR.
Going into next year Okay.
So it sounds like you're sounding fairly optimistic I mean, who knows what growth will actually be but that you're in a good position of some incremental revenue initiatives kick and theres more to do on the expense side is it at least fair.
Yes, I would say so as as as much as you can see in this environment I would say that yes, there okay.
Great. Thanks for taking my questions.
Thank you.
Our next question comes from the line of Stephen Scouten from Piper Sandler. Please go ahead.
He might be on mute.
But just getting your line is open yes go ahead.
Okay. Thanks, sorry about that guys can you hear me now.
Hey will.
Okay, sorry, so thinking about slide 10, again left that you went through on the migrations of the loan loss reserve I know it let's see or 27.3 million that was due to some of the portfolio risk rating migrations in the specific reserves I just wanted to maybe tease that out a little bit and understand how much of that was the movement in the.
Accruing substandard that you guys noted or how much of that might have been related to double up on one larger charge off now.
The charge off is the charge off reduced the reserve that had already been provisioned and really didn't have much impact and.
We did do some additional provisioning around the remaining balance of the lot that loan this quarter. So that's part of the 27.3 million. We did provide we have now fully reserved for the portion of that loan. We haven't charged off so that was part of it in combination with them.
The move to substandard accruing.
Okay, great helpful and.
And then on the on your NIM guidance does that include any expectations around.
PBP realization and can you give us some numbers on what you guys have left to realize than maybe what you realized this quarter.
Nothing [laughter] realized this quarter, we haven't I mean other than just amortization, but we haven't we have not realized.
Realized any fees upon forgiveness this quarter and we aren't building any into next quarter I think there I think this is really as Q1 2021 event. So our NIM guidance assumes there will be no ppt forgiveness in the fourth quarter, there may be a little bit before we get to the end of the quarter, but we're assuming that we'll be here out for the fourth quarter.
Okay, and then maybe just last thing for me I know.
Somebody is looking that up go ahead [laughter], Okay, great and then just last thing on the hotel booking noted I think to the three properties in New York City or near Qubec Open Im just wondering if you have any data available on those properties near properties in particular around LTV, the occupancy rates anything like that that might.
Give some additional color I don't have that in front of me right now.
Specifically, but I do know that the occupancy rates are pretty low.
Got it.
Okay.
These are hotels that have got two different purpose uses to them instead of having busy.
Business travel coming to them they are using them for workers and health care workers and things like that because euro.
From a broader use hotel concept.
Got it got it and you guys noted that some of the migrations were kind of in hotel and retail so to be fair to assume that those are probably encapsulated in some of that increase in the substandard accruing.
Absolutely.
Perfect Great guys. Thanks for the color I appreciate it.
Thank you.
Our next question comes from the line of Brady Gailey from KBW. Please go ahead.
Thanks, Good morning, guys.
Good morning.
So if you look at the growth in the bond portfolio.
So now about 27% of average earning assets.
Do you expect that ratio to continue to go higher you expect to continue to increase to the bond book from here.
I think in the fourth quarter, we'll probably see some additional growth in the bond portfolio, because I think we're still going to be in the situation, where we have liquidity that we're unable to deploy into the loan portfolio I'm not really comfortable yet predicting beyond one quarter in advance with respect to what the world is going to look like.
But the duration of the bond portfolio is very low it turns over cash flows pretty quickly. So I wouldn't view that as a a permanent situation I would view that as a temporary situation ultimately that will be redeployed back into the loan portfolio.
Okay.
All right and then you mentioned, the one and a half billion of Cds that.
I think around 170 basis points that will be rolling over what's the new CD rate that you're offering how much savings you think you'll be able to get there.
Yeah.
Currently offering right around 50 basis points.
Okay.
And then finally for me just any additional color on the.
Relationship but.
That's about a $20 million charge off this quarter.
It's in litigation and I think it'll be a while before that fizzled, but like like Leslie said, we fully reserve for it we've taken a pretty aggressive charge off but it will be a long drawn out litigation.
What type as you see an island wasn't fraud.
It was a wholesaler a distributor we have that relationship and a very long time, but.
Insider souring last year, and we were working with the client and real collecting.
A million Bucks, a month of what's coming in nicely, but.
The the though the fire of coated I think it turned from a credit loss to do something worse.
Got it.
Great. Thanks for the color guys.
I just want to circle back real quick to the question that I said somebody was looking up.
Good answer on how much deferred fees are left on the PPP loans, it's about $17 million.
In the aggregate.
Thank you.
Our next question comes from the line of Ken Zerbe from Morgan Stanley. Please go ahead.
Thanks.
Lastly in terms of your reserves, how would how would no additional federal stimulus affect your reserve balances is that price then.
So.
It would run through in the form of changes in the economic forecasts that were using debt.
There is some as I understand it we use primarily Moody's forecast and they had factored in some assumption of some additional stimulus so to the extent what they had already factored in.
Off either to the negative or the positive it would it would impact if we end up with more stimulus the narrow assuming obviously it will have a positive impact on the economic forecasting if nothing gets done.
Which I don't think is likely but that's just my opinion, if nothing gets done.
I will have a negative impact, but it will come in through the economic forecasts.
Got it okay. So it sounds like something is in there and we need to get out some might be a bit of a negative. Okay. And then similar question. If this third wave of Coca cases were experiencing continues to get worse Q.
Do you feel that Moody's is accurately accounting for that in their forecast.
It's my opinion that they are doing a pretty good job they've got some pretty robust assumptions built into their forecast around the progression of the virus and expected case counts and expected impact, but just like the rest of us they're estimating I don't want to use the word guessing because I think there hopefully smarter than I am but.
When it comes to that sort of thing, but they certainly are modeling it and building it and obviously there is uncertainty around that to them. So they are estimates and their expectations around that could be off in either direction, but they certainly are making a very concerted effort to encompass those factors in their forecast.
Got it Okay, and then just a really quick one the Ginnie Mae early buyout loans you guys talked about is that just the resi mortgages that you're buying or is there something unique about those.
Their residential loans that we buy out of defaulted residential loans that we buy out of Ginnie Mae Securitizations is what they are Ken.
Got it okay.
Okay, great. Thank you very much.
Thank you.
Our next question comes from Brody Preston from Stephens, Inc. Please go ahead.
Good morning, everyone.
Good morning.
Hi.
I just wanted to ask real quick you mentioned the hedges I just wanted to better understand you have a excuse me.
Sort of a timeline as to when those hedges run off and then the underlying borrowings will those stick around or are those run off as well.
So the hedges run off the vast majority of the hedges run off over the course of 2021 relatively evenly over the year and I think its close to $3 billion of notional of those on the balance sheet right now.
As to whether the borrowing stick around or not certainly they'll reprice down if they do as to whether they do or not it will depend on what our liquidity position is at that time and what our needs are.
Okay.
And those are floating or floating rate tied to LIBOR correct.
That's correct, but their hedge so effectively when converted them synthetically into fixed rate borrowings, which is why that you know the rate on this and coming down.
Right right I was just thinking about when they do reprice.
In the course of 2021, and they should come down materially.
And like I said, whether they stick around will depend on our liquidity position and whether we have need for them.
Okay great.
And then it's good to see the fitness deferrals down significantly.
Just wanted to get a sense for what discussions with these franchisees have focused on like are they are they still seeing continued.
Cancellations or if things steadied out and then just the Orange theory deferrals sticking around or is that just timing or is there something specific about that business model that makes it more difficult to operate in the current environment.
No it's.
That's a hard one to make a blanket statement on we have.
100, and some odd.
Orders within that one concept and.
Hi, it's in this area, which is where our exposure is we have a similar number. So they are all in different phases, depending upon when they stay opened up.
New York on where those are these are.
For the most part.
Smaller businesses I would I would say, we we had some conversations.
With a number of franchisees this week as well as franchise stores.
In the space and.
In General I would say, we're seeing attendance move.
Moving up.
In some places stronger in some places more gradual.
Where we saw the show.
Hello.
The clock season membership, we're now starting to see.
Generally upward trends in memberships coming back.
100% in every store.
If you step back and look at all.
300, or so stores that we have in general.
I would say that membership and utilization trends are starting to improve.
Over the last couple of months and the overall portfolio is in a better position today, particularly in the last 90 days than they may have been in the previous 90 days and now we're down to only really a couple of states that have not opened up the stores.
Okay all.
All right. Thank you for that and then I know, it's a smaller portion of the CRT book, but just wanted to know what you all are sort of seeing in the New York City mixed use portfolio as that improved.
At all in the last few months or.
Is it still a tough operating environment.
Yeah, what you see in that in those loans is these are typically smaller walk up.
Apartment over storage sites.
Generally see the performance and the.
Apart.
And Joe This is fine, particularly if they ran.
Regulated unit, which most of them are.
These smaller units tend to have three or four stores five stores, maybe max on the ground floor.
You are seeing vacancy in some of those store units.
I think that you're going to be looking at longer term vacancies and some of them.
There's certainly efforts to re lease property book right now.
And start to come back.
And the smaller New York retail loans. So the residential if you will well armed with those loans is performing well, but the the relationship that the retail adds to the overall cash flow stream.
It is larger than it might be if it were a fit.
The same store multifamily.
Project with 150 units versus 20 or 25 units. So you know.
They are.
I think it's going to be up.
Sales in New York market starts to recover a little bit more on a retail perspective until some of those turnarounds.
And I guess on average what what percentage of the rent roll is made up by the I guess the retail portion of the Nexus.
Yeah, I don't think we have that right here.
It would obviously varies from property to property.
Yes.
Well there there is some information in the slide deck not percentage of the rent roll, but it does at least give you. The total dollar amount of loans that are those mix skewed proper.
Properties, but yes, I don't I don't have the rent roll and just sort of this is a more of an impression from talking to the property owners I would say is obviously.
Obviously, it has to be more than 51%.
Based on the residential component.
In the multifamily portfolio I would say in most of the smaller properties, you're probably looking at a.
65.
Hi, Glenn maybe 70 30, but.
The the historic debt service coverage.
Ishares for property in these segments, because with the cap rates and values in New York has normally been.
1.20 to 1.3 or range.
So.
A loss of a couple of tenants.
Is impactful to the overall cash flow of the property, there's the amount into total mixed use portfolio of $284 million.
Yeah I saw that in the deck. Thank you for that and then last one for me real quick lastly, I know you talked sort AD nauseum about.
Reserve here, but just wanted to think about.
[laughter] just wanted to ask just quickly kind of think about the mix between the qualitative overlays and then the specific migration I guess, just when I when I think about the.
The C. so model on the economic forecast I guess, I, just sort of I would've thought that some level of migration would have been built into it and so I guess is that how should we view the $27 million. The reserve for that migration is it is it more than the what the model would have baked in already or should I be thinking about it more in terms of a mix bits.
I mean, we're actually seeing some quantitative migration, so that will increase and the qualitative factors will come down.
I think its mostly the latter will see the qualitative factors come down and the quantitative portion increased the model does have some of that baked in but the model only knows what we can tell it and we're in a very fluid environment and where the muscle is taking something and saying okay. If this happens to the economy.
We predict this will happen to these borrowers there just facts that the model doesn't know about individual borrowers and we see those facts to the models as they become known to us.
So we tried to capture that qualitatively until we can get it into the models. So you will see qualitative come down and the quantitative b Tran either disappear altogether, because things get rosy or being moved into the quantitative portion, but we did choose this quarter to hang on to some of those qualitative result reserves rather than releasing more.
Simply because we're still faced with what I think is a pretty volatile environment and a pretty high level of uncertainty and we weren't quite comfortable pulling all that off.
Okay, great. Thank you very much for taking my time and taking I also want to thank quickly correct. The statement I made before about the roll off of those hedges.
Probably about 2 billion as those hedges are going to roll off in 2021, and then a little bit more of it will stick around beyond that so I misspoke I just wanted to correct that statement.
Okay, great. Thank you for the clarification, yes.
Yes.
Thank you. Our next question comes from the line of Christopher Marinac from Janney Montgomery Scott. Please go ahead.
Thanks, Good morning, Raj and lastly, if I heard you correctly on the criticized and classified no numbers. It looks like the ratio to capital reserves is up from June to September should it peak here and should we be more focused on the classified that the total criticized piece.
[laughter].
Okay.
Well I wish I knew the answer to that question with.
And could give you a definitive answer about what risk rating migration may or may not look like in the fourth quarter I don't think it's outside the range of possibility that we will see additional migration, particularly into that substandard accruing bucket in the fourth quarter, we may not.
Certainly if we knew about it we did it already.
But in this kind of an environment with some of the uncertainty and volatility that remains out there I don't think I would be comfortable saying definitively that were done there.
And even this quarter. If you see you are seeing that numbers, but they weren't all that on both sides.
Got you had you had things actually improve and go back into the past category, but then you have net migration in the wrong direction.
It is such a fluid environment to try and predict that when we do this exercise again in December.
What will be that help.
The liquidity the revenue picture, though.
Leverage picture of our clients, it's just very difficult to do that compared to when we did this exercise in September. So we generally do it late in the quarter.
To try and capture as much as we can but what has happened and try and give as a reason to picture as possible, but it's difficult and I fully expect up to get better in some of the debt works where will that number be it is a hard pill.
No I appreciate the color and again the reserve build that you're doing really reflects the loss content. So perhaps that's the point that the other day.
Yep.
Great. Thanks for all the information this morning.
Thank you.
Thank you. Our next question comes from the line of Steve into Wong from RBC Capital markets. Please go ahead.
Hi, good morning, guys.
Arnie.
On your C. One it showed a good uptick this quarter and I know it's early but.
As things start to unfold next year, and yes losses or end up being low with delayed yes, there are capital level, where buybacks become more attractive form deployment for you guys.
I think buybacks at.
All is <unk>.
An important tool to manage capital.
It's just that you can't really use that tool in an environment like the one that we're in today I'm, hoping that's a different story three or four months down the road, but I don't think in the next couple of months things will change.
Got it and then.
Yes, just following up on the borrowings wisely as.
The hedges roll off the 2 billion mix.
This year.
Is it fair to see the the borrowings cost kind of ticked down every quarter next year.
Yes, I don't have in front of me exactly how much of it rolls off each quarter, but but yes, that's fair I can't say it will be even quarter over quarter and we'll try when we put our guidance for 2021 out in January to May be a little more specific about where we expect that to land.
But that is fair yes.
All right perfect. That's it for me thanks, Thanks for the color.
Yes.
Thank you.
Sure. Our next question comes from the line of Ebrahim Poonawala from Bank of America Securities. Please go ahead.
Good morning.
And sorry, if I missed this closely but.
Wanted to follow up in terms of the margin outlook.
Oh, it's sort of the PPP ex some of the hedges when we look at the margin per day at 2.2%.
Be distributing with getting to a point of stability and I guess, that's tied to that and maybe Don if you want to add to this talk to us on what you think the.
The bank to know increment is go to an equity perspective, as we look into 2021 and beyond assuming there's no big change in the interest rate back up.
Yeah. So I think you Didnt Miss Leslie his comment.
Again trying to predict for too long is they data services, but at least for the next quarter, we feel that margin should be pretty stable it might even be up a basis point or two so.
Some stability in the margin given everything that we're doing on the deposit side can you do that despite pressure on the asset side. So.
You know when when the sales floor today at a more normalized sort of in line and then would be a nine or 10% return equity that's.
Thats sort of the environment, we're in with rates at zero and margin pressure being what it is that our margin has been in the mid twos. If it wasn't for the environment that we find ourselves and Wheeler.
The we were on track to actually improve our margin we haven't improved it but we are marching hasn't been crushed or like.
Like a lot of banks have who are fairly asset sensitive. So you know we are down a little bit from where we were six nine months ago.
But we're holding our own and given the rate environment. If it stays like this wherever whenever.
That's sort of where the margin will be and hourly should solve too you know 910% range, it's hard to take it or 12%.
And do you think they come into the downturn.
The margin than just the funding mix played a role in terms of the gap between Euro are we your RFP has to cool do you think as you come out we expect the bank to be in line or better than peers from an ROI perspective.
Yes, I mean, the difference it whenever we come out of this environment when rates rise is that what you're asking you Brian.
Okay, but then I think if if rates rise or increase demand in this lower for longer do you expected that in both dose to Navios BK, you should outperform or be better than peers.
I think so.
When rates rise.
Well I'm expecting.
Are the only on margin behave to be very different this time around and what rates rose last time around because our deposit base is quite different already than let's say three years ago that breaks out of rising.
And part of also you know why our margin is what it is also our asset mix has been very careful to the asset mix, we have not taken a lot of risk.
And Thats why you know when a credit perspective, we feel much better than a lot of our peers to at this time.
So, yes, but being realistic in terms of when do we expect rates to go up again.
Not expecting that anytime so that's the tough part of where we are the slope of the curve is nice.
But overall rates are so low that you know that is.
The margin pressure on the industry is going to be.
With us for a while.
Got it thanks for taking the questions.
Thank you.
I show no further questions in the queue at this time I'd like to turn the call over to Raj thing, Chairman and President and CEO for closing remarks.
Thank you so much for everyone for joining us, giving us your time to listen to our story like I said at the beginning of the call I Hope that 90 days from now when we speak to you again that we don't have another digital enablement and won't be talking about the buyers again.
But we will be in a better place, but having said that I do want to say.
Despite all the noise you hear on.
On the television.
Overall, the economy has improved core.
Quarter over quarter, and what thankful for that we're all benefited from it.
And hopefully it gets even better speed bumps on the road, but again, thanks very much. If you have any detailed questions you know how to lead to the left field myself. Thank you dr. you'll pick on site.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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