Q4 2020 BankUnited Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the.
Bankunited, Inc, fourth quarter and fiscal year 2020 earnings conference call at this time, all participant lines on a listen only mode.
Speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero and I like to hand, the conference to Speaker today, Susan Greenfield Corporate Secretary. Please go ahead ma'am.
Thank you Victor good morning, and thank you for joining us today on our fourth quarter and fiscal year 2020 results conference call on the call. This morning are Raj Singh, our chairman, President and CEO, especially for our Chief Financial Officer, and Tom Cornish from Chief operating Officer.
Before we start I'd like to remark.
Hi, everyone.
The call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 debt reflects the company's current views with respect to among other things future events for financial performance.
Forward looking statements made during this call are based on historical performance of the company.
Fiduciary for on the <unk>.
Companys current plans estimates and expectations.
Forward looking information should not be regarded as a representation by the company with the future plans estimates or expectations.
Completed by the company will be achieved.
Such forward looking statements are subject to various risks and uncertainties and assumptions, including without limitation those.
Leading to the company's operations financial results financial condition business.
Prospects growth strategy and liquidity, including as impacted by the COVID-19 pandemic. The company does not undertake any obligation to publicly update for review any forward.
Forward looking statements, whether as a result of new information future developments for otherwise a number of important factors could cause actual results to differ materially from those indicated by the forward looking statements information on these factors can be found in the company's annual report on form 10-K for the year ended December.
For 31, 2019, and any subsequent quarterly report on form 10-Q for current report on form 8-K, which are available on the SEC's website at www dot for <unk> with that I'd like to turn the call over to Ross.
Thank you Susan welcome everyone on our earnings call. Thanks for joining us I'll start by talking a little bit about the environment the economy doesn't get into our numbers.
Since we last talked to you three months ago.
Really three big things that have happened in terms of reducing uncertainty.
And reduced uncertainty. This is a good thing obviously, a good thing so, but first and foremost and probably the biggest news of last year was the vaccine.
Which came out in November and snubbing.
Administered obviously, we had the election uncertainty last time.
We'd like more pass back now.
You also had the stimulus which compared to the other two news is small news, but nevertheless positive news.
We werent expecting a stimulus to get done until the new administration takes so were but I'm glad it was passed a few days for a few weeks ago, So would that.
We look through 2021, it feels like a year with a very very strong potential in the second half of the year, possibly starting as early as second quarter, but I do see a slow first quarter as all this good news is great, but it actually has two.
Get converted into reality.
The biggest risk.
Obviously still remains a vaccine distribution.
And to some extent a new variant of Corona virus Theres still.
Uncertainty around it but a hell of a lot for less than than this time 90 days ago. So we're feeling very good as we put together our budget for the year.
We basically took the assumptions that you know first quarter is always a slow quarter for us for this year will be slow as well for all the reasons I just stated, but then pipeline chart that buildup and we started executing on our growth strategy somewhere in the second quarter, but really bringing it in in the second half of the year.
Quickly looking back for this quarter I'm very happy with the results.
We announced 89 per share of $85 $7 million on earnings.
That compares to 70 last quarter.
And if you compare to fourth quarter of 2019, which feels like a 100 years ago. It was 91.
So not that for what we've gone through this year to come out just.
On a very close to where we were fourth quarter of 2019 from an EPS perspective net.
Sorry.
<unk> was 193 and change million, which was $6 million more than our last quarter about $8 million more than fourth quarter of 2019, <unk> was down about $10 million compared to last quarter, but showed a little increase compared to fourth quarter of the prior year Leslie.
Lastly, we will walk you through this.
Some.
Unique items in this in the expense category, mostly having to do with compensation, we had reduced our variable compensation accrual quite dramatically in the second and third quarter.
And we've adjusted that back up not all the way back up variable competition will still be much lower than in previous years, but just not at that weighted we were accruing in the second and third quarter. That's one part of debt adjustment. There is some we've.
We made a change in policy to give a rollover on paid time off.
Due to the circumstances that we're in for employees that costs a couple of million Bucks and then there is an accounting thing, which lets people would walk you through I'm not smart enough to.
To walk you through that.
The Big story, obviously continues to be deposit generation as well as deposit costs.
We had another solid quarter.
Total cost of deposits declined by 14 basis points, we were at 57 basis points last quarter. This quarter. We ended up at 43 and and if you look at our stock cost of funds at December 31, we were at 36. So in other words, we're starting this quarter already at 36.
And working our way down from there so I feel pretty good that this quarter will be another very strong quarter in terms of reducing cost of funds I think we will end up in the low thirties and on a spot basis I feel pretty confident that we will end up with a two handle.
Uh huh.
That's sort of the cost side, but also on average DDA noninterest DDA grew by $966 million.
Which is again very very strong.
I will repeat what I've always said one quarter doesn't make anything you should always look at.
For quarter average over four quarters or trade flow of last 12 month numbers, who can really get a feel for how the business is doing well no matter. How you look at it the last four quarters over the last quarter. That's just been a very very strong performance from the deposit side.
Our non interest DDA now stands by the way at over 25% and I think a year on won't be we're at 18% I assume more work to be done here. We're expecting this trend to continue into next year.
And for us for slowly work on our way towards 30% DDA.
As we.
I predicted risk rating migration has slowed quite significantly I think for the first.
Nine months of 2020, there was downward.
Rating migration on $2 $1 billion on loans this quarter it was $169 million.
Provision came down very very materially.
In fact, we added.
Have a net recovery of a small number of $1 6 million.
Also.
We had reported back into some of our $3 6 billion in loans that were on on deferral. If you remember that number is now down from $207 million on about 1% of total loans, we do have $587 million on loans that were modified under the cares Act as you know on for the Cares Act you don't these don't show up.
But for <unk>, but nevertheless.
These modifications by the way.
Mostly IL modifications for nine to 12 months.
A lot of these modifications are in the CRE.
But how does the portfolio of the hotel portfolio.
And.
We believe that most of our awards are going to come to us for a temporary relief or deferral have had been identified at this point.
Npls ticked up a little bit for $244 million, which is about one point or 2% of loans, but excluding the government guaranteed SBA loans that are in this bucket. If you take that out it's about 80 basis points.
And our C&I subsegment actually Npls declined.
The net charge off ratio was stable at 26 basis points for the year.
Let's talk a little bit about NIM last time, we met.
At this call, we talked about NIM being stable, maybe slightly up which is exactly what happened.
NIM was $2 33 for the quarter I think last quarter. It was 232, so one basis point improvement on.
Total loans grew by $87 million and deposits grew 899 million for total of which 219 was non interest DDA spot numbers. What I gave you earlier was average.
DDA.
Book value was now up at $32, <unk>, which is higher than what it was at this time last year. It was $31 33 cash.
Capital position is strong the board met yesterday and reinstated our share buyback program.
You remember when we started we still had about $45 million left so that authority has been on frozen and.
And then the board wants us to get through this and then we'll meet again.
To talk about additional repurchases.
Capital is one is at $12 six at Holdco as $30 90 day Bank.
And we of course declared our usual <unk> 23 per share dividend.
Our strategy for return to work, let me talk a little bit about this and going forward not much has changed in terms of our positioning for a return to what we still are working remotely.
And.
We expect to do that for at least the next two or three months and then make a decision beyond that at that time.
There have been multiple obligations from the company as you would expect this quarter than in previous quarters, but none that are serious enough to have impacted any of our operations.
The strategy going forward again, we're waiting.
Very anxiously for economic activity to pick up and for us to start.
Participating in the next business cycle, which you know as we speak at the beginning right about now.
The focus will stay the same which is to build a relationship based commercial bank with a focus on small and middle market businesses stay focused on building core business through noninterest DDA identifying niche markets. The big guys don't pay much attention to investing in technology and innovation.
Not just in branches and locations for the game has really become about technology and solving customer pain points.
Through innovation.
Also.
We haven't lost sight of all the initiatives, we had and to point out that was not just on exercise and time that you do and then forget about it's really about changing the culture.
And and we will keep pushing forward on that front as well.
We did launch a new initiative earlier last year, we did not make a lot of big deal about this but I do want I've mentioned it on this call.
It's called <unk>, which stands for inclusive community of advocacy respected the quality.
It is something that I've been in the worst since the summer of last year, but we really announced it inside the company about two two and a half months ago and we've gotten very positive feedback it really is on our effort.
On an organization to push and build a culture that celebrates and intentionally promotes diversity.
And the bank.
This is not just words.
This is we're putting our money where our bio.
<unk> and taking on new initiatives, we think if we can do our bit and move things in the right direction by an inch and everyone does that it will make a big difference in society.
So we're very excited about this our employees are very excited about this.
And more to come on this in the future.
<unk>.
Let me see here.
Let me, let me turn this over to Tom and you kind of walk you through a little more on the business side before Leslie gets into the numbers.
Tom go ahead for us So let me start with deposits on a little bit more detail on the deposit book as Raj mentioned total deposits grew by $899 million for the quarter and noninterest DDA grew by $219 million for the quarter. So the deposit mix continues to improve.
Allowing higher cost deposits to runoff this quarter.
Wish for continued to do for the last few quarters as time deposits declined by $1 1 billion for the quarter.
A little bit more detail on cost of funds. So the total cost of funds.
Cost of deposits declined to 43 basis points this quarter on a spot basis. The a P Y on total deposits was 36 basis points at December 31.
Which was down from a spot of 49 basis points at September 30th than compared to last year. At December 31, there was 142 basis points. So they continued progress there.
Spot rate on interest bearing deposits was 48 basis points as of December 31, compared with 65 points at September 30, and 171 basis points a year ago.
So we're seeing reductions.
And cost of deposits across all lines of business across all products that continues to be a very broad based trend as we think about December 31 2020.
Had 1 billion of Cds in the book at an average rate of 161%, but had not yet re price since the last fed cut in March of 2020. So on the first quarter of this year, we have a significant amount of that just under 800 million debt will re price in this quarter.
Additionally, some Cds that matured and re priced early in the cycle. While also reprice down again at their next maturity day. So there's a very significant difference between what these will re price at our current rates are running about 25 basis points. So we right now continue to see good healthy pipelines and opportunities.
For core deposit growth across all business lines, it's always a little bit more difficult to size deposit pipelines and timing of Treasury management relationships coming on board, but we continue to expect.
Growth in noninterest DDA at the levels that we're seeing now it's likely we will see more time deposits run off at the same time.
Mix of the overall book.
We'll continue to improve we are seeing some.
Of the maturing Cds moving into money market category as well, but obviously at significantly lower rates.
Switching to the loan side.
Raj mentioned in aggregate total loans grew by $87 million in the fourth quarter on operating leases declined by.
By $13 million, so a little bit more detail on some of the segments. The residential portfolio grew by $408 million in the fourth quarter of that $330 million was into Ginnie Mae <unk> segment.
Good for warehouse continued to perform well total commitments grew by $95 million for the quarter and we ended the year at a little over $2 1 billion.
Mortgage warehouse commitments, so that the entire quarter and year was obviously very strong in the mortgage warehousing area and the aggregate commercial real estate loans declined by $89 million for the quarter Mueller.
Multifamily declined by 171 million of which a 151 million was in the New York market.
So beyond that we had overall expansion in other segments of the real estate business obviously.
If you look at loans on operating leases on aggregated BFG, including both franchise and equipment were down this year by on down for the quarter by 124 million given the COVID-19 impact on the DFG portfolio in particular, especially the franchise, we've been focusing our efforts over the last couple of quarters really on.
Our management net exposure reduction versus new production.
If we look into into 2021, a bit and kind of break down sort of what we see happening in the different business lines.
We expect to see continued strong growth in the Ginnie Mae <unk> and mortgage warehousing businesses.
We expect to see the C&I business start to return.
To a more normalized growth.
Mode as the economy picks up and the vaccines and so forth are distributed we're seeing that as a high single digit growth for 2021 predominantly in the back end of the year were for.
For casting a low single digit decline in Korea for 2021.
Continue to have some.
<unk> about valuations in certain segments of the portfolio clearly the hotel and retail segments will be challenged for a good portion of this year.
Small business lending is an area, we would expect to see good growth into 2021, we've invested a lot of our technology and time and expanding small business area and in the franchise area. We expect to see that continue to run off probably in the 20% kind of range in 2021.
We continue to work through that Pinnacle is expected to decline slightly mid single digits, but that may turn around if there are changes in corporate tax rates or the competitive landscape right now from a from an interest perspective.
Switching a little bit to give you an update on PPP.
I think the overall PPP process is going well, we're in the forgiveness stage.
On the 3500 loans that we originally made in round one of PPP, that's that's going very smoothly.
We probably have about 700 loans, so far that have been forgiven and we expect that to continue in the first quarter of 2021, and we're participating in the second draw program to eligible businesses, who were given first dropped PPP loans.
That just recently opened.
And we will be open for clients in that phase, we're expecting maybe for.
50% to 60%.
Second draw requests from clients that we had.
First draw so, but overall I think PPP is growing well some additional comments.
Around loans that we've granted deferrals and I'd refer you to slide 16 in the supplemental deck for more detail around this as well so starting commercial.
Only $63 million of commercial loans were still under short term deferral at December 31.
$575 million of commercial loans have been modified under the cares Act. So taken together this was $638 million for approximately 4% of the total commercial portfolio as of December 31.
Not unexpectedly the portfolio segment, most impacted has been the Cree Hotel segment.
There are 343 million or 55% of the segment has been modified as of December 31.
I would remind you that the majority of our hotel exposure.
It is in Florida. The majority is in leisure properties and so that those are the segments that we're expecting to see rebound a bit more in over the last few months, we've seen occupancy tick up too much better levels than we had seen a few months previous to that and so we see in that segment more.
For travel and leisure coming up and we also see some surveys that we've read recently about companies returning more back to the business travel segment as well our hotel book is it isn't.
Really a business travel segment, but overall, we see the travel markets.
Improving as we get into further deeper into 2021.
On the franchise side, 8% for $46 million of the franchise portfolio was on short term deferral or had been modified as of December 31, compared to 76 million or 12% are on short term deferrals as of September 30th.
74% that were granted additional 90 day payment deferrals.
$48 million or 67% of our cruise line exposure that's been modified under the cares Act on December 31.
Almost 80% of the total commercial deferrals and modifications and almost 60% of the total loans risk rated sub standard or doubtful or from.
Portfolio segments that we had initially identified as needing of heightened monitoring due to potential impacts from the pandemic. So it continues to be the same segments that were seeing.
All of this activity and we don't at this point see really any level of difficulties coming from other segments than the ones that we had at first identified.
On the residential side, excluding the Ginnie Mae early buyout portfolio $144 million of loans are on short term deferral, an additional $12 million had been modified under a longer term cares Act.
Repayment plan at December 31, this totaled about 2% of the residential portfolio.
Of the $525 million and residential loans that were granted at initial payment deferral of $144 million or 27% are still on deferral for all $381 million or 73% of those loans have now rolled off of those that have rolled off $362 million or <unk>.
95% are now making regular payments.
While only 5% or 19 million and have not resumed a regular payment program.
Just as a reminder.
When we refer to loans modified under the cares Act, we're referring to loans that have been excluded for modifications other than short term deferrals and these are loans that if not for the cares act would likely to be classified as TD ours as Raj said most of these have taken the form of nine to 12 month interest only deferrals.
Within the <unk> portfolio.
We're still seeing overall.
Good.
Rent collections in the office market, depending upon the geography, we're seeing.
90% or so in the New York market at 97% in Florida. So we think the office you know collection rate is still running very well multifamily collections are running 90%.
In New York, and about 96% in Florida and for our larger retail loans, we're seeing sort of low 90% rates in the retail space a little bit more on what I mentioned earlier on hotel occupancy.
In the hospitality segment all of our properties in Florida are now open.
And two of the three properties that we have in New York are open.
Florida, we're continuing to see improvement in occupancy.
We saw about a 46% average occupancy rate for the quarter.
December is obviously, a stronger travel month in Florida, and we're coming into the better part of the season.
In December we saw occupancy rates in some areas as high.
As for 60% range, but generally we saw.
Upper <unk> to low <unk>.
No.
Hotel segment is gradually showing.
Some improvement there.
More detail about what we're seeing in the franchise space.
And in the fitness space, So as we've said before.
When we look at concepts, where there is significant drive thru delivery capability.
Those tend to be doing well things like pizza chicken.
Other more popular <unk> concepts.
Are doing very well many of our posting now double digit same store sales increases.
In dining concepts are obviously still struggling.
And that's where we see some softness in certain segments are a little bit divided depending upon whether it's those concepts in certain locations have delivery.
Tight.
Economic models or whether they are in malls for things like that those are a little bit up and down but overall.
We're seeing improvement within the franchise area fitness has taken some steps forward since our last.
Paul at this point all of our stores are open with the exception of those that are in California, particularly those around.
Around the Los Angeles area, So basically 90% of our stores are open at this point they are not all operating on 100% level, but this is the highest rate of openings that we have seen since since the pandemic started so with the exception of just California at this point, there's 280 stores that we.
We have 90% of them on.
And so that gives you I think a good sense of what we're seeing in the restaurant on the fitness area. So now, let's turn it over to Leslie for a little bit more details on the quarter. Thanks, Tom So I'll start with everybody's favorite subject.
Net reserve.
Overall, the provision for credit losses for the quarter with a net credit on a recovery of one $6 million compared to a provision of $29 $2 million last quarter.
At $1 6 million consisted of a $1 $2 million provision related to funded loans on a recovery of $2 $9 million related to unfunded commitments.
For the ACL.
<unk> declined from 115 to one 1% of loans this quarter, primarily because of charge offs, which is exactly what we would expect to have a laser focus on western.
Thanks for taking the reserve on that slide nine through 11 for the supplemental debt provide some details on changes in the reserve on the competition on the provision on the allowance.
Charge offs totaled $18 8 million for the quarter, which reduces the return $13 8 million on this related to the write downs on market is from loans that were sold during the quarter on it moved to held for sale right at quarter end on.
On that as we saw on January $34 1 million on all of the rest of us on stuff that ran for the proposal on the $34 $1 million decrease on the reserve and provision related to the improvement on the economic forecast.
So that was a $32 $8 million.
The increase related to increases on for specific reserves on that risk rating migration. We had on 11 4 million dollar reduction on the amount of qualitative overlays.
For what we would expect.
That's a qualitative overlay to come down as more facts are known about individual borrowers.
For that gets captured in the quantitative modeling and then we also had an increase of $15 $2 million related to more conservative modeling assumptions that we made.
Around the behavior of certain residential borrowers total ban on payment deferral. So all of that going in opposite directions kind of net is down for that provision on basically zero for the quarter.
The decrease from the reserve percentage also reflects the fact that.
Ginnie Mae mortgage loans on a larger component of total loans carry basically no reserve.
Some of the key economic forecast assumptions on I'll remind you. This is a really high level look the model are really.
Yes on a literally hundreds if not thousands of.
On a regional.
Economic data points that our forecast is for national unemployment at about six 7% for the first quarter of 'twenty one.
The total for 2021 on ones from me down to five 4% volume along with 2022 real GDP growth, reaching four 1% on 'twenty 'twenty, one and four 7% by the end of 'twenty and 'twenty tier.
An S&P 500 index for any relatively stable around 3500 on level.
IPhone fed funds rate for water.
Total free.
Our franchise finance portfolio continues to carry the highest return level at six 6% followed by create one 5% <unk> at one point in line.
On the residential portfolio remains relatively stable quarter over quarter reductions, resulting from the improved economics for costs were offset by changes on modeling.
S T risk rating migration on slides 23 through 26 on the deck, we have some detail around this.
Not surprisingly as we continue to move through the cycle and get more detailed information on that.
We did see some additional downward migration this quarter, although its last plenty of Apple pay for this has slowed considerably.
Back on we'll hope to see some positive.
For accretive.
For.
2021.
Thank you.
I'm from migration to sub standard accrual the largest category for inquiry and that would be on the hotel and multifamily in New York on our retail segment.
On the GAAP rate on some of the credit line credit quarter overall in franchise for lateral of criticized and classified assets.
This quarter, but we did see some sales.
And does that standard.
Nonperforming loans increased by about $44 million for this quarter, the largest increases being on multifamily residential like we had some loans come off a deferral in play on the reason on a regular payment schedule on a little bit.
On the franchise for long.
That line.
As expected we continued to see recovery on the fair value Mark on the investment portfolio this quarter.
Portfolio on a net unrealized gain position of $85 $6 million on the low credit losses related to any of the securities portfolio.
Consistent with the guidance, we provided last quarter. The net increased by one basis point this quarter to $2 33.
Yield on earning assets declined by 12 basis points.
Yeah, there's still pressure on asset yields.
On much lower a smaller decline than we had experienced for the quarter before.
So that's that's global.
For this is just going to run off of higher yielding older assets that were put on at higher prevailing rate environment cost of deposits declined by 14 basis points quarter on quarter over quarter and as Tom pointed out I'll remind you that on a $400 million.
Deposits are scheduled for the current price down on Q1.
Non interest expense compensation expense.
This quarter and there were a few notable items in there that was pointed out in the press release that I'll highlight for you we did adjust our variable compensation accrual by $6 $6 million on operating results from the back half of the year were far better than we had initially expected I would call that a first world problem.
Glad to see those revenues up allowing us to do a little more for our employees in the way of variable compensation.
$2 million accrual for some rollover vacation time that we made the decision to allow our employees.
On going back on the difficulty people have had using their vacation time and we also had an increase in our non accrual related to our issue on PSU Award.
Resulted from the increase in the stock price another first of all profile.
With that.
So that's kind on what went on in compensation on a little bit of guidance looking forward for 2021.
I will preface my remarks by saying this is maybe the most challenging environment in which I've ever had the forecast for what was going to happen over the course of the coming year. So all of this guidance is predicated on.
Lot of thoughtfulness about the economy interest rates tax free for competitive environment, the regulatory environment in any of that could change, but as of now what we see is mid single digit loan growth more of that concentrated in the back half of the year as Ross said, we got our supply chain.
First quarter, and that's excluding runoff of seeking tier by the way that mid single digits, excluding net runoff.
On.
Again mid single digit little bit higher than loan growth mid single digit deposit growth with double digit net.
Non interest DDA growth as we continue to remix that portfolio on what those higher cost rates on from our customers are on off including non interest DDA.
We expect demand to increase for the year.
And we would expect that PTK forgiveness E largely Inc. First quarter 2021 events for the NIM in the first quarter, we will get a lift from PPP forgiveness, I think there's about $11 million worth of unrecognized team for winning all of them from flow through that will come through in the first day may be found on the second quarter.
The provision so I understand so in theory, the provision should be related only for new loan production and charge offs should increase should reduce the reserve on them for world and Charles that's what would happen.
<unk> attempted to forecast changes on the economic forecast, but if the economic forecast doesn't change the provision for the year should be modest.
<unk> will be higher in the second half of the year for loan growth picks up on any charge offs.
The allowance and we would expect net charge offs exceeded the provision for income year on the reserve on down.
Yeah.
If our prognostication about the economy is true we would expect over time, hopefully return to an environment similar to what we were in right before the timely adopted seasonal we would expect for reserve to return back to those levels.
Non interest income for next year, we do expect to see some increase in deposit service charge and commercial card revenue materialize in 2020 line.
For least firewall for a long time to stabilize after some decline on the first quarter.
Overall in the aggregate, we would expect probably a mid single digit increase and that's going to come from two areas. One is Tom part of that is just a natural normal merit increases and inflationary salary increases, which we think will resume.
I actually called for visa and 2021 as the as the economy recovers, we do expect it to remain below 2019 levels and we also on the spot technology related cost to increase as we continue to invest on some important initiatives.
For Ya.
Tax rate, we would expect to be around 25%, excluding discrete items discrete items, if there's no change on the corporate tax rate.
The other the one other thing that I will.
Point out to you we had about $3 million dividend equivalent rights outstanding that expire in the first quarter of 2021 and that will add to the free subs per quarter to EPS.
So I just wanted to make you aware that on with.
With that I'll turn it back over to Raj for closing comments.
Thank you Leslie.
You know there's so much information to give you. These days. These calls ended up taking way too much time in the first half but hopefully.
As the economy returns and.
We have to do less talking a bit more of your questions but.
Let me turn it over to you guys.
And take questions now I see on line number handy.
Operator.
Thank you as a reminder.
You will need to price the star one on your total until they dry questions just press the pound key.
Our first question will come from the line of Abraham co on Viola from Bank of America. Your line is open.
Good morning.
Morning, Good morning.
No.
Hey, I guess first question just around.
Because it makes our odds move that lovely.
Thanks for the guidance cut on the non interest bearing deposits.
When I look at <unk> pre Covid I think the biggest GAAP. When you look at ROE was driven by the cost of deposits.
Given the.
In flow of liquidity for the entire investing it makes it a little bit challenging to figure out who's growing core relationship deposits that are going to stick around when did go up so just talk to us in terms of your comfort level in terms of the claims that you brought on in the last year than the last few years and how Bob.
If and when rates actually go up and.
Maybe for usability just help us deliver.
Deliver peer like on better than peer auto yodlee.
Yes.
So.
<unk>.
Listen.
What do you guys see is a push for growing BBA.
And bringing on cost of funds, which you don't see behind the scenes that I'm really pushing hard in the company is make sure we have the right clients.
So for the last almost six months every deposit all debt. We've had we have won every month.
On the topic of discussion is how do we make sure that when rates go up because they will someday maybe two years out but eventually they will go up.
We have lower betas and lower pain at that time, then when rates went up last time around.
We look to various things.
Park money single accounts or few accounts type.
Behavior is.
It is generally an indicator of debt.
On the money to leave or it will have high beta so we're trying to be stress and push those accounts out.
We're also trying to.
<unk>.
By industry select industries that tend to be less.
We have less data so we're doing all those things, but there is.
You don't really exactly know how a client relationship will be handling rates rise. Even guess you can look on how they did last time around you can look at the industry you can look at customer behavior, how much business how much payments.
Run through the bank.
And those are all indicators, but if you haven't done anything on indicators. So I think we're working on all those fronts.
Im.
Trying to sort of not work for just this quarter and this year, but really focus on 2020 for when rates rise up.
But eventually.
I am very curious myself to see how this will eventually all breakout.
Media is obviously a fuel for every day at the end of the day DVA has zero beta that's what you if I could have the entire deposit basically just non interest DDA line.
That's that's silly, but I would love for that to be the case, so as long as we keep delivering on that that's our ultimate insurance from from.
<unk> paid in a rising rate environment.
Got it and Theyre still on.
Typically at odds at all.
The buybacks. So I guess you go back in the market or at least are willing to buy back stock.
Just tell us in terms of your appetite moved it seemed like a modest amount in terms of like scaling the buybacks up and then just talk to US in terms of you on the outlook on on the M&A does anything change coming out of this versus how you would view viewed M&A going in pre COVID-19.
I don't think.
Our philosophy on M&A really changes I think M&A is a tool.
To be used for carefully.
And.
Reported.
It shouldn't just be let's get bigger idea should be lets get more profitable.
And sometimes I mean, it doesn't make sense, but if you can build it yourself.
We'd rather be patient and build it ourselves, but certainly things cannot be built themselves and for that M&A is fine.
So my M&A abuse, rather than my philosophy hasn't changed I think what has changed is the environment is very different last year. There wasn't much M&A on towards the fourth quarter and now I think I feel coming out of this space on period.
I do expect more M&A, especially in the mid cap space, maybe not so much in today large bank space.
But yes, this year and maybe next year, we'll be active in the M&A front.
We're here to talk to anyone and everyone. A deal that makes sense, we wouldnt talk but we don't lead with that.
Got it and just on buybacks.
On buybacks.
Our board as you know has given us always $150 million at a time.
In terms of authorization and I think they wanted to stick to that rhythm.
Budget that could be presented to them on the.
But that's on a month ago includes buybacks are much more than the 45 million net.
We've just gotten authorized for my guess is once we get through this 45, they will probably be another 150 of them to get through that 150 there'll be another 150, and so on it really is about managing your TCE.
The Ta targets.
Which you know.
Basically going to go back to where we were prior to Covid, which as you know I'm trying to drive here for 8% TCE to Ta overtime.
Thanks for taking my questions.
Our next question will come from the line of Jan.
Sure from Wells Fargo, you may begin.
Hi, good morning.
Good morning.
Maybe sticking I guess with the deposit NIM discussion.
Great to see the reduction in your funding costs there as we as you look at that next round of Cds Rolling off do you think that you need to start holding on to some of those or should we still expect to see.
So level of Cds declined as well as deviates increase or will the mix shift from about more just by DDA is outgrowing the Cds.
I think Cds will continue to decline not just because of the way with pricing, but also because of the customer.
Preferences change right people don't really want on lock up money in such a low rate environment. So a lot of money is flowing into money market DDA growth is separate that's more about our business development efforts that have been.
Singularly focused on on DDA growth in the Pan out for the last many quarters now so that will continue and overall deposit costs will keep dropping.
Yes.
Yeah.
Yes.
And then on the on the CRE side.
Clearly you still have the headwind of Paydowns and payoffs there, but on the loans that you are writing how are you. How are you seeing changes in pricing and structure is that moving to your advantage or is it still a pretty competitive market for.
For new newspaper.
Tom why don't you take that one yes, I would say when you look at the CRE market what were predominantly doing new today tends to be in a couple of sub sectors. It tends to be in the industrial market, where we have.
A good level of credit appetite for industrial property, we're seeing.
Good opportunities in Florida, multifamily, where those markets are tending to do <unk>.
Extremely well I think there has been.
There's been some structural competition I would say in the last quarter, perhaps more than we saw on the third quarter. We are seeing life goes on other banks return a little bit more to that market, but at this point when we look at what we originated in.
On the fourth quarter that you know what I would call relationship oriented business.
I still think we're seeing good quality structure and good rates.
And the market our pipeline in those segments heading in to.
For 2021, I think is good and I think clients out for good level of confidence in our ability to execute on transactions and I think that's.
<unk> of that we're still seeing what I would consider to be reasonable pricing and terms on the asset classes that we're emphasizing in 2021.
Okay.
And then just I guess, maybe more of a modeling question on on the expenses and.
On the growth when you are the growth outlook that you're giving us full year over full year I'm.
I'm, assuming and I guess, how should we be thinking about first quarter comp expenses for some of those moving parts that you called out this quarter.
Yes, the guidance was full year over full year and as you know in the first quarter comp expense is always elevated by several million dollars because of just the timing of payroll taxes on HSA accounts seating for a lung kidney contributions on all of those things that tend to be front loaded. So it will be higher on the first quarter Jared as it always has.
Sure.
But so those those.
The higher levels of incentive that we saw on fourth quarter.
Moving forward yes.
This thing should should not recur, but on.
But we will see elevated comp expense in Q1, we always scan.
Yeah, Okay, and then just I guess finally for me when do you think you could see the CLO portfolio back to par is that something you are expecting this year.
So almost there yes, it's difficult for me to predict that can tell you that spreads on the bond market or tightening everywhere, which is not a good problem to have to be honest, but that will contribute to that coming back in.
Yes, we're almost there now.
Don't see any reason why it wouldn't continue to pull to par for Terry.
Great. Thank you.
And our next question on the fence line Bradley Gailey from <unk> you may begin.
Yeah, It's Brady good morning, guys.
Great.
But I wanted to close the loop on buybacks when your stock has done.
Pretty well recently I don't think you've ever been a repurchase or up when the stock has been at this level.
But it doesn't appear that that's going to stop you from re engaging on the buyback in the stock on the relatively speaking and it still was only like one on a quarter times tangible so it's still pretty cheap, but I just wanted to make sure.
That was the case.
Brady I think we have bought our stock in the high Thirty's.
We would like to buy it lower but I think we have.
We will be opportunistic I still think there will be volatility in the stock.
Not our stock for everyone stock. So we will use that to our advantage and we're not going on and just go out and do the entire thing tomorrow.
Tomorrow.
So we won't be opportunistic we will set up a grid, we don't try to Leslie I don't do this.
On a full time basis, we just give them instructions, we set up a grid and let it run for a few weeks. That's what we will expect to nail for the stock is lower we'll buy faster if it firewalls by slower.
Okay.
To clarify Leslie your NIM guidance is the reported NIM not like the NIM ex.
Ex PPP or anything like that right.
Correct.
And then lastly flow from what we expect that we will get some lift from PTC in the first quarter.
On.
And given how we can take for forgiveness is going to go on those loans that's correct.
Okay, and then lastly for me I just wanted to hit again on expenses.
I believe I remember you guys guided for flat expenses on a linked quarter basis this quarter.
They are up 14% to $15 million, which I get I know you guys called out this for special mentioned items, so I get that but the guidance for this year 2021, the mid single digit increase.
I'm, a little surprised by that.
Overall expenses for any not just in cost for the technology is probably going to be the line items that increases the most on a percentage basis actually for.
As we continue to invest in technology and the other thing is baked into that was helpful. They won't materialize, but it is baked into that number as an assumption that worked out and recovery costs are going to be elevated in 2021, as we move through the pandemic and work with these borrowers.
Moving to through the pandemic with them on and hopefully that won't materialize for some of that is baked into that guidance as well.
Sure.
I'll add to that also really you know it's great to see so much an operating business come over in a year, but the back end of that is and you have to you have a lot more wires and lot more AC makes a lot more payments happening.
And you start adding a couple of people on the wire room couple of people in fraud couple of people have DSA are.
All related to the growth in DDA that we've had.
So there's some of that also happening, but technology is a big one we have been investing.
As you know over the last 18 months or 24 months in technologies all of those expenses are coming through but that's really the future of the company.
And some of the success that we're having is also based on some of that technology spend that we've done, but it's really coming in and hitting the P&L on a full basis right about at this time.
Alright, I remind you that these expenses these expense increases that we are guiding too.
It won't happen if we don't have the accompanying revenue increases they're predicated on from assumptions about growth on revenue and obviously.
That's again another good problem to have.
And then we baked in on it to point out was very successful go on into great job on for that.
Any thoughts on banking on at three point out.
I mean, if you are thinking of coupon I know as an expense exercise of the answer is no because.
You know you can really.
Net very shortsighted in and saying, let me just speak a little more expensive than before even though you don't have a future left.
So investing in the future of the company is as important as being mindful on.
You can be unexpected so we've done a good job, we took 40 million on expense out but.
<unk> did not say that we would not invest in the future. So I think if you think about three point on more as.
There continues sort of transformation for the company the answer is yes.
We have fewer branches in the future then today the answer is yes, simply because that's where the business is headed we'll be have more automation in the company than even what people in total it's about the answer is yes.
We actually continue to push on all of the revenue aspects of this.
<unk> commercial card portfolio. The answer is yes, but just barely as an expense exercise I think.
We're not an outlier when it comes to the expense ratio.
Expenses to assets expenses, two loans whichever way you want to measure it.
And I want to be mindful and make sure that we're investing for the future as well.
Got it thanks guys.
Thank you. Our next question comes from the line of Christopher for Keith from D. A Davidson your line is open.
Thanks, Good morning, everyone.
Good morning.
So I just have two.
Two questions I wanted to dig a little more into the loan growth I. Appreciate all the detail, but I just wanted to think a little bit about demand and your comments on <unk>.
Loan growth really starting to begin to return.
Normalized level in the second quarter, but then really.
Improving in the back half.
So I think that it's clear.
Raj the comments you made about.
Some of the positive news needing to materialize.
But I'm also curious on the impact of the new PTP on C&I loans is that.
Something that your customers will be a beneficiary of that.
Does that kind of dampen C&I demand and for how long.
We've all been sitting and talking the last few weeks few days about how big PPP.
Two point always going to be and we don't exactly know, but I don't think it'll be anywhere close to.
The first round the first round was $850 million for US My bank cash is going to be maybe half of that so it's not a very large number.
And on.
The old PPP is getting forgive it net of new when it's coming on so I don't think net it's really going to move the needle that much.
But it will help our clients tremendously so it is a great thing.
That the federal government has done so we're very supportive of that and we're trying to do as much as possible, but we don't we just don't see that huge.
I mean, our phones are ringing off the hook back in April that's not the case right now.
<unk>.
Our comments about.
It really economic.
Activity will pick up only when there is.
On a certain level of vaccines that are administered we think it's probably still three months away, but when that happens when economic activity picks up it's not just new loans will pipelines move for them up but also our existing line so where are the lowest usage in the history of the company.
At least 10 points behind it on commercial lines than what we would expect in normal times, but that starts to normalize just if you don't have been originated anything just that move.
Moving then that's several hundred million dollars of growth that we will get without really underwriting on new loan.
So.
But that's all linked to economic activity economic activity is to pick up and I think it's still probably a few months away.
Yeah, I would add to that that all of the guidance. We gave is predicated on an underlying assumption that we continue down a pretty steady path of economic recovery.
That not materialize obviously.
Our guidance, maybe a little too optimistic things recover much more quickly and faster than we assumed in the opposite would be the case.
Yeah I would also add when you look at the P. P. P program for the second draw on the bar and the qualifications are different so one of the biggest bars that you have that's different than the first program is that you have to have a 25% reduction in <unk>.
Revenue in any one quarter or so.
The maximum amount of the loan is now $2 million versus $10 million and the <unk>.
5% bar.
It's really going to relegate this too the most heavily impacted industry segments. So just by the net.
Obviously, we have some of those but the vast majority of our portfolio as you can see is obviously not in.
Heavily impacted areas. So the number of clients that will be eligible to take advantage of it you also have to have used up all of your <unk>.
Round one.
Expense fundings that you got in a way that you can.
Indicate that you are compliant with how phase, one which used so theres some natural parameters around that.
We will not lead to the same kinds of demand numbers that we saw on phase one.
Got it great. Thank you and then I was just also hoping to get some insight from you on the multifamily marketplace and particularly in New York.
Obviously, you continued to see rundown in that.
Portfolio.
I'm just curious are our borrowers getting.
What is I guess.
Triggering.
Them.
Leaving the bank is it is it that theyre getting to the end of their term.
And they're looking to take advantage of the lower rate environment and if so are they those that are walking away or day.
Do they have healthy debt service coverage ratio and you'll get.
Allowing them to walk away for a strategic reason or.
Maybe just some color around that so we started a cut.
Full of years ago, obviously, where the strategy of reducing our exposure in the New York multifamily market. So when we.
This 2021 is kind of the last five year term.
The original vintage loans that we had put into the market when.
When we look at clients that are leaving.
These are predominantly relationships that we are not.
Interested in maintaining because the overall.
Health of the market with the changes in rent regulation. Some of the changes that are going on in the economy in New York.
We're seeing.
Rising cap rates, which is putting pressure on.
On valuations and you're seeing.
Extremely thin.
Net service.
Levels in some of the properties that we're exiting out of so I think this is.
A healthy rebalancing.
Our portfolio in multifamily will continue to run down.
In 2021 is the kind of the last group of vintage of the 2015 production.
Sort of comes to maturity in 2021.
Got it great and then just last question on deposits and the impact of the new PPP round, two and debt.
For additional stimulus we've seen do you anticipate some of this excess liquidity.
For eventually starts to run down do you expect your customers to kind of hold on to their on liquidity.
Throughout the course of 'twenty, one and what kind of impact or are these new programs, having on potential future loan growth.
Or I'm, sorry deposit growth.
That's.
Obviously, each business that applies will be a little bit different so it's hard to to generalize that at this point because we have in process. The first new application yet so it's difficult to forecast what that demand is going to look like and then what ultimately the retention.
Of those dollars are going to look like I would suspect.
That given the bars that are around the program.
Being predominantly the 25% drop.
In revenue Youre going to see not just for us for everybody.
These are for every bank, you're going to see a higher percentage of borrowers that have come through more distressed times. So I suspect that the whatever we were to phrases.
Quiddity buildup that happened in phase, one you're going to have.
Borrowers, who did not need for a substantial part of our liquidity and held it for longer periods of time are probably not going to qualify for phase two so I think the dynamics.
Deposit funding and deposit retention under phase two are going to be.
Fairly different than phase, one, but having said that we haven't seen any applications. Yet so it's hard to say it's a great question, we're seeing we're seeing them now.
We will be executing.
And opening up the program this week, but we haven't seen any of the enough of the details would be able to kind of forecast, what we think that might look like.
Got it. Thank you so much for taking my questions.
Yeah.
And our next question on comes from the line of Stephen Scouten from Piper Sandler you may begin.
Yes, good morning. Thanks.
I guess maybe quick.
The housekeeping question I'm wondering Leslie do you have the amount of PPP fees that were recognized this quarter and the average balances on the PPP.
On the fees recognized for about $1 million.
So not really not very impactful this quarter.
On the average balance on fire.
Okay.
Yes.
Yes, not changed yes, we only had $48 million forgiven, so the average balance somewhere around $800 million for the quarter on for Scott.
And I think that's perfect.
On the FERC fees left to be recognized.
Great. Okay. Thank you and then maybe thinking about.
Kind of on net portfolio on migration you saw this quarter I mean, obviously you walk through slide 10, Thats very helpful.
Im wondering.
Kind of what you all saw on the CRE trends and maybe multifamily retail in particular that led to some of these jumps on the substandard accruing category and if you think that's an issue that could persist based on what youre seeing today.
Yes, I would.
All real estate is local right. So I would say that when it's true went through an analysis of that last night.
When you look at predominantly what happened in that category.
It's.
Multifamily and mixed use multifamily retail that is sort of all around NYU.
Some of our biggest challenges where what we believe for short term in nature is the lack of students and a lot of these properties and retail properties cater.
Kind of around the Washington Square Park area.
Why your students and we're not seeing.
Those students physically return back on the campus and we're not seeing.
Those retail.
Establishment is doing well for what we saw on migration.
This quarter was predominantly property that is around that around the sort of village area around NYU.
We don't see.
That's kind of the concentration that we had on that area. So I don't think thats reflective of whats going on in the entire New York market I think it's a very micro area and obviously, we're hopeful that from on a vaccine is out and students start coming back to campus for some of those things some of those conditions improve.
Yes.
Okay. That's extremely helpful. Thank you and then just on loan growth that kind of mid single digit range.
You noted I guess that <unk> should still be pretty tepid on him.
I'm wondering does that include kind of the same pace of Ginnie Mae buyout activity or would that be more.
Towards the core commercial side of things that you think could pick back up that would drive that growth. Yeah. That's in there also Brady I think we do think this is a good time for me in.
That business and we see opportunity there right now so I do think for Ginnie Mae buyout portfolio will be will contribute to growth for sure in 2021 at least as we've seen them on today.
Okay, and then just last thing going back to expenses I just wanted to confirm that expense guidance is that off of.
I think it was $123 million expenses this quarter or is that off of some sort of base. It exclude the jump in salaries on the top of growth and so forth.
It's off the annualized I mean, just talk the annual expense number for ADR.
I know I guess theres a lot of moving parts in there, but that's what that guidance is based on.
Okay, so like the $457 million total expense rate.
No no no.
457 million kind of debt.
That's right.
Well I'll answer it or whatever isn't that a inc.
So based off more of that $457 million number yes.
Okay perfect. Thank you guys. So much I appreciate the time.
Okay.
Our next question comes from the line of Dave Bishop from Seaport Global you may begin.
Thank you Hey, good morning, Good morning, Dave Good morning, Hey, following up on the <unk>, our Stephens or wherever that was before my question.
France from Brexit.
Just to clarify and make sure I heard it right. So.
And I appreciate the continued disclosure on the slide deck, there, but the so the increase on that sort of sub standard occurring multifamily if I heard that right that sort of centered within that portfolio that sort of that retail mixed use for maybe the multifamily yet around for Washington Square Park and why you are in New York City is that the case correct.
Got it got it.
And then Leslie I think you noted in the preamble in terms of just the.
The trends in migration.
In terms of fees on the allowance for credit losses.
I noticed a little bit of uptick in terms of how the assumption changes.
In regards to the residential loans just curious maybe what's driving that are you seeing any sort of particular weakness in various areas just maybe some commentary on that I think.
Where that comes from is as our credit folks look at the residential portfolio and the population of loans that either still are or were on deferral.
Hey on the field.
What we did was we modeled those a little more conservatively this quarter until those loans that are rolling off of deferral establish a little bit longer trajectory of a regular payment history. So my hope is that we get six months down the road and that gets reversed out, but we'll see that was just a conservative assumption that we make because we still.
Feel theres some level of uncertainty as to whether all of these residential borrowers that are rolling off deferral are truly going the ones that didn't keep making payments. While they were on deferral are truly again establish a good history of regular for making our regular scheduled payments that we were just on the more conservative on how we model. This.
This quarter.
Okay. So it wasn't anything particular in terms of deterioration in terms of any underlying sales a lot of that but they just you know a lot of these guys just have not established a.
On the three established a payment history. So we wanted to BMO on more conservative until they do.
Got it got it.
And then maybe a question for Tom.
Raj you noted sort of the outlook and hope for.
Double digit maybe mid teens DDA growth.
That predicated on the ability to sort of get your cash management Treasury management team.
On the ground in front of clients or do you think you can still sort of.
Maintain or sustain that growth in this sort of virtual world that work for all that they can be states. Yes, we can do that on a virtual world.
The real world opening up as more.
Needed for the loan side, but on the deposit side as we have been doing all of last year.
We found a way to keep developing the business even if it is for sure.
Got it thank you for.
Part of it is.
Certain industry segments.
We have chosen to specialize in some of them are lending themselves well to this type of selling methodology and we've developed products and service capability around these so it's not like you are having to sort of start kind of new relationship segments. We're deepening a lot of the true.
Additional ones that we've been in where we have strong service models and good capability and relationship managers with the context and those sub segments and so it makes it.
You know far easier to continue to develop this business into virtual atmospheres.
Got it thank you.
Thank you Andrew on last question on fees from the line of Brody Preston.
From Stephens you may begin.
Hey, good morning, everyone.
Commodity.
Hey, so I just wanted to.
Sorry to beat a dead horse, but just on the expenses just as you know just taking your sort.
On the commentary around the variable comp from earlier in the call on.
The guidance you gave around <unk>.
Merit based increases for <unk>. So it sounds like the variable comp may come down a bit in the first quarter, but then you're also gonna have merit based increases on top of that so I guess all in when I think about that salaries and benefits line item should that stay sort of relatively flattish to fourth quarter, just factoring those two kind of data points.
No.
I mean, it'll be higher for Ot because of other elements that always hit on the first quarter such as.
<unk> always had a big slug of payroll taxes, we see dollar HSA accounts for one K contributions are front loaded.
And then it'll come down quarter.
Quarterly okay.
In spite of the merit increases for the first quarter comp is always higher because of our frontloaded.
Tax and benefit costs.
Okay got it thank you for that.
And then on the securities portfolio I am sorry, if I missed it I just wanted to get a sense for what new securities yields were in the fourth quarter in terms of what you're putting on and just can you remind me I know I know the duration on the book is relatively short, but what percentage of the portfolio still.
Needs to sort of re price down to current levels or what you've seen over the last couple of quarters.
Yes, I would say two things about that I do expect pressure on securities yields again in the first quarter based on what I know the day I would think that would be down five to seven basis points from where they were in the fourth quarter.
Part of that is spreads are really tight right now and I don't know if debt is going to persist or if it's not going to persist, but even since mid December.
That's really come in a lot across all segments of the securities portfolio on the bond market that we participate on.
So things are coming on at lower yields as far as coupon resets. They are still from left we do have some securities on the book that reprice annually.
But but not as many I do expect some pressure on those yields fell again in the first quarter as that portfolio turns over the duration is pretty short for some time over the course of 2021, I would expect that to stabilize and it will come down again on the first quarter.
Okay. Thank you for that and.
Maybe this is just a larger picture question as it relates to the securities portfolio, but you tend to run the Securities book, you know a little bit larger or quite a bit larger than than some of the you know some of your peers I guess.
<unk>.
As I think about you know Raj maybe be Ku, three point O or something like that or have you given any thoughts on maybe trying to mix shift the earning asset base more heavily into loans.
Because it would really allow you to kind of.
Right size, the ROA profile on the bank.
We'd certainly love to do that and if the loan demand is there to allow us to.
Yes, we need loan demand, we need economic activity to safely.
Deploy into higher yielding loans.
But you know.
There's a lot of pent up demand in this economy. This is a day artificial in recession. Unlike we've ever seen it went down faster is coming up fast I do expect.
<unk>.
Three for perfect.
A number of months.
The economy could be in a very different place.
And that's what we will have an opportunity to grow on loans. I mean, just just wishing that you would grow loans in this environment as it is.
Not a great strategy. It is just.
We would love for us to swap out on the part.
Securities for more loans, but I think you have to wait for the right environment to do that.
Right I understand that I'm, just thinking you know from a from a liquidity perspective, you know your period end cash balances here.
<unk> completely out of whack relative to historic levels and so as I think about how the funds you know I guess the mix shift on the balance sheet.
In 'twenty, one and 'twenty two understanding that youre trying to get really good deposit growth, but it seems like there is an opportunity.
You know to really kind of mix shift the earning asset profile on just given how short the duration of the securities portfolio.
Assume that that's something that could be potentially attractive yes.
Yes, it absolutely is and that's one of the reasons we've kept it very short because we don't want to be hamstrung with long dated securities. When the time comes to actually start investing on the loan portfolio.
Okay, and then excuse me one last one that I had and I'm sorry, if you've covered this already but just the hotel portfolio. The criticized and classified I think make up 82% of the balances on a big chunk of that 70% of.
Of total hotels in substandard classified and that that's a decent step up from <unk> and so I just wanted to get a sense for what the plan was moving forward would you consider selling these loans are.
When would you expect workout to occur are these loans still still paying.
Most of them are still paying admittedly some of them for modified for an IR structure for a period of time.
I think we are fairly optimistic with respect for that portfolio in terms of recovery.
For the leisure segment.
Yeah, I would agree to that I mean, when we look at the <unk>.
Client base that we have in there.
Net segment I mean, these are primary depository relationships.
Ours are generally strong asset owners.
As long as I said the payments.
Continued.
We see recovery.
Each month in this segment and it is not.
It's not difficult to imagine an environment where.
You get a vaccine fully out in the marketplace and the.
Actions for travel later on towards the back end of the year are actually pretty strong.
These hotels could rapidly recover.
Because they are with the exception of one or two.
Our hotel exposure in Florida is predominantly leisure predominantly beachfront and.
I said, we're now seeing.
Occupancy rates in places like the keys from the West Coast.
Up in the 60% plus range.
I think the greatest opportunity for this to be.
The risk rating and the economic scenario to change for us is.
You start to see more of.
You start to see the vaccines get out and people start to return on these hotels are not that far away from being able to be back up in the 70%, 75% range and have stronger ADR is in F&B business, So and as I said most of these hotels if not all of the Florida ones are primary relationships.
Where we have significant deposits and significant treasury management business and hotel owners and operators that have performed well for a number of years.
I'll just add as a test case on one when I look at my own family's desire to go on vacation.
Very strong desire to go away for vacation. This summer I feel very hopeful about this industry in the second half of the year, but that's based on what it's just my family, but I think a lot of families are on.
I'm gonna be what post activation that it'll be a different place for.
For entertainment and hospitality for Gregg I will tell you that a lot of Florida hotels are very cool on the weekend.
On staying on them.
Not the only one there.
So net conference on Tuesday night.
Your line is on Friday, and Saturday, just anecdotally I spent the weekend one on South beach over the weekend and it was a 100% book.
And every restaurant on.
Miami Beach was packed and you couldnt get reservations for two or three weeks.
Better quality restaurants.
The beach was a 100% booked over the Martin Luther King weekend. So there's there is health coming back to the markets and I think that there is pent up demand.
As soon as we get a more full rollout of our vaccine.
And that's what our hotel owners are also belief.
Understood. Thank you very much for taking my questions I appreciate the time this morning.
Thank you.
Thank you I'm not showing any further questions in the queue on.
Now I'd like to point out.
Mr Singh for any further.
Volume.
Thank you very much for joining us we will talk to you again in three months.
Hey.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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