Q4 2020 Financial Institutions Inc Earnings Call
Good morning, and welcome to the financial institutions, Inc, fourth quarter and full year 2020 earnings call.
All participants will be in a listen only mode did you need assistance. They said no of conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
You asked the question the press Star and then one on your cash balance out please.
Note that this event is being recorded I would now like to turn the conference over to Shelly Doran director of Investor and external relations. Please go ahead. Thank you for joining us for today's call, providing prepared comments will be president and CEO, Marty Birmingham, and CFO, Justin bag of director of financial planning and analysis Mike.
<unk> will join us for Q&A.
Today's prepared comments and Q&A will include forward looking statements.
Actual results may differ materially from forward looking statements due to a variety of risks uncertainties and the other factors. We refer you to yesterday's earnings release and historical SEC filings available on our Investor Relations website or the safe Harbor description and a detailed discussion of the risk factors relating to forward looking statements.
We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures reconciliations of these measures to GAAP financial measures were provided in the earnings release, which was filed as an exhibit to a form 8-K.
Please note that this call includes information that is accurate only as of today's date January 29, 2021, I'll now turn the call over to Martin.
Thank you Shelly.
Good morning, everyone and welcome to our fourth quarter 2020 earnings call.
Quite the many ongoing challenges presented by the COVID-19 pandemic.
Thanks to the commitment and significant effort of the collective five star team.
2020 proved to be a year of strong performance across an array of key outcomes.
We generated record high net income of $13 8 million in the quarter or 84 cents per diluted share as compared to $12 3 million or 74 cents per share in the third quarter of 2020, and $13 1 million or 79 cents per share in the fourth quarter of 2019.
Jim.
Pre tax pre provision income in the fourth quarter was also the highest in company history at $21 billion of.
The 1.7 million increase from the third quarter of 2020 and of $4 9 million increase from the fourth quarter of 2019.
Revenue growth and expense discipline.
Flexing the impact of our enterprise standardization program.
<unk> in the fourth quarter efficiency ratio of 55, 8%.
We took two actions during the fourth quarter to provide the important flexibility in managing our balance sheet and the bunch of head.
The first was in October when we sold $35 million.
The 10 year fixed to floating rate subordinated notes with an annual interest rate of 4.3 75 per cent.
After five years, it becomes floating rate debt redeemable at our discretion.
We were comfortable with our capital levels before the offering but it seemed it prudent to take advantage of low interest rates, whereas the capital.
For using the organic and strategic growth opportunities and to further strengthen the bank's capital ratios.
The second action was the establishment of a stock repurchase program for approximately 5% of our outstanding common shares share.
May be purchased in open market transactions and pursuant to any technical requirements of the <unk> one trading plan.
We did not buy back shares during the fourth quarter due to blackout restrictions.
However, our plan went into effect of January 11th and we have repurchased a total of about 127000 shares since then.
In December we announced the planned acquisition of of Rochester based insurance brokerage firm Landmark group.
Landmark will be acquired in our SDN insurance agency subsidiary and their principles will remain with SDN to lead our Rochester insurance operations.
The landmark acquisition will expand our insurance business in Rochester, and the finger Lakes region, an important growth market for us.
And Chris Shea landmarks Chairman and President are highly respected their philosophies are consistent with ours and they are of very strong commitment to their clients.
We see upside in leveraging our banking of wealth management offerings to their clients and their insurance offerings to local five star customers.
We are looking forward of completing this transaction a continuation of our long term strategy to diversify revenue.
This is of bolt on transaction of relatively immaterial to the company's financials as it will negatively impact the TCE ratio by less than two basis points.
EPS dilution is projected at about a penny per share in the first year with EPS accretion generated shortly thereafter, as we benefit from economies of scale.
Pre closing activities are proceeding on schedule and we expect the transaction to close in the first quarter.
Now my pleasure to turn the call over adjusted for additional details on results in 'twenty 'twenty one guidance Justin.
Thanks, Marty good morning, everyone.
Martin said, it very well Twenty-twenty really was a year of strong performance across an array of key outcomes. Most importantly, the fundamentals, which is well measured by pretax pre provision.
Which increased over 8% year over year.
Additionally, we also generated over 2% of operating leverage from 2019 to 2020, excluding branch restructuring charges with that said, let me start by providing comments on several key areas with comparisons to the third quarter of 2020.
Net interest income for the quarter was $36 2 million an increase of 682000 from the linked quarter the.
The increase was driven by a number of items that increased our interest earning assets, which I'll cover now.
In December we started the C. P. P. P loan payoffs through the forgiveness process approximately $17 million of these loans were forgiven and we accelerated approximately 240000 of net interest income from origination fees in connection with the payoffs.
Net interest margin was nine basis points lower than the linked quarter, which is lower than we projected primarily due to a higher than expected increase in our liquidity position specifically.
Specifically, new deposit growth was higher than seasonal decline in municipal deposits were slower than we forecasted which on a combined basis significantly increased our overall liquidity position.
Some of this excess was deployed into the collateral eligible mortgage backed securities in an effort to reduce the NIM pressure associated with interest on excess reserves at the FRP.
While we couldn't fully deploy the excess cash due to the delayed but expected seasonal public outflows in December.
The incremental yield improvement of our investment purchases was about 100 basis points better than the interest earned on cash held at the FRB.
About five basis points of the NIM decline is attributable to the investment portfolio and four basis points is attributable to the federal reserve cash position.
As we discussed last quarter, the low interest rate environment, and overall challenging economic environment has made it difficult to deploy cash in investment alternatives with attractive duration adjusted yields.
Cost of funds for the quarter was 34 basis points of decrease of four basis points that.
The decline was driven by lower deposit costs, driven by lower market interest rates and favorable funding mix.
Partially offset by the subordinated debt issuance previously mentioned.
Provision for credit losses was $5 5 million for the quarter.
Compared to 4.0 million than the linked quarter.
Charge offs were in line with historic quarterly charge off levels at $2.4 million.
From last quarter's 488000.
Our allowance for credit losses on loans increased to $52 4 million at year end up from $49 4 million at September 30th.
We continued to build our allowance for credit losses in the quarter despite improvement in the macroeconomic outlook.
As we have discussed in prior quarters, our primary loss driver for Cecil is national unemployment.
During the first three quarters of 2020 that generally resulted in the building of reserves ahead of any pandemic related losses.
In the fourth quarter.
The unemployment forecast improved resulting in a modeled reduction and our quantitative reserve.
Throughout the pandemic, we have analyzed the unique characteristics of each customer in our commercial portfolio within at risk industries.
As the pandemic progressed like others, we have been able to identify the specific customers in industries that are most at risk.
These customers represent a very small pool of loans about 20, representing a loan balance of approximately of $127 million.
The pool includes 82 million of loans on extended the apparel, which represents a significant portion of the commercial loans on active the pearl at year end.
The remaining 45 million of loans, we're not on deferral, but they have magnification attributes that need to be monitored.
During the fourth quarter, we moved this entire $127 million population of loans to criticized assets.
In doing so we also set aside of specific provision of $4 $7 million for certain assets in the pool consistent with our seasonal methodology.
At this time, we are cautiously optimistic that these credits will normalize post pandemic, but we believe the specific provision created provides an adequate reserve to cover losses that could develop from this pool of loans.
The allowance for credit losses on loans to total loans was 1.46% at quarter end.
From 1.38% at September 30th.
If you exclude P. P P loans the ratio increases to 1.57%.
An expansion of eight basis points from the linked quarter.
Credit metrics remained strong with the total nonperforming loan to total loan ratio of 26 basis points at December 31.
And then allowance for credit losses loans to non performing loans of 551 per cent.
Non interest income was 881000 lower than third quarter of 2020.
Key drivers were income from derivative instruments was down $1 million as a result of lower transaction volume and associated derivative asset values.
Insurance income was 479000 lower due to the timing of commercial renewals typically received in the third quarter each year.
And the gain on investment Securities was down 404000.
These decreases were partially offset by fourth quarter increases in income from investments of limited partnerships service charges on deposits.
Gain on sale of loans and investment advisory fees.
I'd like to add a bit more commentary regarding insurance income.
Year over year income was down 167000, or three 7%. However, we also reduced related expenses.
EBITDA margin generated by our SDN insurance subsidiary increased to 19% in 2020.
<unk> 73 per cent from the 2019 margin of 11%.
Noninterest expense was $26 5 million a decrease of $1 9 million from the linked quarter the largest contributors to the decrease were.
Nonrecurring severance and real estate related restructuring charges related to branch closures and staffing reductions were 148000 in the fourth quarter as compared to $1.6 million in the third quarter.
And the advertising and promotion expense was 401000 lower due to expenses incurred in the third quarter in connection with the launch of five star digital banking.
Income tax expense was $1 7 million in the quarter.
Representing an effective tax rate of 10, 9% expense.
The expense and the tax rates were positively impacted by tax credit investments placed in service during the quarter, resulting in a reduction in the income tax expense of 915000.
Moving to the balance sheet growth in total loans was 27 million or 7% from the end of the third quarter 2020.
Commercial mortgages.
Grew four 3% residential loans.
Increased 0.5% and consumer indirect was flat.
The commercial business was down two 9% compared to the linked quarter as a result of PPP loan forgiveness of approximately $17 million combined with lower C&I loan demand.
The saleable residential portfolio decreased by $2 8 million due to the seasonal decline in residential pipeline volume the.
Our pipeline continues to be well positioned with approximately 40% representative of held for sale of production.
Total deposits at quarter end decreased by $87 million from the third quarter as a result of seasonality in our public deposit portfolio, partially offset by growth in the nonpublic and reciprocal deposit portfolios.
Realizing that average deposit balances.
Were up notably over the linked quarter by $232 million.
It is important to mention that the seasonal outflows occurred during the latter half of the quarter later than expected based on historical experience.
Our excess liquidity position continues to pressure net interest margin as previously mentioned, we did deploy approximately $100 million into the securities portfolio. However, yields are low reflective of current market conditions.
I'd now like the spend the next few minutes, providing our outlook for 2021 in key areas.
We expect mid single digit growth in our total loan portfolio.
When excluding the impact of P. P P.
With all loan categories contributing to the increase we.
We do expect muted growth in the first half of 'twenty 'twenty, one in C&I and small business loans as those customers take advantage of the second round of P. P. P.
Or P. P. P assumptions include approximately 125 to 175 million of originations in the second round currently underway.
We also expect approximately 90% of the first wave of these loans to be forgiven in 2021 with a heavier weighting of forgiveness in the first half of the year.
We plan for high single digit to low double digit growth in nonpublic deposits as deposit balances remain elevated and the low interest rate environment. This guidance includes the previously announced two new five star Bank branches that we expect to open in Buffalo mid year of 2021.
We are projecting reciprocal and public deposits to be flat.
Overall, we expect full year NIM of $3, one per cent to 3.15%, excluding the impacts of PPP.
We expect to see further compression from excess liquidity.
Carrying higher balances and investment securities and lower yields on earning assets as loans and securities re price, which will be partially offset by deposit funding costs lower deposit funding costs.
There will be noise in our NIM relative to PPP forgiveness, and new originations throughout the year. So we are guiding NIM, excluding the impact of P. P. P activity.
As a reminder, our NIM fluctuates from quarter to quarter due to seasonality of public deposits and its impact on both our earning asset.
And funding mix.
In quarters, where our average the public deposit balances are higher due to seasonal inflows.
Second in the fourth quarters.
Our earning asset yields are lower given the short term duration of the funds and limited opportunities to invest the fund.
And the caveat our NIM guidance is highly dependent on the overall rate environment.
We are also projecting low single digit growth in non interest income excluding gains on investment securities.
2020 was a unique year from the fee income perspective, we did waive service charges for a portion of the year as part of our COVID-19 relief package.
But that was more than offset by a very strong year for derivative instruments and mortgage banking activity.
We are not expecting to waive fees and expect fees from both interest rate swaps and mortgage banking to moderate in 2021.
We are targeting an increase in the low.
To mid single digit range in noninterest expense for 2021.
Noninterest expense is expected to range from $27 million to $29 million per quarter.
We anticipate that our efficiency ratio will be within a range of 57 to 58 per cent for the full year.
We expect that the effective tax rate for 2021 will be within a range of 18% to 19%.
Which includes the impact of the amortization of tax credit investments placed in service in recent years.
We will continue to evaluate tax credit opportunities and our effective tax rate would be positively impacted by taking advantage of further investment opportunities.
We expect net charge offs in our recent annual historical range of approximately 35 to 40 basis points.
Overall, our focus is improved profitability and positive operating leverage.
We believe that achieving results in line with the guidance provided we will drive these outcomes.
I'd now like to turn the call back to Marty for any closing remarks.
Thank you Justin.
The pace of activity in 'twenty and 'twenty, one is certainly not slowing.
We successfully launched the current round of the Paycheck protection program on Tuesday January 19th.
Our online application of submission process is working well and there's been strong interest from new and existing customers in applying for the loans with five Star Bank.
To date, we have processed more than 800 applications for approximately 100 billion and P. P. P loans and the SBA is already approved 39 billion.
We are using an experienced and well respected fintech partner for the online application process or loan portal.
We learned a great deal from last year's program and the rollout from the SBA in 'twenty and 'twenty one has been much smoother.
Accordingly, the experience for our associates and customers has greatly improved in the current round of.
Our organization continues to adapt and evolve to meet the needs of our customers.
So certain of our fast changing world.
Our new portal should enable us to process of significant amount of loans in 'twenty and 'twenty one.
But it all depends on demand and the availability of funds.
We've also been working with our community partners to provide information and assistance to low income and minority communities regarding of the Paycheck protection program.
Conversations with these community partners highlighted the need for necessary communication and support to minority and underbanked businesses by of locally based financial institutions.
At the onset of the first round of the loans in 2020, many minority businesses either missed out or felt as though they missed out on the funding.
A very high percentage of minority businesses, our sole proprietorships have no employees and typically don't benefit from stable banking relationships.
In mid January we worked with Rochester based community partners to provide a webinar titled ensuring access for all.
The discussion focused on the program and recent changes and we let minority businesses know that five star Bank is here to help no matter, how large or small alone.
We also communicated our plan to provide hands on support of two of our urban Rochester branches.
We will be good shepherds of the PPP program and help as many in our communities as we can.
We are a wonderful opportunity to help many new and existing customers that will in turn strengthen relationships and lead to new business and an even brighter future for five star.
We also continue to work with our customers on the forgiveness of 'twenty 'twenty P. P P loans as.
As of December 31st 2020, 110 loans totaling $17 4 million had been forgiven out of a total of approximately 1700 loans.
As of last week, we had received forgiveness applications from only about 45 per cent of borrowers.
We believe this is due to customer expectations of potential changes in the forgiveness process.
Which did occur with the new cares Act 2.0.
Changes made the application process for loans of 150000 or less much simpler and additional expenses are not allowable for forgiveness.
We are still awaiting the new simplified form to be released by the SBA.
On the more than 950 customers that have not sent in their forgiveness application.
770, where loans of 150000 or less.
The SBA has now paid off $44 million of our P. P. P loans with another 49 million submitted and approved by the bank for forgiveness.
The SBA has 90 days to pay off the loan submitted although to date they've been paying that much quicker.
I am proud of our many of the accomplishments in 2020.
Despite the pandemic and its many challenges we delivered uninterrupted banking services, while keeping our customers and associates safe.
We provided customer relief and helped approximately 1700 customers obtain P. P P loans.
Our new online and mobile banking platform launched in late spring to provide improved accessibility of the customers during the time when they needed the ability to be able to bank from anywhere anytime.
Major improvements in processes and operations were implemented and we streamlined our branch network of.
As a result of the enterprise standardization program.
In the fourth quarter, we completed an unsecured debt offering and the stock repurchase program.
Important actions to support our balance sheet and provide opportunities.
Progress was made towards opening of our two new branches of Buffalo, and we announced a nice bolt on insurance acquisition.
And our strong community support continued through grants donations in investments.
Because of the dedication adaptability and commitment of my associates, we were able to accomplish all of these things and deliver impressive financial outcomes.
While year over year net income and earnings per share of negatively impacted by the COVID-19 driven increase in provision.
We generated 7% growth in total revenue comprised of net interest income and non interest income.
Noninterest expense, excluding the impact of nonrecurring charges incurred in connection with the branch transformation increased only four 6% in 2020 and includes significant investments in technology, such as our digital banking platform income tax expense benefited from our ongoing investment the historic and low income.
Tax housing projects.
We recognize that many uncertainties remain.
Look forward to 'twenty 'twenty, one with hope for progress by our leaders in providing of central support of the vaccination rollout and pandemic relief and the reopening of our economy.
Operator. This concludes our prepared comments and we are ready to open the call for questions.
Thank you we will now begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone.
You're using a speaker phone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
First question today comes from Alex <unk> with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Alex.
It's first of all of hoping you could give us a little bit more color on the the loans that were downgraded. This quarter was it was it just loans that were on modification or did you go through a more of an extensive process.
I'm looking at the the whole loan book to arrive at that that bucket of loans that were that were put into the criticized classified categories.
So Alex I'm sure you can appreciate that's been a fundamental focus of our risk and our commercial team for the most part of the last 10 to 11 months and you know the overarching approach that we've taken.
Has been to make sure that whatever actions, we're taking are logical the reasonable they're defensible and ultimately documented because so much of what we're trying to manage true here. You know is not explicitly guided for from a regulatory accounting et cetera perspective.
So we you know in terms of the cares Act.
The specific provisions at the provides for the Rk's T D or relief from an accounting and regulatory perspective, but as well the spirit and attention of the cares act to provide support to help.
Customers that didn't have anything to do with obviously of pandemic impacting.
All of them as negatively as it has so we've worked as an organization to develop an addendum to our credit policies that.
Of that we've called out of Covid addendum to basically manage through and guide us through this process and as part of that Alex one of the things by definition, if we are.
Dealing with and helping customers effectively bridged to the end of the pandemic through a relief of modifications.
We've elected to call those loans special mentioned by by definition. So we are watching them carefully while we also want to make sure it's as transparent as possible for all of our constituencies our investors our regulators are auditors and as well the teams inside the bank debt of the.
Working there. These these loans so to your question the Alex we have individually analyzed each of these credits and ultimately through the policy that we develop but the the core conclusion was focused on their sustainability to get.
Beyond the pandemic and to return to normal operations.
And in a post COVID-19 world. So that's the fundamental approach that we've taken that we are dealing with our COVID-19 addendum incorporated as I said.
Of our best the logical and reasonable approach defensible whatever regulatory guidance was out there.
But ultimately it's a policy that we developed to support. This question of this issue and you know as Justin talked about.
Our seasonal loss drivers.
In terms of our model we're signaling.
A stronger employment numbers and we are.
As a result.
You know worked in terms of all of our qualitative factors and the underlying risk that's out there in continues to be out in the economy, and making sure of that dose where appropriately adjusted and then in the fourth quarter.
We identified those lists as part of this COVID-19 a bucket of loans that we believe had the the highest loss.
Oh for risk and.
The segregated them and took appropriate action relative to provision expense, so just and I'll stop there and you couldn't help Alex with more specifics.
Yeah, So Alex I'm just.
Just to help you kind of reconcile the I think youre quite one of your questions was the only deferrals of the answer's no.
It was a broader look at the portfolio.
So there are some loans in that the that pool of 127 million.
$44 million.
That represents loans that were not on deferral.
And you know the attributes associated with those loans you know it could be.
Variety of different circumstances, but one good example, as sort of a construction or stabilization loan project.
You know and it's it's been paused right that loan projects been paused you know they are paying.
Accordingly, but because of the the pause the project.
And the Pas project is primarily driven by the circumstance, where they have just one example is they have of events space and Theres no events right now.
So some projects we have a handful of loans, it's very few in that.
That pool the.
We're just going to keep a close eye on and have set aside those in and class of moved those to criticized assets to.
To make sure that we can keep an eye on the way the Marty has described.
Then about 83 million of the total deferral.
Population.
It has also been moved so that's the combination I think that adds up to the $127 million and then from a deferral perspective as you probably saw in our DAC or or we have about $99 million on deferral at year end.
It's actually lower now we've actually because we had a couple of we had a handful of loans at year end that were scheduled to come back to return to paying the normal payment activity in January February March et cetera near term.
A few of them actually already have.
Return to their normal payment activity and actually made their payments in January.
So so that population was not moved because we to the criticized pool, even though the wrong deferral because of the expectation was that they would return to normal payment activity and the reason, we we knew kind of how to think about all of this is we are really close to our customers. Alex I mean, we're we've been monitoring the pool for a really really low.
Long time.
Not the 127, but our total COVID-19 exposure pool for a long time and trying to really keep our arms around it and we believe we fenced it in at this point.
And we're pretty comfortable and confident of what we've set aside is adequate based.
Based on what we know today.
Fields of adequate.
For Covid exposure.
Thank you for all of the additional color do you have by any chance of things like Ltvs of weighted ltvs on that bucket of criticized classifieds.
Yeah. So.
We did do a very robust analysis that included looking at the latest appraised value.
I will tell you the the Ltvs, what's interesting about Covid, Alex as I'm sure you can imagine as the latest appraisal you know.
The the variation that occurs during COVID-19 relative to values is pretty dramatic.
So when we looked at it we actually applied of pretty significant discount to our current appraisal and we had.
A handful of loans.
After applying that discount that we were concerned about.
And that handful of loans of sort of the loans that we set aside some dollars for if that provides any color.
Okay understood.
And then just in your fee income guidance. The you went through I just missed that would you mind repeating that please.
Yeah sure.
Just to make sure I get it right I'm going to actually look at it here.
Yeah.
So low single digit growth in noninterest income and that's excluding a gain on investment securities.
Okay.
And then finally from me the buyback.
Oh, I'm sorry, Alex I was just gonna say of the the other color that we added in the paragraph was of just a reminder of that we waived fees. This year right for Covid relief.
And that was offset by a really really strong year of the interest rate swap business.
As well as mortgage banking and we are assuming that those two really strong performers are going to moderate a bit next year.
Understood and then final question from me the buybacks. It sounds like you guys are using of tenant five one program are you able to share with us what the parameters of the programmer.
[noise], we're really not Alex.
I will tell you that based on kind of the activity that we've had so far.
We're looking at a payback period of less than nine months.
And our evaluation of the parameters was based on strong economic return.
As you can imagine you know you kind of have to evaluate the return of that versus the return of something else and of less than nine months of return is obviously, a very strong return.
Great. Thanks for taking all my questions.
Thank you Alex.
Yeah.
Again, if you have a question. Please press Star then one the next question comes from channel and that's with Cat. The Op capital. Please go ahead.
Good morning, everyone.
Well, Justin I thought the the margin guidance for the year was encouraging I apologize if I missed the detail on this but can you give us a.
Sense for the macro backdrop, you're assuming that supports the margin outlook.
Yeah sure so.
<unk>.
Our margin outlook.
It was based on pretty extensive analysis that we've done.
Trying to understand how we expect our portfolio to behave we do expect that we're going to continue to see some some pressure on yields.
The loan yields, but we also continue to think that we're still going to get some benefit out of our deposit book.
And you know obviously, we can see a lot more into that deposit book them, perhaps as visible externally.
But we have a really strong.
Opportunity on certain areas of our deposits.
We continue to see good CD repricing, a reciprocal portfolio has a lot of opportunity to come down.
If you think about the environment that we were in exactly this time last year.
Rates were high deposits were extremely valuable and people were taken C. DS you know if they were doing a one year or two year CD at that time, it was pretty pretty favorably priced so we do see some opportunity in the deposit book, that's going to help compensate for some of the loan yields that we're expecting the compressed.
We also have an interest rate cap.
That we've that we talked about a while back a couple of I think it was a couple of years ago, when we initiated that interest rate cap and.
And that cap is expiring and that's going to give us some benefit as well.
The real driver of the macro view that that's creating the compression that we see is really driven by the excess level of liquidity.
We anticipate that's going to continue you're probably in the guidance heard what we're talking about for deposits.
You know, we do think deposit growth is going to the more significant than loan growth next year.
And that is going to create.
Some pressure on our NIM as we try to deploy that cash into something that.
Looks and feels as much like alone as we can get which unfortunately is going to be a lower yielding assets that alone would be.
So I hope that's helpful. That's.
That's the best color I think I can provide just relative I know that ROE environment that we see.
That's helpful. I guess I'll just the.
Generally speaking, though it doesn't seem like you're assuming any kind of improvement in the rate backdrop or the shape of the yield curve or anything like if we just kind of sit where we are.
That's sort of the the 40000 foot assumption that you're using.
To be able to watch that Martin value.
Absolutely, assuming a what I call of spot rate environment, yes.
Okay, Great and then last one from me is on the provision did.
Did you offer any provision guidance for the year of just trying to get a sense for you know.
All things being equal are we kind of the outlook.
Our crews the.
With what you guys are assuming now that the reserve build you feel like the sufficient to kind of carry you through from here.
So it's interesting you know the challenge with so no we didn't provide any specific guidance on provision, we just stuck with charge offs and you know.
The reason is the same story that we've had this.
Of this year as you tell me what our unemployment forecasts are going to look like.
And tell me, what's going to happen with the pandemic and I can probably do a little bit of a better job.
Now predicting the CSO model outcomes, it's a really tough thing to predict I I am very comfortable.
With where our ratios are right now from a coverage perspective from a reserve perspective.
But you know that doesn't necessarily mean that you know what happens next year.
Relative to modeled outcomes and Cecil that doesn't necessarily mean, we're going to stay at that reserve level, we could be driven for to increase it depending on what happens with economic forecasts and we could be driven to bring it down depending on what happens to those forecast. So it's just a really difficult thing to predict so.
So we've chosen to sort of you know give you some guidance relative to charge offs, but haven't really talked much about what's going to happen to the overall provision or allowance.
Got it appreciate you taking the questions. Thanks, guys.
Of course, thanks, Joe.
This concludes our question and answer session I would now like the front of the conference back over to Marty Birmingham for any closing remarks.
Thank you very much operator, one of the thank all of those that are participating the call. This morning, and we'll look forward to continuing to build on the conversation in the quarters to come in 'twenty and 'twenty one.
This conference has now concluded thank you for attending today's presentation.
They know the.