Q2 2019 Earnings Call
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Conference that or could ever nameplates.
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I'll put you sort of the first Republic Bank conference.
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Okay.
Thank you.
It's in fact in terms of loan originations. This was actually the best quarter, we've ever had.
Let me share a few highlights.
Total loans were up 19% year over year.
And they were up more than 6% in this last quarter.
The year over year total deposits have grown 15%.
The strong growth has led to good financial performance, particularly in the face of a challenging interest rate levels and yield curves that have occurred particularly in this year since about November of last.
We'll talk more about net interest margin in a moment.
Year over year total revenue grew 10% net interest income was up 10%.
And our tangible book value per share has increased 13%.
Credit quality remains very strong.
Net charge offs for the quarter were a nominal $1.2 million, while we added 21 million to our reserves.
Nonperforming assets ended the quarter up a bit, but only 14 basis points at quarter end.
Our capital also remains very strong.
Our tier one leverage ratio was 8.69 as of June 30.
In early June we did announce the departure of some wealth managers. While this was indeed disappointing it does not change our positive outlook for the wealth management business, we will talk more about this in detail on a couple of minutes.
In terms of the interest rate environment since our last call. The 10 year Treasury yield has fallen by approximately 50 basis points with no move at all on the short end.
This has led to some pressure on NIM, which of course also impacts our efficiency ratio.
Michael talk more about both net interest margin and our efficiency ratio in a moment.
Very importantly, economic conditions in our urban coastal markets continued to be quite good.
Our clients remain very active which is reflected in our continued strong growth and record loan volume.
It's important to remember that over half the growth. The first Republic comes every year from existing clients.
As we enter into the second half of 2019, our loan pipeline remains quite strong.
And we continue to expect mid teens loan growth for the full year.
In the current environment, we're doing what we do best thinking that for the long term.
In fact, they are actually is no short term version of perfect public business model.
Which has been successful through many interest rate environments for the last three and a half decades.
Let me turn the call over to Guy Air Con precedent.
Thank you, Jeff as Jim noted loan origination volume was a record $9.4 billion during the quarter.
Single family residential volume was also a record at 4.1 billion during the quarter.
It was a very strong spring buying season across all of our vibrant urban coastal markets.
Purchase activity accounted for 52% of single family residential loan volume for the quarter.
In terms of refinance volume.
Claims that over half of the time, they are acquiring new households from other financial institutions, when we refinanced alone.
Our loan pipeline going going into the third quarter.
It's stronger than it was at the beginning of the second quarter.
And stronger than it was a year ago.
We expect to deliver mid teens loan growth for the full year 2019.
Credit quality remains very strong.
And we continue to maintain our conservative underwriting standards.
Our weighted average loan to value ratios, sorry loans originated during the second quarter were 60% for single family residential and 52% for multifamily and commercial real estate combined.
Loan yields overall were up two basis points from the first quarter.
Business banking also had a very strong quarter.
Business line commitments were up 23% year over year.
Primarily due to increased capital call lines of credit.
Business loan Outstandings were up $1.1 billion during the quarter.
This was driven by an increase in line utilization rates from 33% to 37% as well as the aforementioned increase in commitments.
Turning to funding we are pleased that deposits are up 15% from a year ago.
Even though the second quarter is typically the most challenging quarter for deposits due to the seasonality of tax outflows.
Importantly, checking deposits remains strong.
Representing 58% of our total deposits at quarter end.
We continue to maintain a diversified deposit funding base.
During the second quarter, our average rate on all deposits was 66 basis points.
In line with the mid Sixtys spot rate at the end of the first quarter.
Our total liability cost was nine to three basis points for the quarter.
Up from seven to nine basis points in the prior quarter.
Finally, I would like to comment on two of our most important metric.
Household retention and household acquisition.
Our success in household retention is driven by our commitment to exceptional client service.
This is reflected in our net promoter score that continues to be more than double the industry average.
With regards to consumer household acquisition.
Our compounded annual growth rate since 2017 has been 17%.
That is more than double our historical run rate.
Our success in both household acquisition and retention is a testament to a number of factors which include.
Compounding referrals from a growing base of satisfied clients.
If successful millennial strategy.
And returns on our investments in technology and in the productivity of our colleagues, which allow us to scale our high touch business model.
We are particularly pleased to be acquiring new client household at a very healthy pace, while keeping our existing clients happy.
Now I would like to turn the call over to Mike Roffler Chief Financial Officer.
Thank you guys.
Let me start with our wealth management business.
The departure of the wealth managers in the second quarter, which we announced on June 2nd we will have no material impact on earnings per share.
Of the 16 billion in assets that they manage we expect to retain about 2 billion.
In the third quarter, we do anticipate a final outflow of approximately $4 billion in assets related to these wealth managers.
Even after this additional outflow.
Assets under management would have been up a strong 10% year over year at June Thirtyth.
As a result, we expect investment management fees to be approximately $83 million in the third quarter.
Such fees are based on assets under management at June 30, after fully accounting for this anticipated outflow.
Overall in terms of wealth management, we're pleased with our assets under management and revenues.
First republics integrated banking and wealth management model continues to attract very successful wealth managers.
So far this year, we have welcomed five new wealth management teams to first Republic.
Our liquidity position remains very strong.
High quality liquid assets were 13.3% of total average assets in the second quarter.
Net interest income, which we view as one of our key growth metrics was up 10.2% year over year.
Let me take a moment to discuss the impact of the recent interest rate environment on both net interest margin and the efficiency ratio.
Net interest margin was 285 for the second quarter.
For the full year, we now expect net interest margin to be in the low end of our range of 285 to 295.
The net interest margin has been impacted by the inverted yield curve and highly competitive loan pricing, especially for single family.
As a result of this NIM compression our efficiency ratio was 64.5% for the second quarter.
It's important to note our actual expense run rate in dollar terms was modestly lower than our expectations.
For perspective.
If our net interest margin had been to 90 in the second quarter, our efficiency ratio would have been 63.6%.
Turning to taxes.
Our effective tax rate for the quarter was 17.4%.
We now expect the bank's effective tax rate to be between 18, and 19% for all of 2019 slightly lower than our prior expectations.
Thank you and now I'll turn the call back over to Jim Thank you Marc and Guy.
It was a good second quarter mid challenging in some respects, we have tremendous momentum going into the third and fourth quarters.
We're focused on the net interest margin, obviously about out of our control, but we're focused as much as we can be and we're also now focused on managing expenses to be sure to deliver consistent results in the current rate environment.
We remain very optimistic about growth opportunities as guys Center client householders acquisition rate is an all time high.
Our client satisfaction levels continued to be twice the banking industry average and as always this powers our safe stable organic growth now, let me turn the call over for questions.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Thank you. Our first question comes from the line of Steven Alexopoulos with Jpmorgan. Please proceed with your question.
Hey, good morning, everybody.
Good morning.
Maybe I'll start on NIM. So when we think about the second half organic deposit growth should improve.
Loan yields are likely going to be under pressure I would guess and then you have the fed potentially cutting rates. So for Mike Roffler, where do you see the mark the NIM bottoming.
So.
We we think to 85 for the year, which means were little bit below that in Q3, and Q4 and you hit the factors pretty well.
Competitive loan pricing is it's a very competitive right now and if the fed were to cut rates a little bit our variable rate lending would drop a little bit about four basis points a quarter and so we sort of think low to 80.
For the next couple of quarters looks good.
Okay, and then Mike once the fed is actually cutting rates, what's your expectation for the NIM than I, and we think deposit costs would start to trend down with some delay can you help us think through that.
Sure yes on the.
There's a couple of places on the deposit side it would last for about a quarter or so and then we would pick up pace with the rate cuts and as we all know things are faster to reprice down than to re price up.
So we would see some relief on the deposit side.
Okay. So you would expect them at that point to be stable or slightly increase in Guyana.
That that so that also depends on the asset yields as well as to where the long end of the curve is going to be obviously, if it's the long end doesn't change, but the shorter slowdowns.
Then we also have about 20% of our earning assets that is linked to the short end of the curve. So we will be a play between the two going back to what Mike said for the year. It will be around three to five is the only assume it cut.
Or two on the short end and no changes to the Logan Steve Your point.
The the lag is it really the issue.
And you've got about you've got about two times adjustable priced liabilities to.
Floating rate assets roughly.
And it takes a tight takes time to catch up but it will catch up the real issue is of a stimulus to the economy does along and go back up a bit and you got a steeper yield curve.
Recently on the curve would indicate maybe yes.
And then thanks, Jim and then on the efficiency ratio right. So the NIM is putting downward pressure, but then you have the alumina is assets moving out which is going to help so Mike how do you think about the full year efficiency ratio, we still in the 63 to 64 range.
So I think we're going to build a little bit higher because the margin has gone to the low end of our range. It to 85 and so right now we think for the full year efficiency, we should be a little bit under 65, but importantly, our expenses in a dollar standpoint.
We're right on pace and even slightly better than we thought so we have been able to contain it and we'll we'll clearly look for opportunities.
If there are to reduce any places without sacrificing service to clients or long term investment in the franchise.
Okay.
And then just one final separate question if we look at the increase in Nonperformers in the quarter I understand the base is still very low, but maybe can you give some color there and was any of that related to the new run regulations impacting New York City. Thanks.
Im not sure I forgot to none of that was related to the new brands. It's an issue in southern California, with one borrowers quiet it's completely idiosyncratic.
It's one borrower funnel that we've worked with for a number of years actually we've had 10 12 loans quite successfully with him. He's got some spec homes built we were construction. Let we are construction lender were enforced positions. We've got about a 60% loan to value ratio, we do not see any risk of principal or interest whatsoever in the credits.
Budgets for different properties and he's got them up for sale and they just reduced pricing on them, which was really holding it up.
So we're if I should say is current as well he's pad, we've never had a late from him.
And they're not they're currently paid.
But these had slow sales he is dropping pricing to see what it can do to pick it up.
So yes, so it's a one off or it's a little under 100 million total exposure to women and we think we'll be fine.
Okay.
Terrific. Thanks for taking my questions.
Thank you.
Our next question comes from the line of John Pancari with Evercore. Please proceed with your question.
Hey, this is out of stock on behalf of John .
So the question I had was around the luminous team following the departure of living this team I know you cited.
No ongoing EPS impact.
And then ties pretty high comp expense ratio tied to the steam.
Im just wondering whether you are evaluating.
Compensation levels of existing wealth managers and new hires.
To kind of maintain the same tenant retention in the wealth management business.
Thanks for the question no actually we think that first of all luminous was an acquisition as opposed to a wealth management team.
It was a purchase of an MRI, we've only done that a couple times and we generally avoid it from cultural reasons.
Witnessed this event unfortunately.
But we also have maintained some assets that came with them and we've maintained as Mike said about $2 billion of other assets that were in there and so the the earnings on the assets, we retain equal about the earnings on the on the overall situation before this was a higher comp situation and us.
Associated with it than most others are and that had to do with the nature of the acquisition as opposed to simply hiring a team we're actually very happy with the growth of wealth management, and we're very happy with the hardening teams and and generally it's working out very well, they're very independent poster Greg. They are great people and we're still working with them on the banking side, but they're very independent people, who want to own run their own shop, I would know TV, even gone into two new affirmed.
One so we wish him well, but it's unfortunate, but it's unlikely we don't think it will happen again, if it does it is on market.
Got it.
All right and then just a question on the expenses I know, Mike you kind of alluded to the expense run rate is coming in better than what you had expected and in the past you've talked about excess.
Expectations.
Expense growth in the mid teens for this year is that still the case or.
I'm, just trying to get a sense for especially given.
The expansion efforts in Hudson City Hudson yards and Cisco.
Additional hiring.
Put tighter this expansion efforts.
I'm just wondering if that mid teens is still intact.
Yes, so the first half of the year, our expenses were up just under 13%. So we think sort of low to mid teens makes sense.
Given the environment, we are going to take a little bit closer look obviously.
And cost containment and see if there are things that don't impact the long term benefit of the franchise or client service that can either be done more efficiently or possibly pushed out.
Two relative to Hudson yards, the cost for that really doesn't come on line until late 2020 or early 21, and so we do have a bit of time.
With respect to that to be able to cover those costs once they start.
Got it thank you.
Our next question comes from the line of Erika Najarian with Bank of America. Please proceed with your question.
Hi, Good morning. This is Chris on the call for Erika.
I just have two quick question is a follow up to your margin commentary.
If the fed were to cut rates two or three times. This year can you just discuss the impact to your deposit pricing strategy I. Appreciate the color on the four basis point impact of variable rate loans, a little focused on the deposit side here.
Sure.
On the deposit side.
Assuming.
A great cotton, let's say at the end of July and one month before year end just hypothetically speaking.
It would take about a quarter lag. So you would actually be more of a flat maybe slightly down on the deposit rate and then catch up at the consecutive cuts afterwards.
On the deposit side.
Okay, great. Thanks, and then just one quick follow up I noticed there is a 20 basis point quarter over quarter drop in your cash yield is there anything to call out there. Thanks.
Probably just mix of cash between what we hold at the fed and other banks and I think they also didn't make a reduced.
Interest on excess reserves slightly in the quarter.
Okay.
Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your question.
Hi, good morning.
Good morning, Jerry.
I just wanted to ask was there any onetime charge from revaluation of the customer relationship intangibles.
Associated with the Miss in the quarter.
No there was not we retain enough revenue that didnt require any charge.
Okay, and then going forward, we shouldn't expect any.
And the impact that the initial at this at this point, we would not expect so.
Okay.
And then.
Any early update on seasonal or when we can expect to see.
Some some preliminary thoughts on on that and I guess, specifically how would you think the yellow line program would would fare under.
I just see some limited.
Track record.
So the balance sheet.
Sure. So we have.
Maybe an update from last quarter, we have largely into the model validation near completion, we've run parallel a few times.
Based upon sort of the current results of that we don't see us.
Well there.
[laughter].
I think we lost you there for a second like.
Jerry can you still hear us.
I can hear you now, but you said model validation is near completion, and then kind of yes, sorry about that I think we called out sort of we've run parallel a couple of times it looks like no significant changes to the to level of reserve at this point based on the current economic outlook a lot of that's driven by the bank's historical losses, which do have an impact over the life of loans.
When you look at portfolio student loan refinance to your question, we'll have a little bit higher allocation than it does today, just because of the extended life compared to what Weve reserve on it today, So youre right theres not a lot of history.
Okay, great. Thanks for the color.
Our next question comes from the line of Ken Zerbe with Morgan Stanley . Please proceed with your question.
Thanks, Good morning.
Morning, guys question, Mike You mentioned in Threeq, you expect wealth management fees to be $83 million I, just want make sure I have the right comparison or we can bring that to the 120 million this quarter or the advisory fees of nine no.
It's to the 94 it was specific to the line item titled investment management fees.
Got you, Okay. So down about 11 million understood and presumably there is a corresponding expense reduction as well as it flows into your I think it was low to mid teens expense growth.
That's correct the compensation associated with.
Voluminous individuals much of that you had in Q2, you will not have in Q3.
Okay Perfect and then just last question in terms of the capital call lending.
I heard you guys say that was the main driver of your business banking your business loan growth.
Can you talk about the competitive environment, there, obviously theres some new entrance.
We are aggressively pursuing capital call lending like what are you seeing from competition wise from a spread perspective, how does the overall outlook. Thanks.
Oh.
Thank you.
The activity is very strong while there is competition there is really enough for everyone and upgrade business to do for everyone. So from that perspective, the impact of competition is significant compared to the prior quarters, it's very healthy activity.
Both in terms of deal activity and the valuation.
Okay. Thank you.
Thanks.
Our next question comes from the line of Aaron Deer, with Sandler O'neill and partners. Please proceed with your question.
Hi, good morning, everyone.
Good morning, Eric.
The.
Just what can I guess at the.
The compensation line, specifically to salary and benefit line.
Get with the the cost of alumina steam going away. Despite your other investments and new hires and such is it reasonable to assume that that line item.
Is lower in the third quarter relative to the second quarter.
I don't think I'd go low or the growth that it's baby had in the past is probably not as.
Significant because we start at a lower base, but.
We have hired other teams.
Other relationship managers and we're also supporting them.
The big drop if you think about from Q1 to Q2 is seasonality of payroll taxes and benefits as a downward trend.
That big drop Doesnt happen again for the next few quarters.
Okay.
And then looking at the information systems line I think you guys are in the midst of a core systems conversion and obviously spending.
On quite a bit in areas related to technology is that core systems conversion is completed presumably sometime here in the back half of the year.
Can we expect some of those costs to go away.
So we're in the early phase of the project and so we're still in the ramp up of the costs. So there is a little bit in contract and hi, C and professional fees, but it it will actually start to probably increase later this year and into 2020, yes, and it is the quick ones version, which is going to take a couple of years, because we want to do it methodically and without any distractions declines ourselves.
And it is all baked that into our expense outlook number one number two given what we have discussed the rate environment. We are focused on aligning expenses to deliver consistent returns and have all the tile rate yield curve environment.
Okay, and then just one last one related to deposit pricing.
You give some color in terms of your expectations, if if rates come down that there might be some relaxation there amongst some of the highest paying banks out there in the market they've relax their pricing, so maybe five or 10 basis points at the high end have you at this point made any changes to your pricing or is that you really waiting to see what the fed does before you make any moves on that front.
Oh, well the relating for the fed move and actually we have.
On the CD found that on the money market checking and savings the bed. We have started say Joe stick down there is some room for us.
To do so and then I would also note.
Looking when we're looking at the other two banks have reported.
Before us.
The total liability costs, there's still much lower at nine to 30 basis points on the total cost of liabilities compared to the average of the three banks at 144 basis points and with the rate cut obviously, we will take action, which we have already started to some extent modestly trickle lower down on the deposit rate, maybe about a quarter lag.
That you will see the impact of it the consecutive cut El show itself.
Sure great. Thanks, I appreciate the additional color.
Okay. Thank you.
Our next question comes from the line of Casey Haire with Jefferies. Please proceed with your question.
Yeah. Thanks, good morning.
Guys, just a follow up to.
Aaron's.
A question about the proposed can you give us a.
Sense of where what the spot rate was for deposits.
At June 30.
Genthree spot rate was right around 70.
70 basis points. So okay. So the idea is that.
Post the cut you would you would ease you would exercise some of the flexibility you have on that pricing and we'd start to see the lag correct.
Got you all right.
Switching to the capital front.
Obviously very strong loan growth.
The C.T. one ratio did dip down below to its around 10 to was is I know you guys had talked about you'd be all set for capital this year, but just given the strong pace of loan growth is.
Is that something that you guys would revisit this year.
We don't think so at this point.
The acacias its.
Remember, we did buy equity round of modest size, but we did an equity around in January .
Right at year end around the S&P AD, which was.
In fact on the early round for us it was opportunistic.
Oh, I think we're probably.
Don't need any equity capital.
Through to the end of next year, even with our growth rate if we needed some tier one we might do a preferred but I think we're fine.
Okay.
I mean, Jim does that presume that you'd be willing to go below 10% tier one common.
Well, we might go a little bit below two Mike we focus a little more leverage.
But we've run very solid for the for the for the risk in our portfolio the risk of the balance sheet. We run very very solid capital Weve got access at all times as you know and our growth rate is so solid.
So we're actually quite comfortable at this point.
Okay understood.
Just last question just the some updated thoughts on.
The student loan programs are you.
As that program is what five years old now and I'm seeing very strong loan growth or is that what's what kind of cross sell.
Are you seeing is that as the program matures.
Well actually its a good question. It has matured we've we've just actually received early indications from an outside review outlets and it is a meeting or exceeding our expectations.
The volumes running right around 88 to 9000 per year of new clients.
The profile is very strong the profile of the current clients that we're getting in that program. In fact is better than the profile of our single family home loan clients.
And Doug, but simply but obviously they are younger.
And I say better in the sense that.
Their deposit to loan ratio was stronger their incomes at their age groups are stronger or Ficos are the same and their educational levels are higher.
Okay, great. Thank you.
We could.
Our next question comes from the line of Chris Mcgratty with Keefe Bruyette <unk> Woods. Please proceed with your question.
Great. Thanks.
Mike maybe just a clarification on the margin outlook.
I think I, you said, if we get to cuts.
This year you the guidance would be the low end of the 285 range.
So that was kind of in for like a mid 270 by the end of the year, if we get to and kind of done in the economy kind of stabilizes.
Expectations for 2020 would be stability relative to that number or.
Do you think.
You might see some catch up in the deposits and maybe a little bit of expansion 2020. Thanks.
Yes, I think the biggest thing on 2020, that's that's hard to say at this point is obviously the shape of the curve.
And what it does is the competitive lending arena.
Right because that we were very focused and talking about deposit pricing impact.
But where is the lending rates going to be on new production and so that's why I think the next two quarters.
We feel pretty good about lead us to to 85 low end for the year of 19, and it's probably too early to say on 2020, because of what's going to happen to lending rates.
Okay.
Okay, great and maybe on the investment portfolio.
Can you speak to what what you maybe have bought in the quarter kind of yields and how they might compare to the prior quarter.
We have been opportunistic on the investment portfolio have you bought some municipal bonds around 29 to five Steve why.
Thank you.
Thank you.
Our next question comes from the line of Matthew Clark with Piper Jaffray. Please proceed with your question.
Hi, good morning.
Mike do you have any rate cuts you have if any in your NIM guidance.
Two.
Okay, Great and then one in July .
Got it.
And on the investment management fee line the guidance of 83 million does that incorporate.
Is that.
Incorporate the market the end is.
June in terms of price appreciation and doesn't consider any inflows.
You inflows from clients.
It's based on the June 30 assets. We report for first Republic investment management, you see in the press release of about 61 billion adjusted for the anticipated outflow that we talked about from Luminus, which is about $4 billion.
More.
Got it okay, great. Thank you.
Our next question comes from the line of lot of Chan with BMO capital markets. Please proceed with your question.
Thanks, Good morning.
Just wondering I was surprised to see with the comments on that competitive loan pricing that your loan yields actually increase linked quarter and were there any prepayment fees in that number this quarter.
So it helps maybe one basis point.
Compared to last so not a big impact.
Okay. Thank you and any color in terms of where the end of period spot rate was on the loan yields.
So at the end of the first quarter I think it was about 369 and it's about the same this quarter.
Okay, great. Thank you.
And I guess the other question is in terms of.
Your loan to deposit ratio has increased to 98% given some of the seasonality with deposits. This quarter. How do you feel at 99% how do you feel in terms of the ability to fund loan growth going forward with core deposit growth.
While at the same time being able to potentially lower deposit rates if the fed does correct.
Yes, so we have actually feels comfortable I'm very pleased that the mid teens or deposit growth year over year, Oh, we do not manage to certain loan to deposit ratio a in fact between 2012 and 2015, we have been over 100% I would go back to the guidance in terms of the mid teens loan growth and the low end of the NIM range just around 285 for the NIM outlook, so they're comfortable with the growth opportunities and diversification of the deposit base.
Okay. Thank you.
Okay.
Our next question comes from the line of Tim Coffey with Janney. Please proceed with your question.
Great. Thank you good morning, everybody.
Good morning, a couple of questions.
One on the mortgage business and the loans that you are putting on portfolio specifically the jumbos are you seeing any structural changes within that business as a result of the state and local income taxes.
No not really Tim its.
It's.
So pricing to us a little bit but no.
And of course, Weve, that's been our business for a very long time and.
Our markets now almost all of our markets are in this what they call Saul Stakes states.
So I would expect that we might have but as guy said.
We've we've been we did over 50% purchase in the last quarter.
And this next quarter that may be a little more refinance, but because it's picking up because of the rate drop but nonetheless, we still doing a lot of purchase finance. So it's it seems to be going just fine.
Okay, and then fully understanding that the view of what the mortgage sales that you do a deal every quarter, our kind of balance sheet related.
Can you kind of.
So what will happen to the margin this quarter.
I think I wouldn't look at that as a trend. It's a very limited amount of sales that we did.
So I don't think its anything unusual or a trend. Its just the fact that there are so few loans delivered.
Okay.
All right.
And then and the Cds that you're that you're bringing on.
What are the what are the typical terms of those are you how long are you going out.
We actually have shortened compared to a year ago, which was over a year like about 18 months weighted average original certainly shorts, and then given the rate environment to or less than a year.
About it's about around six months.
Which will be helpful in catching up correct as we go forward.
Right, Okay that okay.
All right those are my questions. Thank you very much.
Thank you.
Mr. Herbert operators.
And I know it looks like we do get another question. Our next question comes from the line of David Chiaverini with Wedbush. Please proceed with your question.
Hi, Thanks.
Good morning, So you mentioned that none of the increase in the Npls was related to rent regulation law changes in New York City and I know your construction portfolio in New York is only 400 million. So very modest for you, but conceptually do you expect any stress or pressure on your construction portfolio in New York as a result of the law changes.
No we don't actually.
In our permanent loan portfolio in the rent controlled buildings is only about 1.2 billion and the composite of loan to value ratio on those buildings about 40% 42%.
The debt service coverage ratio was about to 40.
So we're in we're in very good shape, we were carefully reviewing our going forwards.
Strategy on those buildings obviously.
But we have been for quite a while rather conservative.
Good to hear thanks very much.
Okay.
Mr. Herbert we have no further questions at this time I would now like to turn the floor back over to you for closing comments.
Good well. Thank you. Thank you everybody very much for coming into the call today, we appreciate it and good day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.