Q2 2022 BankFinancial Corp Earnings Call
Okay.
Two Investor Conference call.
At this time I would like to have our forward looking statement read.
The remarks made at this conference May include forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934, we intend all forward looking statements to be covered by the safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995 and are including this statement for purpose.
In booking those safe Harbor provisions.
Forward looking statements involve significant risks and uncertainties.
And are based on assumptions that may not or make occur.
They are often identifiable by use of words believe expect intend anticipate estimate project plan or similar expressions, our ability to predict results or the actual effect of our plans and strategies is inherently uncertain and actual results may differ from those predicted.
For further details on the risks and uncertainties that could impact our financial condition and results of operation. Please consult the forward looking statements declarations and the risk factors. We have included in our reports to the S. E C.
Risks and uncertainties should be considered in evaluating forward looking statements. We do not undertake any obligation to update any forward looking statements in the future and now I'll turn the call over to chairman and CEO . Mr. F. Morgan Gasior. Thank you.
Well at this time all filings are complete for the second quarter.
I'd like to note that we updated our investor presentation.
That is also on our website for anyone who is interested in taking a look.
Just a short note on July so far.
We're off to a good solid month loan portfolio grew a little bit.
We also put somebody to work and securities again, as we did in the second quarter and the CFO will talk a little bit about that along with some further margin expansion.
But other than that we are ready for ready for questions.
Thank you Sir.
To ask a question you will need to press star one one on your phone.
Please standby as we compile the Q&A roster.
Yeah.
Okay.
Our first question will come from Manuel Novice D. A Davidson <unk> company. Your line is open.
Hey, good morning.
Good morning.
Hey.
<unk> was a.
Pretty strong, but I just wanted to get a little more color on the different loan segments that drove it especially multifamily that's a nice origination.
They're just kind of thoughts going into the second half of the year.
Sure.
Yeah.
We had a pretty good contributions.
Across the board and the loan portfolio in the second quarter.
Multifamily certainly very strong both in the Chicago market and in our other markets.
Those pipelines continue into <unk>.
Third quarter.
Right now, we're working through the usual underwriting processes, which take a little bit longer than they used to.
Between appraisal and title and environmental and things, but we have good good pipelines going into the second half.
The third quarter for multifamily and even we saw some commercial real estate transactions that we liked here in the Chicago market and we have a couple that with the pipeline, we like as much for third quarter. So.
I would say overall, we like what we saw in multifamily and we see a good pipeline going into third quarter.
Equipment Finance also did well we had some catch up from.
From first quarter that we were able to get done in the second quarter.
<unk> quarter was a bit of a barbell, we got a really good April and then things required in quieter in May and then June turned out to be very strong.
So that that worked out well across the board and again, we had good contributions from government in the second quarter middle market in the second quarter small ticket in the second quarter.
Our corporate Department has been lagging now and we added some new new leadership in the equipment finance corporate at the very end of second quarter and we've recently added another very experienced corporate equipment finance banker here just in the last week or so so we're hoping to see some stronger contributions.
From corporate in the second half of the year and I'll talk a little bit about that in a minute.
Commercial finance also contributed.
We had some paydowns in the health care portfolio, otherwise, we would have probably seen even stronger results for the second quarter.
And we're seeing health care still be a bit volatile, but they are up again this month.
We think as time goes on and liquidity continues to diminish.
Diminish.
Then we will see some stronger contributions in health care.
At this time of the year and healthcare, especially in the residential healthcare portfolio Theyre censuses typically are a little lighter they typically have a stronger census in the colder months.
For obvious reasons.
And therefore, they're drawing activity is a little bit later in the summer time compared to the winter. So the fact that we are seeing a little bit of dry activity now is potentially a good site.
And then going forward on those pipelines I would say generally.
Our goal is for third quarter, we'd like to see if we can get the loan portfolio to 1 billion $1 75.
We have a heavy up payment schedule it equipment finance, particularly in government.
And third quarter, it's the fiscal year end for the federal government. So we typically see scheduled payments.
In that quarter higher than the average for the remaining quarters.
And then on a gross basis, we'd like to see loan portfolio push north of $1 billion to if we were at a $1 billion $2 15 in other words, another $40 million over and above.
Third quarter.
Wed like that.
If the corporate department and commercial finance.
Continue to grow their pipelines.
And then I could see us pushing north of that but 1 billion $2 $15 billion to 25, we consider that a pretty good year anything north of that would be a great year for us.
And again the mix I would say will.
It will be relatively consistent third quarter, you will see more contribution from real estate fourth quarter I'd see it shifting a little bit to equipment finance and commercial finance.
Part of it we'll have to see what the rate environment is for multifamily in the fourth quarter, obviously rates have come down in the middle part of the curve that may result in fewer customers want it.
Wanting to jump into a right now they may think rates are going to retrace a bit and they want to wait on a refinancing so that could have a chilling effect on real estate, but net net if we could get to 1 billion $1 75 at the end of the third quarter and a bit north of a $1 2 billion $2 15 at the end of fourth or better that would be good momentum to carry into 2023.
Hi.
That's really helpful.
It is.
Yes, it's actually interesting that youre still so strong in the fourth quarter as any feelings of caution starting to creep bandwidth higher rates or.
Just.
Youre seeing the pipelines there.
Some confidence.
About 75% of the activity, maybe even a little higher.
In the second quarter were refinances people try to lock in a good rate.
Especially when they saw the middle part of the five and 10 year part of the curve move up so substantially.
And so we're seeing about the same thing coming into third quarter still 60% to 60 to $65, 70% refinances.
And Thats why I said I.
Could see some people.
In fourth quarter, if rates were to continue to retrace downward.
You can see some people who wanted to wait BMT, maybe rates will be lower in the early part of year. All this title will just wait and see what happens so thats why a little bit of caution as far as volumes are concerned in real estate, because it's still very rate driven.
And we also noted our competitors, particularly Freddie Mac.
Continue to get aggressive on rates from time to time to hit their volumes.
But all in all we had a good second quarter, we have a reasonable pipelines going into third quarter and I think fourth quarter would not surprise me to see that the volumes dropped out a little bit but you never know we've got good marketing outreach going on people might look at the rate environment and say this is a good place to lock in even if I could get 20.
Five basis points less someday.
The upside.
The ability to lock in now and protect against a significant move up in rates.
'twenty three or late 'twenty two.
Get them off the get them off the middle ground and get them into a refinance.
Purchases.
The properties are still at or near all time highs, we have seen some properties now appraise out like people thought they would.
So there is some I think topping of that even though rents continue to increase over the expenses, particularly taxes. So all told on real estate.
We're having a good run.
If rates had north of 3% I think that gives us some room to work the refinance market.
In the five and 10 year.
Tenors and and then we've got the products and the outreach.
To capitalize on that if that happens.
If rates are in the mid twos that I think you might see some people, but remain on the sidelines.
Okay.
Yes.
Can you give a little bit of early guidance on some of that NIM expansion here. So I think youre seeing already here in July .
Obviously talked about.
A spread or a gain of 1 million to $1 5 billion in NII per 50 basis points hike does that still hold.
Just kind of your thoughts on the near term then.
Manual actually its expanded now with the <unk>.
75 basis point hike.
Annualized net interest margin grew by about $2 5 million. So it really depends on where the industry goes with deposit pricing.
We've made some tweaks in terms of our deposit pricing, but not really moved much in the industry seems to be in the same place right now and if that continues then I could see let's say the next rate hike. If it's 50 basis points should probably expand net interest margin I would imagine another couple of million.
So we started the quarter at a net interest margin of 3330 and as of the end of July were at 350.
With loan growth were talking about and again the deposit costs via the wildcard our goal would be to see if we can stabilize net interest margin consistently right around $3 75.
And if we can even in even in even in a rising rate environment on the deposit costs.
And if we can that just gives us some solid growth opportunity one as we continue to put excess cash to work in loans and then late next year as we see the securities portfolio of mature, we'll be able to redeploy those proceeds and substantially higher yields.
And again, we see an ability to support that.
Broad range of $3 50 out of a low side I think it would be we'd have to have a really optimum mix in almost no no.
Growth in deposit interest expense to get to 4%, but if we can do right around $3 70, 375 were pretty happy over the next six to 12 months.
Just to be clear you said, you're at $3 50 here in July with with minimal deposit increases.
<unk>.
That doesn't yet include the 75 basis points in July price deck, correct. So there should be another bump.
And then get to 370 375 times adjusted for the increase in July .
Okay got it alright thats helpful.
So running 370 375, it theres a couple more.
Yes, that's how we see it.
Okay. That's really helpful. I'll step back now I appreciate the responses.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone.
One moment for our next question.
And then.
And our next question comes from Jamie Gaza. Your line is open.
Thank you Jaime guards, the private investor Congrats on the strong quarter.
I think you addressed some of my questions. So I was unable to join last quarter, but.
<unk> heard the replay and I think you had mentioned that part of the liquidity that you had kept it at the fed.
It's based on your projected that rates were going to go up so you don't want to lock it in at.
It appears you did take some of that liquidity and put it into treasuries I suspect. They are more short term, but is there the.
Goals that you just mentioned is that also considering a rebalancing some of the portfolio.
As we kind of get into a.
Environment, where we might not see more moves and locking in.
Some longer rates and then I suspect your betas I thought you did great.
Most of the other banks that I've analyzed.
Debaters or certainly right now not showing large increases but.
The question would be really around are you planning on continuing to take some of that liquidity and going a little longer on the investment portfolio. Given the goals you have already stated for the loan portfolio.
Well certainly we saw an opportunity to put liquidity to work in the securities in second quarter and now again in the third quarter.
So in second quarter.
We put just under $30 million to work.
With about a two year average life at an average yield of around $3 30, and then in July we put a little over $20 million to work.
At about $3 20, with about a 12% to 13 months.
<unk>.
So at the moment I would say if we see.
Shorter term shorter tenor yields climbed back north of 3% that starts looking a little attractive we've also balanced out our maturities.
Pretty much multiply month, all the way out to 2020 for 2025.
When we were looking at July we saw an opportunity to put something to work relatively short term.
And we took it so well.
We will just have to watch and see how rates are it's somewhat unusual to see this level of inflation.
Apparently aggressive fed.
Qualitative tightening and rates coming down usually those combinations don't necessarily but at the same time they may continue.
But they may retraced, so we'll watch and see.
As far as.
Extending our duration.
We think that our first priority our first preference would be to do so in the equipment finance portfolio.
On the government side.
And on the corporate side.
The benefits of doing so.
<unk>, we're just getting a higher overall yield on the assets compared to treasury.
To those credits advertise.
So you can push the duration out a bit, but youre still getting cash back over time.
If the rate environment continues to increase then you can take advantage of those cash flows also managing liquidity from a deposit and a balance sheet perspective at the same time.
If rates were to drop well then we got the benefit of some extended duration.
But we also did so and what I would call.
Our credit credit sensitive way for putting the extension.
The duration extension risk and government and.
And in investment grade corporate then we're accepting a certain amount of interest rate risk, but we're not really giving up anything on the credit risk to speak of so recently, we worked with one of our customers on a state transaction.
They want to go out a little bit further than the normal two or three years its essential use assets.
Long duration agreements, we feel comfortable with that even with a certain amount of additional non appropriations risk, but those those that particular transaction is not a monthly payment. So we can go out a little bit further we're still getting the cash back over a reasonable period of time kind.
The best of both worlds from a credit risk and an asset liability risk perspective, and picks up a little bit of earnings over and above the treasuries at the same time.
Yes.
Thank you and just as a follow up to that I mean, it certainly can see the yields on.
C&I and CRE go up from the prior quarter now are you.
I suspect there is a mix of fixed and floating there.
It was mostly floating I would've expected, a little higher unless credit spreads changed but.
Do you have any is your index, that's floating still pretty much prime or do you have any sense for.
Exposure.
Right now, we're all indexed to prime.
Our customers understand it makes it simple from a controls perspective.
Totally agree okay. Thank you.
Thank you.
One moment for our next question.
Okay.
Our next question will come from Brian Martin of Janney Montgomery. Your line is open.
Hey, good morning, guys.
Good morning, Brian .
Okay.
Morgan, maybe Paul just going back to the margin for just one moment.
75 that we just got in July that it sounds like the number Morgan mentioned the $3 50 margin that's fully baked in with that is that right.
75 basis points to three 350 margin is kind of fully baked in there.
Yes, the annualized $3 50 margin took into consideration the.
Fed rate hike in July .
In June <unk>, and then <unk>.
Your comments about just kind of the.
The next potential increase if you've got a 50 basis point increase.
Maybe I missed what you said there as far as what they add to to margin prospectively on the next 50 basis points would do.
I think conservatively 2 million, maybe a little higher but thats considering no adjustments are minimal adjustments to deposits.
Okay, so that the $2 million would be.
The benefit with no basically no beta in there.
Is it beta.
Minimal deposit beta.
Okay.
And Sir.
Of course, the extent, we're able to put some cash back to work in loans. Then we will see some further expansion on top of that just taken it out of the cash account.
And again, we're seeing a reasonably good mix so far in July our yield down originations for July was approximately five 6%.
And that was.
A reasonable a reasonable mix of assets, we have some decent opportunities right now in commercial finance.
And we're repricing the middle market portfolio up a bit so.
$5 six was a good number for us and if we're able to roll assets.
And pick up a couple hundred points at least from cash into loans than Atlanta further contribution for third quarter, and then going into fourth quarter.
Gotcha, Okay and as far as the.
The investments you guys have the investments this quarter, what I think he said unit quarter to date, you've done a little bit more can you just give a little color on what and I guess, you've kind of done with given the outlook for loan growth. I guess is it is there much more to do from the investment standpoint or.
How are you thinking about that going forward.
Well in terms of volume as I said, if we see opportunities to to get into the mid threes, $3 25 or better in a relatively short duration basis.
That starts looking a little attractive.
Just pushing it forward.
I, probably would see the securities portfolio, maybe getting to $200 million, maybe not quite much more than that but if again that opportunity presented itself between now and year end, we would certainly take a hard look at it but I would say probably $200 million on the high end is what we think about right now obviously.
If loan growth slows down.
Particularly say in the real estate portfolio and those yields are still available in the mid to mid threes in the security side.
We would not necessarily rule that out but as far as July activity. Paul why don't you pick that up yes, we saw spreads move out on the agency side. So we did.
$23 million in July of which 13 was treasuries and 10, where agencies and as Morgan mentioned, we got a weighted average yield on that of $323 25, right in that range.
Got you Okay. That's helpful.
And the loan growth and I guess Mark in your comments about kind of where you think things trending.
At least where you'd like to be by year end I guess it sounds like those are doable, even with kind of the real estate, maybe not being not being great is that is that fair I guess is it a is that kind of couch that maybe it's a little bit less.
Real estate.
I think real estate will help us push two 1 billion and $1 75 in the third quarter and then it's just hard to forecast that going forward, we will certainly see activity.
But it's hard to say how much right now.
And obviously if rates retrace you could potentially see some some prepayments but.
Prepayments were seeing our host exclusively sales of buildings.
People just realize the harvesting profits.
And moving on so.
But I think the $1 billion $2 15.
We will largely be equipment finance and commercial finance with some support from real estate.
I think thats, how we probably get there, especially if our corporate side can contribute in the second half.
We're strongly that it did in the first half.
And if that takes hold.
Specialty if you also get a little help from government in the fourth quarter.
We have before then.
But I think all those things are feasible. So that's why we're not necessarily saying were going to have 60 or $70 million of growth per quarter. Because we don't know that real estate is sustainable at the level. It was in the second quarter, but it still should contribute.
We've added some banker support.
In a new market here.
Both in Chicago in another market.
Carolinas.
So we will continue to see some support from it probably just not at the pace. We saw in second quarter. So like I said, if we got to a $1 billion $1 75 at the end of third quarter of $1 $2 15 or better at the end of the fourth quarter, we feel like we had a pretty good.
Pretty good 22 and had set it up well for 2003.
Gotcha and Morgan the people you hire can you just give a little.
Background on what areas you added people to it sounds like a couple of people maybe added this quarter yes.
Yes, we added.
Leadership in equipment finance corporate.
And our strong banker.
That department is well somebody we've known.
For a while working for actually a customer of ours a lessor.
And then they actually worked for a competitor of ours. Most recently so.
So we've got some some much greater strength than we've had in corporate equipment.
Equipment finance and we're looking forward to getting out there.
And pushing that originations right up from what it's been over the last six to 12 months.
And then we added some strength in the multifamily space both here in Chicago and in the Carolinas.
And so that gives us some some opportunities to penetrate some markets in the western suburbs that.
We want to do some more work in.
To page cane, Kendall county areas, a lot of our product out there and now we have somebody who's very accustomed to working in those markets.
Kind of rounds us out in Chicago, a little bit too so with those we like the markets. We're in we like the people we added.
And then we'll go from there we are looking to expand commercial finance a little bit too.
But we haven't put any be aboard yet I think that will likely be a fourth quarter.
Move to strengthen us further in 'twenty, three but we're seeing some pipeline opportunities I wouldn't say, they're done deals yet in commercial finance and also in government finance.
So if the leadership there and can bring those in and we get some momentum it'll be time to add some sub depth of those departments and build on that.
Got you Okay. That's helpful.
It sounds like that there's some good opportunities there and just the <unk>.
Last two for me was just on the expense side with some of the people you've hired any change in the.
The expense kind of outlook just in general for the next couple of quarters or into next year.
Well on the compensation side, we continue to work through <unk>.
Performance reviews, so there'll be some people remaining in some people not.
We will also have to put some money away for incentive payments.
As loan production continues.
So there'll be a little volatile there, but I don't think it would materially take us off track on expenses.
We will put some more money into marketing given the markets and the opportunity. We have we have to continue to broaden the awareness and product awareness out there, especially in the newer markets.
But I think expenses should generally remain.
Within a range of what we've talked about before.
On the occupancy side.
We will continue to to refine the footprint, we opened up our <unk> office here in July .
That office was one quarter of the size of the.
Hazel crest office, we're seeing some good adoption by the <unk> customers and I think there may be an opportunity to continue to reduce the square footage for customer service and then keep customers really happy with it. So we're off to a it's early but we're off to a good start there Rudy has worked hard to get that to that point.
And if we can continue to evolve that then hopefully we see are occupied.
Occupancy expenses trend down a bit.
And that would remain at that lower level.
Got you Okay. That's helpful.
Pretty similar to being kind of flat for the year and then up in 'twenty three and.
And then just maybe the.
Kind of the outlook given the growth you're expecting by maybe more on the equipment finance side.
Maybe just talk about kind of how to think about the reserve levels.
As we go forward I mean credit looks great.
Here's to be funding really provision it really for new growth, which maybe is and the more commercial oriented areas.
Yes, well before we leave expenses is probably the one note is we may see a little bit of expense on the compensation side due to deposits.
We're running them in some of the branch facilities, just because of labor.
Labor markets generally.
We're making it work, but we have a couple of holes that wed like to fill especially on the sales side in the branch operations that relate to businesses.
One of our key goals is to keep growing the commercial deposit accounts and our business finance community finance products with the small businesses. So I could see a little bit there, but again it won't take us materially off of our trail, but we want to add some strength to that function, then and continue to grow the lower cost commercial deposits.
As far as provisions are concerned.
I would say again.
If the mix, especially in say fourth quarter leans towards corporate investment grade government, you're going to get a lower provision rate.
Out of those especially if the growth is material.
And then to some degree middle market and small ticket or.
Higher reserves, so net net.
You saw that we did something like $63 64 points in the second quarter.
Without a real estate component that might still be $65 70, 75, because of the weighting between government corporate middle market and small ticket. It that will just be rollout, but the dollars in government and corporate would be larger therefore, it would skew to a little bit lower provision now if you add some strength in <unk>.
<unk> finance and healthcare and government finance, then that might skew it up into the 75 to 80 85 range, but if I had to say net net I'd, probably say 70 basis points seems like a good place might be in the lower <unk> might be in the higher <unk>, but somewhere in that $65 70 range seems like a safe place to.
Forecast.
Gotcha, Okay and no.
No changed here I guess the outlet Morgan as far as kind of where you think the EPS kind of ramp up to or kind of how youre thinking about.
That are the profitability I guess just in general.
Well.
First of all I think we're in a position now where our goal for a third quarter and fourth quarter is to sustain right around 23 to 26, a share so try to hit that dollar per share for third quarter and fourth quarter.
And then building into next year, the goal would shift to the getting into the 30 somewhere between 30 and 34.
Require a couple of things that would require.
<unk> loan growth, maybe not quite as fast as we've been doing in the second quarter and 22 overall, but somehow probably a little bit mix, a little bit of a mix of <unk>.
More towards the commercial finance side.
A little bit of help on noninterest income and then obviously deposit interest expense is going to be the wildcard there.
But right now if we can stabilize 23 to 25, a share third quarter fourth quarter.
Rather than a buck of share.
Then move on to move that move into the over a buck of share maybe some between a Buck Buck 10 20 on the outside those are the next steps ahead.
Got you, Okay, and then just the buyback I think you guys recently made a change to that but still a pretty modest outlook as far as what you've done on the share repurchase front.
Well, Fortunately, we have more flexibility from a regulatory side than we did in the first part of the year.
So the board was comfortable with increasing the overall level of the buyback.
But I'll also say that given where we're trading as a discount to book.
I would not.
I think it would be predictable to see us get more aggressive here even in the third quarter.
Get that share count down to $13 million for example.
Because of where we're trading obviously, if we start trading higher.
Then that ratably that might come down a little bit, but where we're at right now it seems like a reasonably good time to.
Take advantage of where the market's at in that context and be more aggressive so would we get all the way to 225000 shares in one quarter probably not.
We can only buy a certain amount of shares per day, and we've been having relatively light trading volumes.
Under that math, I'd say 150000 shares of 175 seems reasonable for the third quarter, if a block shows up maybe a little bit more.
But then we will take another look at it.
At the end of the quarter.
And then the board will make another decision, but again, we'll have some more resources available for this we'll take it a quarter at a time.
But it seems like given the resources available to us and fewer constraints on the regulatory side.
Like a good time to jump in and get some shares.
Yes, no it makes a lot of sense.
Looking at the outlook here, where you're at today a lot of good things happening. So okay. I appreciate the update and that congrats on a nice quarter guys.
I appreciate your interest.
Thank you.
One moment for our next question.
Our next question is coming up.
And next we have Ross Haberman of R. L. H investments your line is open.
Good morning, Morgan how are you.
Good Ross how have you been.
I just have one quick quick question I applaud you with those earnings.
Aspirations.
The allowance could you touch upon that hey look superficially low at 60, some odd basis points.
Aggregates.
What can you tell.
Tell me why you believe it's conservative and.
Sure.
You and like everyone else I guess, it kind of it's off the seasonal but the first week.
First quarter of 'twenty three.
Tell us how why you don't think youre going to shock us with a multimillion dollar adjustment based on T cell and what you are.
Currently reserving for commercial real estate loans.
Thank you, okay, well, let's let's work through that first if you look at the composition of the loan portfolio as a whole 97, 6% is commercial and a very small proportion is residential.
Within the commercial portfolio, we do not have construction loans.
So compare us to peers, where the construction loan portfolios are reserved or at least they should be reserved well in excess of 100 points.
And that's a key distinction.
Contrast, we have $200 million.
And equipment finance to governments, whether it's the federal government or state or local governments, but that is a pretty low risk portfolio.
And another $75 million for equipment finance investment grade corporate add another $70 million for corporate other so double b rated credits.
And you have a very strong equipment finance portfolio.
Does not require very much in the way of reserves and Thats historically been borne out by the loss ratios over quite a period of time.
In the great recession.
So that portfolio has traditionally performed very well.
Then if you look at the multifamily portfolio.
The weighted average debt.
Debt service on the multifamily portfolio is 108 with a 52% loan to value ratio as of 630.
And again over many many years that multifamily portfolio and particularly the a notes have performed extremely well and that number is somewhere in the neighborhood of $400 million.
So you quickly get to the point, where you have got a very very strong.
Loan portfolio within the commercial side.
The balances are a significant at the moment, but in the health care portfolio, Thats, 25% $30 million in balances, but those are monitored credits with field audits borrowing base certificates.
And those are government Medicaid Medicare.
Driven payout receivables.
So what we've tried to do across the board is build the strongest loan portfolio. We can do that is still consistent with accepting enough risk to drive our financial results, but no more risk than we need to.
So that's that's how we have never had a problem supporting the reserve at these levels if anything it's harder to supported at higher levels.
Now as time goes on.
We do more of the medium risk assets, the middle market small ticket equipment finance.
<unk> finance government finance, even the small business credits and the Muni Finance area, then youll see that reserve ratio trend up overtime.
That's why we said earlier, we might see 70 580 points something like that through the mix of the portfolio.
But the results of the loss ratio results of supportive themselves over many years.
And even if you compare us to some local peers.
You see a large company in the $50 billion range have a very similar reserve I might argue their risk profiles, a little little more aggressive than ours.
But it is not unusual its not completely unknown and see it as.
As far as <unk> concerned.
It's a little early to be talking about that but the preliminary thinking we have right. Now is the loan portfolio is very short duration.
The equipment finance portfolio short duration, the C&I portfolio as short duration.
Even when you apply a reasonable prepayment ratio to the multifamily portfolio.
It turns out to be a reasonably short duration just look what happened to us in 2019 and 2020 in terms of prepayments to support that point. So we think at the end of the day the seasonal impact is likely to be modest and especially if the duration of the portfolio continues to shorten and it will.
As we do more and more variable variable rate floating lines of credit as opposed to fixed term assets in the multi portfolio.
And then finally to your question on commercial real estate.
I think that Paul that reserve ratio, something a little bit over 100, something like that.
The CRE, both the nonresidential and multifamily taken together.
It is under 100 basis points because of what you mentioned with the annual it's on the multifamily side of it but if it's just theory I think we're over 100 point subsidiary or close to that piece of the portfolio is like 90 395.
To your point to your question Ross.
<unk> real estate portfolio is probably right at or just under 100 points.
Again, thats, a pretty conservatively underwritten portfolio.
After everybody went through the great recession, we decided that multifamily was by far the better performing asset, but to the extent, we see customers and opportunities in Chicago with commercial estate with well underwritten properties, we'll certainly take advantage of it.
And Thats why a multifamily is around $65 70 points on maybe even a little bit less on reserves commercial real estate is proportionately higher in the nineties are just touching 100.
Just one follow up regarding the <unk> running apparel program today and.
And if you can touch upon are you close to what that hypothetical number would be today based on your on your parallel.
Scenarios.
Yes, we're starting to run a parallel and no we're not ready yet to talk about the differences yet we're not far enough along in the testing.
Okay. Thank you the best of luck I appreciate it.
Thanks for your interest.
Yes.
Thank you.
And again to ask a question. Please press star one one on your phone.
Next question.
And we have a follow up from Manuel Novice da Davidson <unk> Company. Your line is open.
Actually most of my questions are answered, but I just wanted to.
I guess circle back up on the expense run rate I think you gave some good color on some of the puts and takes in some of the new hires.
Do you stay you think you can stay in that $10 million, plus or minus 250000 quarterly run rate range.
Yes, potentially new hires.
Yes.
That was my only follow up I appreciate the time today. Thank you.
Thank you.
Thank you.
And again to ask a question I'll make a comment please press star one on your phone.
One moment assay compile the Q&A roster.
Okay.
And we also have a follow up Jamie Gaza. Your line is open.
Yes. Thank you just on.
On the topic of expenses again so.
<unk> then I look at actually at the bank level as revenue per FTE in expense per FTE and certainly.
With the growth in our revenue.
Compared to like.
September 'twenty one for example, the growth.
Your revenue has exceeded the expense growth, but you mentioned.
Some of the things that you may do at the branches that may increase expenses.
Is there any thought around using automation or some things to try to.
Bring those expense levels down to help the overall.
Currency ratio by also reducing expenses.
Well, we mentioned that was that was the.
Occupancy.
Well I'd say a few things.
One.
Automation itself is not cost free.
The software companies and and the vendors.
We have taken every opportunity they can to past costs.
Through especially when they can justify it with inflation and other things.
So right now what we're trying to do in certain ways is get customers to use the existing automation we have.
And then we've seen some success if you looked at our investment presentation.
Presentation Investor presentation.
90% of the transactions, we conduct or some form of electronic.
But that being said.
We have a substantial number of customers that are extremely valuable core deposit customers that like to the branch environment that meet the branch environment. They are the most comfortable with it and we absolutely need to support those customers.
So automation itself.
We will not provide a tremendous benefit to expenses in some ways you're substitute the substituting people for automation, but.
But the trade off is not that substantial in terms of the bottom line.
Having said that what we're also going to try to do is use technology and automation to expand the footprint of a given location. So traditionally the trade radius around our branch depending on the density of the location of population and traffic it might be a mile in the city of Chicago two miles.
Might be broader in the suburbs, where we're going to try to do is use the automation to agree to create a greater density of customers.
The cost of a given location and particularly so in the commercial space.
Where you could use remote deposit capture technology, you could put a better merchant processing product out to the customers you could even use delivery services.
For inbound cash deposits are outbound negotiable instruments, if they need that all those things are possible that would extend the footprint of the branch for the same cost. So if you can keep your occupancy costs coming down to the best of your ability and then leverage the staffing in that facility through technology and create a greater outreach at a greater.
Density of customers and therefore, a larger branch.
A larger branch deposits and even a little bit of fee income per branch, that's probably how we're going to best deploy technology on the deposit side.
On the credit side, there are some opportunities to add some automation, particularly in the smaller credit space right.
Right now I think we're taking advantage of it in the context, we're working about as good as we can.
But we are putting in some additional automation in the credit processing area for a more efficient processing of new.
<unk> credit originations on the commercial side.
Try to do a better job of gathering information efficiently for loan reviews, which are a necessary component of portfolio management, but again that technology has its own cost and.
And you still need qualified people to review the results and make sure. We're documenting the analyses properly. So I'd say, that's the probably the more difficult challenges leveraging technology appropriately we have some opportunities to do so would it make a 5% to 10% differential in the branch level expenses.
In the next 12 to 18 months I would say probably not much more than that at this point.
We just work on the occupancy cost.
That will probably be the bigger bang for the Buck in the next 12 to 18 months.
Okay. Thank you.
Thank you.
And again to ask a question. Please press star one one on your phone standby IOP compile the Q&A roster.
And I'm seeing no further questions in the queue I would now like to turn the conference back to Mr. F. Morgan Gasior for closing remarks.
Well, we thank everyone for their excellent questions and interest in bank financial we wish everyone. A good remainder of the summer and early fall. We will keep pushing ahead, we look forward to talking to everyone at the next conference call.
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This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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