Q3 2022 UMB Financial Corp Earnings Call
Good morning. Thank you for attending today's U M. B financial third quarter 2022 results Conference call. My name is foreign and I will be your moderator for today's call.
All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the call over to our host Kay Gregory.
<unk> investor relation.
Good morning, and welcome to our third quarter call Mariner, Kemper, President and CEO and Ron <unk>, our CFO will share a few comments about our results Jim Rine CEO of <unk> Bank and Tom Terry Chief Credit Officer will also be available for the question and answer session.
Before we begin let me remind you that today's presentation contains forward looking statements, which are subject to assumptions risks and uncertainties. These risks are included in our SEC filings and are summarized on slide 43 of our presentation.
Actual results may differ from those set forth in forward looking statements, which speak only as of today, we undertake no obligation to update them, except to the extent required by securities laws.
Our earnings per share metrics discussed on this call are on a diluted share basis, our presentation materials and press release are available online at Investor Relations that you won't be dot com now I will turn the call over to Mariner Kemper.
Thank you Kay and thanks to everyone for joining us today yesterday afternoon, we reported our third quarter results, reflecting positive momentum across our business lines.
Alright include robust loan growth, coupled with strong asset quality and solid core revenue growth.
Net income for the third quarter of $88 million or $1 81 per share operating pre tax pre provision income was $131 2 million or $2.70 per share.
Net interest income increased three 9% sequentially driven by a nearly $1 billion increase in average loans positive asset mix and the impact of rising rates. This was partially mitigated by increased deposit costs largely driven by the transition from <unk> accounts, which is typical in an interest rate side.
Such as the one we're seeing today the timing of deposit initiatives to attract new to bank customers in each of our business lines. The availability of attractive short tenor investment options and the impact of clients reacting to your typical market pressures in a raising rate environment, particularly on.
Our rate sensitive institutional businesses.
This is consistent with what we're seeing from other trust and custody banks like ourselves.
Our cycle to date beta on interest bearing deposits has been 46% and 27% on total deposits as we've noted in the past our business profile and funding that is uniquely.
Skewed in favor of our commercial and institutional sources.
These sources experienced different pace and timing than many of our peers and the re pricing environment.
Our fee businesses performed well driving noninterest income growth, excluding the impact of the nonrecurring gain from the sale of visa class B shares in the second quarter. Additional drivers are included in our slides and Ron will share more details shortly.
Excluding contributions from PPP and the market related impact from the gains and losses on investment Securities. We've generated operating leverage of 4% year to date. This continues to be the focus for us.
We expect to generate positive operating leverage for the full year.
Pipelines and sales activity continued to be strong across the company and I'll share a few highlights from the various businesses.
Well our team has surpassed full year 2021 sales.
Bringing it to $874 million in new assets year to date.
Our institutional banking teams are continuing to perform well year to date, new business volumes have increased 16% and corporate trust and escrow services, and 35% and specialty truck and public finance is close to 110 deals. So far in 2022 on track to exceed 2021 levels.
Fund services and institutional custody assets under administration levels have been impacted by equity market valuations in 2022.
Levels now stand at 352 billion. However, the team has continued to bring in new clients, including more than 200, new custody accounts year to date.
And the fund services contribution to our trust income.
Six 2% year over year.
Healthcare services, we ranked among the top 10 HSA providers in the U S.
We expect the acquisition of the old National Bancorp's HSA business to close in mid November This acquisition will bolster our position with an additional 400 million and inexpensive deposits and approximately 100 million in investment assets.
Moving to London.
The drivers behind our nearly 22% linked quarter annualized growth in average balances. This quarter are on slide 24.
Total top line loan production as shown on slide 25 remained strong at $1 3 billion for the quarter payoffs and Paydown represents four 7% of loans rebounding from the low levels second quarter <unk>.
Real estate and construction loans posted 20% annualized growth in the third quarter, while payoffs will fluctuate from quarter to quarter. We expect we will see then eventually begin to slow due to general slowdown as anticipated in a raising rate environment.
We saw continued outperformance in C&I with average balances increasing 27% on a linked quarter annualized basis and.
And making up more than half of this quarters total growth.
Industrial production continues to be strong and we're seeing a good mix of new customer acquisition and increased borrowings from existing commercial relationships.
Ryan increases are moving closer to pre pandemic levels in general customers prominence indicates that draws are largely related to this leading stimulus liquidity higher inventories and higher prices.
Average residential mortgage balances have increased 23% over the third quarter of last year, despite the impact of raising rates.
Our down payment assistance program designed for first time homebuyers.
And underserved markets has had more than a thousand new applications, resulting in $1 6 million and assistance here to date.
Looking ahead to the fourth quarter, we see opportunity in our various vehicles across the footprint and we expect continued strong growth to round out the year.
On the other side of the balance sheet average total deposits for the quarter decreased five 7% compared with second quarter, driven primarily by EBITDA outflows from elevated second quarter levels, primarily in our institutional businesses compared to the third quarter of 2021, our DDA balances increased eight 7%.
Our corporate trust commercial and Investor solution verticals.
The opt in project based orientation of our corporate trust businesses.
And just as easily see spikes in DDA as we have seen a decline this past quarter.
DDA balances represented 42%.
Average deposits compared to 45% in the second quarter and 39% in the third quarter of last year.
We continue to focus on deposit gathering, including deposit initiatives I mentioned as well as engaging with our current customers.
One area of growth. We're excited about is our business banking and practice finance vertical which has seen exceptional deposit growth over the past three years, we continue to invest in this business to drive future growth on both sides of the balance sheet.
While we see the cycle to date data on our interest bearing deposits of approximately 46% I think the metric alone is an incomplete view as it ignores the benefit of DDA balances, which have been zero EBITDA.
And the impact of our borrowing levels, which have been at 100% beta I'd encourage you to look at our total cost of funds instead, which have had a beta of 32% thus far this year.
Additionally, we benefit on the earning asset side of the cycle disease data of nearly 50% in this environment, we expect loan growth and improving asset yields will continue to drive above peer growth and net interest income.
Moving to asset quality net charge offs in the third quarter were just 0.0% to 2% of average loans, while non accrual loans remained steady at 10 basis points of loans.
We continue to expect that our full year loss rate will be consistent with our long term historical averages of approximately 25% to 30 basis points or less <unk>.
Provision for the quarter of $22 million was driven by our continued strong loan growth portfolio metrics and changes in the macroeconomic outlook. Our reserve coverage is now at 93% of total loans.
In September we were successful in raising $110 million in capital through our subordinated note offering that will help us facilitate our expected balance sheet growth for the remainder of this year and on into 2023.
One <unk> capital markets team participated as co manager, bringing clients that made up about a third of the total offering.
The capital raise favorably impacted our ratios at September 30, total capital and leverage ratios were 13, one three and $8 six 6% respectively.
In our press release, we announced that the board had approved a two 7% increase in our dividend, bringing us to 38 per share payable in January .
Finally, we see many changes in the outlook for markets and the economy in the last few months.
We've got an unprecedented fed tightening and record inflation, along with uncharacteristically tight labor market.
Geopolitical conflict, along with contagion effect from across the Atlantic have increased economic uncertainty.
We have active dialogues with our own clients about their businesses and outlook borrowers are generally optimistic about the rest of 2022 and remain cautiously. So looking forward, although most of our concern about rising costs.
While our customers were in good shape, we like many others expect that we may experience, a short recessionary environment historically, the leading economic index or the LTI as become a good indicators in more than 40 years of history, a drop in the six months right at the.
Low negative 3% has preceded periods of recession as of last week. The index was at negative five 6% further decreasing from a negative 5% at the end of August .
Unlike the previous cycle came into this cycle with a stronger capital position and the consumers came in more liquid and less leverage. Therefore, we don't expect it to be as distracted, but more of a reset for the economy.
As I mentioned, we see good growth opportunities in the fourth quarter, Although we will continue to watch closely for early warning signs.
For deterioration, which at this point seem to be contained in specific areas such as consumer discretionary.
This is where we differentiate ourselves by rolling close to shore, which is part of our risk management philosophy keeps us prepared for all environments.
In closing I'm proud of our teams is always as they continue to work together and work hard for our customers and communities.
Now I'll turn it over to Rob for additional comments.
Thanks, Mariner, let me start with some commentary on balance sheet trends, starting with our liquidity profile on page 21, our fed account reverse repo on cash balances further declined to $1 5 billion and now comprise just 43% of average earning assets with a blended yield of 230% compared to 83.
Basis points in the second quarter.
As we've done in prior tightening cycles.
Floyd cash flows from our high quality securities portfolio to fund loan.
Growth opportunities during the third quarter.
As shown on slide 28, the portfolio roll up in the third quarter was $304 million at a yield of 196%, while we purchased before.
Securities, primarily CLO with a yield of 486%.
The portfolio is expected to generate over $1 $1 billion of cash flow in the next 12 months the yield on those securities Rolling off is approximately 183%.
While treasury yields present, very attractive reimbursement levels. Our priority is to fund the opportunities we continue to see of our lending verticals.
In 2022, we reclassified securities held to maturity portfolio to help manage tangible capital and reduce the impact of rising rates on our equity.
Bridge HTM balances for the third quarter, excluding the $1 $2 billion of revenue bonds. We've long held in backlog were $4 6 billion.
Loan yields increased 74 basis points from the second quarter to 446% with our cycle to date beta of approximately 37%, 61% or about $12 1 billion of loans are variable rate with 60% of those repricing in the next quarter and 71% repricing within the next 12 months.
These are largely tied to indices the short end of the curve.
The total cost of deposits, including DDA was 65 basis points up from 20 basis points last quarter and the cycle to date beta is approximately 27%.
Net interest margin expanded 16 basis points from the second quarter.
It was benefited by approximately 43 basis points from loan repricing of mix 30 basis points from the benefit of free funds.
And 24 basis points from reduced liquidity balances and rates.
These were partially offset by a negative 81 basis points related to the cost and mix of interest bearing liabilities.
As we look ahead, there are a lot of variables at play and that will impact the trajectory of our net interest margin, including the depth and duration of the fed tightening cycle outlook for equity markets and that impact on deposits.
Correct.
<unk> of DDA balances of ECR rates increase as well as our own need to generate deposits through targeted campaigns to fund loan growth.
Based on our own that relationships, which includes the mid quarter Onboarding of HSA deposits from old national and the seasonal inflow of indexed public funds deposits. We expect our fourth quarter net interest margin to be flat to slightly down from third quarter levels. This assumes a first loss rate of four 5% at year end.
As Murdo noted, while the focus on deposit beta and NIM is important we focused primarily on net interest income growth facilitated primarily by loan growth.
Additionally, as you've heard us say before another metric that we manage to is the loan to deposit ratio limit of 75% with our ratio approaching 65%. We will continue to focus on deposits and client acquisition across all our lines of business.
The estimated impact of net interest income with various rate scenarios based on Sept 30 balances as shown on slide 13 in our rate ramp scenario, plus 100 basis points on a static balance sheet net interest income is predicted to fall, 6% in year, one and increased by two 9% in near to this.
This assumes repricing of our variable rate loans based on underlying changes to LIBOR. So.
And other indices as well as well as deposit betas consistent with the prior cycle.
One variable that's missing in this prescribed analysis is what happens to our growth related to net interest income the ultimate impact of incremental rate hikes on NII will be dependent on the timing and magnitude of interest rate movements loan growth and balance sheet management strategies.
Back to the income statement total fee income for the quarter was $128 7 million.
Second quarter included a $66 $2 million pre tax gain on the sale of our visa class B shares recorded investment securities gains.
As shown in the commentary on slide 19 earlier in our presentation fee income, excluding income or loss from equity valuations with $131 million compared to $116 6 million in the second quarter. This variance included a $13 million increase in company owned life insurance income and a $1 2 million increase.
And derivative income related to customer back to back swaps.
Other areas of strong performance include card services income and brokerage fees, the lateral which captures our money market revenue share and <unk> one fee income.
Total brokerage income increased $1 4 million or nearly 12% compared to the second quarter, despite market related compression approximately 3% and the underlying money market balances.
Other drivers as shown on slide 42 and are discussed in the press release.
Slide 23 shows strengthen our noninterest expense the linked quarter increase was driven primarily by the change in deferred compensation expense, which was $2 3 million in the third quarter versus a credit of $9 2 million in the second quarter. This is related to the increased coli income I mentioned previously.
We saw a $4 5 million increase in salary and wage expense, reflecting one additional salary day in the quarter as well as selective hiring in some our heartland businesses.
Additionally, we booked $3 $7 million of operational losses, which are not expected to recur. These increases were offset by a decrease of $4 8 million and charitable contributions expense recorded in other expense.
Few other items to keep in mind that if we look at expenses going forward.
Sure the FDIC announced the two big slight increase in the assessment rates beginning in the first quarter of 2023 based on current data. We estimate this will have an approximate impact of $6 million pre tax.
And fourth quarter expenses will include the yet to be determined pro rata.
Amortization impact from the acquisition of $400 million in HSA deposits expected to close mid quarter. Finally licensed prior fourth quarter periods, we will make a $2 million charitable contribution the organization, serving our communities as well as making any needed through us to performance based incentive accruals.
As Mary noted as we approach our 2023 budgeting.
Our focus remains on generating positive operating leverage while prudently investing in our businesses.
Our effective tax rate was 19, 1% for the third quarter and 18, 8% year to date, reflecting a smaller portion of income from tax exempt municipal securities for the full year 2022.
And to be approximately 18% to 20%.
That concludes our prepared remarks, and then I'll turn it back to the operator to begin the Q&A portion of the call.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad and for any reason you would like to remove that question. Please press star followed by Kim again to ask a question question <unk> one as a reminder.
Thank you our unique speaker phone, please remember to pick up your handset before asking your question.
Next question comes from the line of Jared Shaw with Wells Alright, Jerry Your line is now open.
Hey, good morning, everybody.
Hey, Jerry.
Maybe just starting on deposits if we look at sort of the DDA levels pre COVID-19 you're around 32%.
Should we expect that we sort of trend back towards that level with the pressure on DDA from the ECR and the other items you mentioned or do you think.
There is some systemic or structural change that could keep that at a higher level.
Well I think this is mariner.
Some of the DDA draw down Thats happened over the over the quarter has been.
Based on obviously, the higher rate environment and customers looking to participate in that as well as higher costs and inflation such as customers put their money to work in an inflationary environment.
I think as you look forward just specifically thinking about DDA is as you look forward into a recessionary environment or beyond that and more normalized environment.
<unk> should remain.
At strong levels as they have been.
And in the past.
Okay, and then I guess just one okay.
Yes, this is Rob and I would say.
We've added a lot of new clients over the last 12 months on the heels of the PPP program that we talked about the Halo effect of the PPP program. So when you think about new clients right. So yes. The last rate cycle. We did go down to 32% composition, but this time around I think we feel like it'll be higher than that as.
The rate cycle peaks, because we've been adding new clients with DDA balances as well, particularly in small business user demand or talk about the efforts in small business and how that has driven some DDA growth.
I would say, we probably end up doing better than last cycle. So a temporary short squeeze on that I guess is the way we would describe it.
Okay. Okay, I guess, just following up on that or on the deposit side, how should we be thinking about through.
Through the cycle beta now I think we saw a little bit of an.
An acceleration on interest bearing deposits costs this quarter.
How are we thinking about.
How should we think about through the cycle beta either I guess on interest bearing or on total since you seem to be focused on that a little more.
Yes, we are we obviously think totals the way to think about it and the total was in the 30 low 30 range.
I think if you.
Last quarter the quarter before we telegraphed that we would be early to go through the cycle is the more commercial and institutionally heavy deposit base for our company.
And.
That's basically what we've produced we still expect to end whatever cycle, we have similar to the last cycle.
We don't have any reason to expect that to be any different we feel like we're tracking that way so.
We.
We ended up in the <unk>.
Around $50 52.
Sure.
A couple of quick one way or the other we are around 52 last time, we've telegraphed that in the last couple of calls it's what our expectations are.
We will see how that ends up but don't have anything telling us it would be anything other than that and the way. We believe it is it looks at a relative basis. We just go through it earlier and then you also have to think about obviously total cost not just the interest bearing <unk>.
Keep that in mind, and then lastly, you can't forget the impact of what we're able to do on the asset side.
No.
More than 50% of our loans repricing within 12 months, we got the repricing of the current book back book and then <unk>.
Significant portion of our loan growth was from new customers and all of that new customer growth comes in at a higher yields our loan asset betas were 54 on a linked quarter basis, and 37% cycle to date.
We expect to continue to perform well on the.
The asset side, and particularly on the loan side.
Okay.
Just to confirm that 52% deposit beta as total.
Great.
Yes.
Yes, Okay and then on.
On the bullish side.
With the with the corresponding expense.
The expense is this a is this a third quarter sort of a one time thing or is this now a new new level.
From additional purchases.
Got it.
Quarter in quarter out and that's part of our deferred comp administration. So we tried to mimic those assets and any mark to market fluctuations get written up or down in fee income just like we have the product deferred comp expenses. So we tried to break it out so last quarter because of what happened to the equity markets are deferred comp expense our coli income.
Came down by about $11 million in this quarter and recovered to a path of the 2 million, creating a $13 million. So this quarter's impact of fee income the benefit from <unk> was only $2 million.
Same thing on the deferred comp side, we had more expenses of about $2 5 million.
Reflected in our $231 million expense base.
That activity happens every quarter.
Got it thank you.
Thank you for your question. Our next question comes from the line of Chris Mcgratty with <unk> W. Okay. Your line is now open.
Great Good morning.
Rob I think.
In your prepared remarks, you said you talked about a 75 ultimate terminal London deposit ratio.
Plenty of room, I'm kind of interested in I guess, when and how you get there.
I understand the comments on loan growth.
And also saw you really didn't buy any bonds in the quarter, but is the is the math.
<unk> continue to be positive, but perhaps trail loan.
Loan growth or do we see more down downdraft in the deposits and Securities book.
Well, we we fully expect to continue to grow our deposits.
<unk>.
We've become much more active in the market competing in this environment, where our customers have options and as the short end of the curve has come up the way it has it's a different.
Aren't environment than we've seen in the past, where obviously customers have lots of options in this rate environment.
We have been.
We have remained competitive and more so recently so that we can keep up with our loan growth and then that then the real goal and.
Job of ours is to remain disciplined on our loan pricing.
And we believe we can do that so then it's ultimately about maintenance in our margin and spread more and growing our net interest income than it is worrying about deposit betas, which we really can't control on this and this.
Environment.
We focus on all good stuff the growth and the drivers we think we can continue to.
Produce above peer level growth, both on the asset side and on the fee side.
We've done that for a long time in the 20 years I've been CEO .
Met the expectations and deliver the growth we expect of ourselves.
We expect to continue to do that.
And when the fed pivot when we hit that announcement that will re normalize the cost side of our of our structure. So this is really a short term problem. We don't manage this company for the quarter, we manage it for.
Multiple multiple years in advance and our growth profile remains very strong and when the fed pivot things will normalize for us.
Okay, great. Thanks for that color Rob.
The 1 billion one of bonds that come due over the next year.
I guess fair to say that.
New new money.
Accretive to put those into.
Into the loan book and perhaps shrink the bond portfolio.
That's right, yes, we don't we lost three to four months, we have not reinvested other than a very tiny sliver of the CLO, we've not reinvested our cash flows and it's all part of the loan to deposit question that you asked previously managing that.
We've done this in the past was the balance sheet rotation you've started to talk about during the last cycle.
Same playbook and we've just become more active pursuing.
Those deposits more recently.
As the excess liquidity has been absorbed into the market.
Yes got it.
Maybe just one housekeeping question, the $6 million FDIC Thats, a bump on an annual basis.
Yes, that's the annual number.
Okay and then.
I think you said you're still finalizing the.
Incremental tam expensive deposit deal but.
Yes, I think the old national disclosed that there was a roughly a $95 million premium paid for those 400 deposits.
How do we think about just incremental intangible assets in the back of the capital is at that full amount of money that goes into intangibles.
That's the part we're still working on.
So it's hard to give you a number right now.
Wanted to build out the expenses will include that.
So.
Classification between goodwill and intangibles that gets amortized, we're still going through the calculations of that.
Okay, but the <unk>.
<unk> 95.
The split how does that split but the 95 is the right number.
Correct.
Okay. Thanks, Thanks, a lot.
Thanks, Chris.
Thanks for your question as a brief reminder, it is star one on your telephone keypad to register any questions.
Our next question comes from the line of Nathan race with Piper Nathan.
Nathan Your line is now open.
Yeah, Hi, everyone. Good morning, Thanks for taking the question good morning.
Question on the operating leverage outlook, obviously, some nice improvement this quarter do you think the improvement that we saw on your efficiency ratio here in the third quarter is sustainable.
In this type of rate environment, how do you guys kind of think about managing expenses going forward apart from the true up that you had in compensation costs led to the strong production that you've seen so.
So far this year.
Yes, so a lot of the expenses that we've talked about in the past tend to be variable in nature and driven by overall company performance our rigid production right. So the fact that we're focused on positive operating leverage for the fourth quarter and for the 2023 budget would suggest that the efficiency ratio will improve from here.
Going forward I imagine Rosemary monitoring this macro environment to maybe the high single digit range kind of consistent with your historical trajectory overtime.
Thinking about providing for that type of growth.
Trajectory going forward in apps and any kind of Cecil related adjustments on the queue factors.
While it's hard to do it absent Cecil.
But yeah cause that's a big driver Yeah I think.
A big portion of our.
Third quarter provision was from loan growth.
And so that's that's dealt with the largest number in there.
And you obviously are a loan quality is incredibly strong so the combination really going forward for provisioning will be from outside loan growth and macro environment.
Statistics, driven by our Moody's information.
You know I suppose your guess is as good as ours. So I would suggest that that data will not be getting any better any time. Soon so if you think about the fourth quarter.
We expect to have strong loan growth.
And and and at least I I don't I don't.
Who knows what Moody's will say I don't think it necessarily getting any worse, but not certainly not going to get any better February it up so.
Yeah, It's an album deal based on.
What's going on in the economy with unemployment and and what's going on let alone growth.
Okay, Great and then just you know I'm a deal there'll be raised recently it seems like those supportive of some pretty strong Lone Grove Mcwhorter I'm. Just curious if you know that added capital buffer you know it was.
Perhaps you know supported some increased emanate dialoguing later, if you're feeling kind of more or less optimistic an additional acquisition belts that'd be.
Deposits that'll be coming on board in the fourth quarter.
You know.
<unk>.
We remain active in pursuit of back positions.
Continue to pursue those would you like to add.
Solid franchises to to the base of our organization when when we can find the right deal that fits in.
Nothing new there just wear with reactive.
And I'm, calling efforts.
Okay great.
Taking the questions and all the color.
Exactly.
Thank you for your question. Our next question comes from the line is John <unk> Kenny John Your line is now okay.
Good morning, everybody.
Good morning, John Ron.
<unk> to the expense.
Looking at expenses for the quarter, what is what is the right number to back out for this quarter for the Coley impact is it the $2 million or is it the $11.5 million just to sort of get a a good run rate going forward.
Yeah, I've, just got a deferred comp I would take out two and a half and then we've talked about an operating loss for about $4 million and then there were some.
$1 million to $2 million, a timing related expenses on travel in a marketing campaign. So it would be to start with the $231 million.
Reported expenses, some one time items I would've put them in the seven to 8 million dollar category of.
Of of thinks that we.
Don't control or don't expect a wrecker. So we have run raped osa's closer to 223 ish.
And then all the other items that I talked about in terms of the charitable contribution just for the fourth quarter. The FDIC assessment increase for starting 2023, and then the air Mark related to the HSA purchase.
Yep, Okay. So okay. So two 223 million for <unk> for the third quarter Okay.
Gotcha, Thank you and <unk>.
Yep, Okay. Thank you.
Thank you for your question as a brief reminder, star one on your telephone keypad to register a question.
Our next question comes from the line is David one with cream and James David Your line is now open.
Good morning, everyone.
Okay. Good morning, David Hey, there.
Looking at the reserve building the quarter I know, you're you're pointing to the loan growth side of things was the loans that you added require additional reserves. It just looks to me like the addiction, if you're <unk> if you're using.
Do you think that using your your overall reserved level loan growth should have been a smaller contributor just curious what maybe moans you added and then what else may have contributed to the to the build in the corner.
Well I mean, the loan growth in the quarter was 990 million 590 million and so's.
Pretty significant component of it is driven by Cecil It's a it's a mathematical equation that requires us.
To do what we do I don't know if that answers your question, but it's it was a significant quarter alone growth.
And so we provision against it.
Each new loan.
On the books requires a reserve.
A percentage of freezer, so by definition, new loans will add to the reserve requirement right out of the gate.
Sure got it Okay, and then pick.
Taking this a step.
Further looking at your total reserve level.
When <unk> came out we thought it was gonna be very quantitative and what we've heard since then is there was a good qualitative portion can you discern between the two is there a portion of your reserve that you'd say is qualitative versus quantitative and how much of it would be qualitative if so.
It's hard it's hard to give you that specifically that there is I would call the qualitative peace.
On the margin is what I would describe that S.
And.
The majority of it is driven by quantitative mathematical.
Mathematically driven based on.
Lost history is Rollon Roelof Lone Grove, and macroeconomic environment, and then you've got a piece of it that we can use our.
Our own assessment of the environment and our own balance sheet in our own dynamics qualitative basis to move that up or down on a marginal basis.
Got it thank you.
Thank you for your question and I know my question bleeding at this time, so I will have to call back to our management team at closing remark. Thank you.
Yeah. This is married or I might just wrap it up by reiterating our thesis for for where we stand and some of the the concerns in the marketplace for the industry around the size of the beta is and how we see that shaping up for us specifically.
As we've been saying that for a few quarters we.
We are largely institutional commercial that's that's not new our base basic not new and we've been here before I <unk>.
2020 years, we've seen this before we'd have telegraphed that we're gonna go through it early we've gone through it early.
Are we still expect to come in right, where we thought we would in the 50 low 50 range on the beta site.
We think that you are the analysts and investors should focus more on the whole balance sheet and NII as they are the drivers that our success in performance longterm, our ability to grow our loans our ability to have strong.
Quality with two basis points to charge offs and 10 basis points on on the nonperforming sites. So we think that on a risk adjusted basis with the growth that we have.
We think you should focus more on the profile of the business and less on less on the short term fed action squeeze and the fed will pass soon that will normalize our costs and you will be left with what you normally see with US which is an outside grows profile with a better than average.
Profile. So that is all remains the same and we expect to see fourthquarter loan growth as strong as it was in the in the third quarter with the same kind of quality and so there's nothing new here on our end, we just gotta lived through the short squeeze from the threat.
And we appreciate your continued interest and.
We'll we'll keep after it.
Okay. Thanks, Mariner and thanks, everyone for joining us today. If you have further questions you can reach Investor relations at 8168607 lines. You can research. Thank you and have a good day.
This concludes today's conference call. Thank you for your participation you may not.