Q2 2019 Earnings Call
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Actual corporations second quarter 2019 earnings conference call.
Hosting the call today are John Buran, <unk>, President and Chief Executive Officer, and Susan Collins, Senior Executive Vice President Treasurer, and Chief Financial Officer.
Today's call is being recorded and after today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone.
To withdraw your question. Please press Star then too.
A copy of the earnings press release, and slide presentation that the company will be referencing today are available on its investor Relations website at Flushing Bank Dot com.
Before we begin the company would like to remind you that discussions during this call contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, such statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements.
Such factors are included in the Companys filings with the U.S. It Securities and Exchange Commission.
Flushing Financial Corporation does not undertake any obligation to update any forward looking statements, except as required under applicable law.
During this call references will be made it to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information at <unk> prepared and presented in accordance with U.S. gap.
For more information about these non-GAAP measures and for reconciliation to GAAP. Please refer to the earnings release.
I would now like to introduce John Buren, President and Chief Executive Officer, who will provide an overview of the strategy and results. Please go ahead.
Thank you.
Good morning, everyone and thank you for joining us for our second quarter 2019 earnings call.
As always on todays call, we hope to provide you with additional insight into our consistent positive earnings power business strategy and sustainable competitive advantage.
I'll begin with our second quarter highlights and then provide an overview of the strategies. We are expecting to continue to create long term shareholder value.
Then Susan Cohen, our CFO will review, our financial performance in greater detail.
Following our prepared remarks, Susan and I will address your questions.
Beginning on slide three we're pleased to report overall earnings growth as GAAP diluted earnings per share rose, 48% for the first quarter of 2019, while core earnings increased 27% during the same period.
However, both GAAP and core diluted earnings per share were down from the same quarter in 2018 as net interest margin pressure returned.
Driven by inversion of the yield curve, coupled with increased competitive pressure on our deposit business.
Slide presentation includes a reconciliation of GAAP to core earnings.
We experienced more robust loan growth in the second quarter as closings increased 50% from the first quarter of 2019.
In addition, the loan pipeline increased over 50% to 424 million during the same period the largest pipeline since the first quarter of 2016.
The mortgage pipeline had an average yield of 4.63%, which is 21 basis points higher than the core yield on total loans for the second quarter of 2019.
We continue to diversify the loan portfolio during the quarter as we produced record CN I closings of 158 million, representing 53% of total quarterly loan closings.
These loans are generally floating rate loans and represented 18% of total loans at June Thirtyth 2019, compared with 15%.
At June Thirtyth 2018.
The second quarter of 2019 also saw an improvement in our mortgage loan business mortgage loan closings increased $71 million from the first quarter of 2019.
Loan growth for the first half is tracking at a modest 3% annualized.
Given the size of the pipeline and closing expectations, we expect loan growth will accelerate in the second half of 2019.
We remain liability sensitive.
However, we have components in the balance sheet and mitigate some of the sensitivity.
As I have noted approximately 18% of our loan portfolio is seeing eye loans, which are generally floating rate through 2020 . One we have $2 billion of loans scheduled to reprice.
Up an average of 68 basis basis points.
We recognize that we may not see the full increase and the contractual rate, but we should receive a premium to the market rate. These rate movements, coupled with our strong swap strategy continue to be important elements in mitigating core NIM compression and reducing the liability sensitivity of our balance sheet.
Our long term goal is to move towards being interest rate neutral, which allows us to take advantage of all interest rate environments.
Therefore in June 2019, we entered into an additional $100 million of swaps on borrowings, bringing total swaps to $842 million, which provided four basis points of benefit to the core NIM.
Retail deposits increased by 48 million offset by seasonal outflows of municipal deposits, resulting in a reduction in total deposits for the quarter.
We continue to see positive momentum from the wind Flushing program, which focused on increasing our deposit market share in the Asian community of Flushing Queens at the end of the second quarter, we have captured over 196 million of deposits from the program exceeding our initial goal.
A key component of the wind Flushing program was the conversion of Flushing branches to the Universal banker model, which allow staff to spend more time with customers. We continue to convert our branches to the universal banker model and expect to have the remaining branches converted by the end of this year.
As of June 2019, we had 15 out of our 19 branches operating under the Universal banker model.
In the branches that have been converted.
We experienced an increase of approximately 100% and transactions processed at 18 Oems to over 55% of all branch transactions, reducing our customers' reliance on tellers as a result branch sales have increased over 40% as sales per employee increased approximately 60% due to our branch staff focusing more time on sales opportunities.
Credit quality remains strong.
As nonaccrual and nonperforming loans were essentially unchanged from first COVID-19.
The quarter's $1 million in net charge offs resulted primarily from one previously identified commercial business loan relationship and as of June Thirtyth. The relationship has a remaining book value of only.
Point 2 million equaling the collateral value.
During the quarter, New York City pass new rent regulation laws importantly, we believe they have we will have minimal impact on loan performance in our portfolio.
On slide four we provide some perspective on what recent changes to New York City rent regulations mean to us.
As you know new rules rules restrict and owners ability to increase rents above rates recommended by the rent guidelines board.
We highlight some potential risks on the slide including declining valuations and higher cap rates.
More importantly on the right side of the slide we've highlighted the characteristics of our multifamily loan portfolio, which mitigate and a negative impact of these laws, including loyalty. These strong debt coverage ratios in excess of 1.75 and loans approved based upon current cash flow at underwriting.
Overall, we believe the rent regulations will have minimal impact on loan performance for our portfolio.
Referring now to slide five we remain focused on these key areas exceeding customer expectations enhancing earnings power.
Strengthening our commercial bank balance sheet, and maintaining our strong risk management philosophy.
Our ongoing focus on developing and maintaining a multi lingual branch staff to serve our diverse customers in the New York City market is a key sustainable competitive advantage.
The Asian banking market surrounding our branches has very attractive business dynamics, including a high degree of savings available deposits and a large number of small business owners.
We continue to have a strong focus on this community, where we have over 700 million in deposits. These deposits have a lower cost of funds than our total cost of funds.
Overall, we remain.
Very well positioned to further deliver profitable growth and long term value to our shareholders. As we continue to execute on our strategic objectives, which are summarized on slide six.
Increase core deposits and continue to improved funding mix managed net loan growth and focus on yield and the best.
Risk adjusted returns.
Enhanced core earnings power by improving scalability and efficiency.
Profitable growth and expansion through new distribution channels and business lines.
Managed credit risk and to remain well capitalized under all stress test scenarios.
Our consistent focus on these strategic objectives enables us to deliver.
Over the long term steady profitable growth.
And enhance value to our shareholders.
Now I'll turn the call over to Susan to discuss the quarter's financial results in greater detail.
Thank you John I'll begin on slide seven total loans were $5.6 billion up approximately 1% quarter over quarter and 6% year over year as we continue to focus on the origination of commercial commercial business loans with a full banking relationship.
These originations totaled 53% of total loan production for the quarter and 47% over the past year.
Commercial business balances have grown 25% year over year to approximately 18% of gross loans as of June 32019.
It doesn't seem that portfolio continues to offer to offer advantages primarily the continued diversification of our loan portfolio.
And as these are primarily adjustable rate loans the yield offers more stability to the net interest margin.
As John highlighted at June Thirtyth, our to our loan pipeline totaled $424 million, which is up significantly from the 275 million and 197 million at the end of the prior two quarters.
The composition of the pipeline was 48% adjustable rate product with the remainder fixed rate.
Interest rates on the mortgage loans in the pipeline habit has an average yield of 4.62%, which is 21 basis points above the core yield of total loans for the quarter.
The loan to value on our real estate portfolio at quarter end remains conservative at approximately 38% and the debt service coverage ratio for the current quarter's originations multifamily commercial real estate and one to four failing mix these loans at 192%.
We continue to underwrite and stress test each individual loan using a cap rate in excess of the mid fives.
Slide eight highlights the continued evolution of our funding mix.
As funding has grown over the years the percentage related Cds and borrowings has decreased.
Well, we need to access the wholesale funding markets, we can advantageous late Laura liabilities for longer terms.
Core deposits decreased 6% quarter over quarter, primarily due to the seasonal outflows the municipal deposits as previously discussed.
The core deposits, however have increased 6% year over year and total 60% of all deposits at June Thirtyth compared to just 37% at December 30, Onest 2006.
On slide nine you'll see the deposits decreased just under 4% quarter over quarter due to the seasonal outflows of municipal deposits, but positively increased nearly 6% year over year, driven by money market Cds and non interest bearing deposits.
We continue to focus on the growth of core deposits with an emphasis on non interest bearing deposit accounts, which increased approximately 7% year over year.
Non interest bearing deposits accounts of nearly $414 million represent approximately 9% of total deposits.
We continue to encounter strong competition for deposits the quarterly cost of funds increased 10 basis points from the prior quarter.
We will remain disciplined in terms of deposit pricing, while remaining competitive within our markets.
Turning to slide 10, net interest income for the second quarter of 2019 was $40 million.
Down 4% quarter over quarter due to the net interest margin decreasing 12 basis points quarter over quarter to 45.
Core net interest margin at 2.40% also down 12 basis points quarter over quarter, driven by the higher cost of funds and loan pricing competition as John previously detailed.
On slide 11, we highlight the strategies, we are using to support our NIM one is related to improving the yield on the loan portfolio as John highlighted over $2 billion of loans are scheduled to upwardly reprice, the 2021, and an average of 68 basis points.
These repricings may not reprice and for contractual rate, we or price between the market and the contract price as these loans refinance.
The second component of the yield stabilization relates to our swap strategy.
As John highlighted the net interest margin was supported in the second quarter by interest rate swaps totalling $824 million, which benefited the core NIM by four basis points.
Importantly over the long term will position our balance sheet to be more interest rate neutral, which allows us to seize opportunities as we continue to actively manage funding costs and evaluate strategies to further strengthen our balance sheet and all interest rate environments.
Moving to slide 12, the second quarter expenses decreased approximately 1% year over year.
Noninterest expenses decreased $5.3 million from the previous quarter.
Excluding the expected one time and seasonal expenses recorded the first quarter of 2019 totaling $3.6 million non interest expenses decreased 6% during the second quarter.
The ratio of non interest expense to average assets was 1.58% in second quarter compared to 1.89% in the first quarter and 1.69% in second quarter of 2018.
The company has historically maintained a relatively stable ratio of non interest expense to average assets.
The efficiency ratio was 61% for the second quarter compared to 70% in the first quarter and 60% in second quarter of 2018.
Improving then NIM will assist us in achieving our long term goal of an annual efficiency ratio in the low to mid Fiftys.
As always we're focused on continuous improvement and look for opportunities our operations for efficiency gains.
Regarding taxes, the effective tax rate was approximately 24% in the second quarter of 2019.
For 2019, we approximated effective tax rate between 23 and 25%.
Now turning to credit quality on slide 13, our credit metrics remain strong this quarter.
As a reminder, we our historical seller of NAPW former credits are recorded charge offs early in the delinquency process.
Our strong credit quality metrics results, our coverage ratio increasing to 137% from 129% as of December 30, Onest 2018.
Looking forward as John noted with expected loan growth between 19 to be in the mid single digit range, we anticipate recording provisions for loan losses proportionate with that growth in future quarters to maintain an adequate reserve level.
On slide 14, nonperforming loans were under $16 million relatively flat quarter over quarter as credit quality remains one of our core strengths.
The average loan to value of our nonperforming real estate loans was approximately 35% based upon the value of the underlying collateral at origination and we did not adjust appraised values for increases.
Given the low loan to value associated with the nonperforming real estate loans, we do not foresee an increase and related expenses.
And the second quarter, we recorded a provision of $1.5 million and net charge offs of nearly $1 million.
The net charge offs resulted primarily from one commercial business loan relationship that also had a partial charge off in the fourth first quarter.
Additional information became available on this loan which led to the charge off a quarter.
Importantly, as John mentioned at June Thirtyth relationship has remaining book value of $200000 was equal to the value of the underlying collateral.
Slide 15 shows our 90 day delinquencies as a percentage of loans originated by vintage year.
Overall, our credit quality remains pristine as you can see the results of our strong underwriting discipline with just 11 loans delinquent greater than 90 days the last 10 vintage years.
I'll now turn it back to John for some closing comments.
Thank you Susan.
On slide 16, I would like to conclude by reviewing why we remain well positioned for continued consistent and profitable growth.
We continue to see positive trends, including growth in the CNS portfolio as we move our balance sheet more toward floating rate cnine business.
A significantly improved loan pipeline.
And non brokered loan closings improving to 63% of second quarter closings.
Our swap strategy continues to be an important component in mitigating core NIM compression and reducing the liability sensitivity of the balance sheet.
Our long term goal is to move towards being.
Interest rate risk neutral.
Which allows us to take advantage of all interest rate environments.
We have contained non interest expenses in this low rate environment.
The ratio of non interest expense to average assets improved to 1.58% in the second quarter compared to 1.89% in the first quarter and 1.69% in the second quarter of 2018.
The wind Flushing program established to increase our market share in our home market has been very successful as we have gathered to date.
$196 million of new deposits exceeding our original target of $160 million.
The investment in the Universal banker model is paying dividends.
Universal bankers are spending more time with customers.
The additional time as resulted in brand sales increasing over 40% in total and approximately 60% per branch employee.
Our ongoing focus on developing and maintaining a multi lingual branch staff to serve our diverse New York City customers is a key advantage to New York City market with its strong Asian customer base continues to represent a significant opportunity for us.
Our credit quality remains pristine.
Overall.
Our vision remains consistent and that is to be the pre eminent community financial services company in our multicultural market area by exceeding customer expectations and leveraging our strong banking relationships.
In summary, our strong balance sheet risk management philosophy strong capital levels ability to grow deposits investments and talent innovation and cyber security all positioned the company very well to further deliver consistent profitable growth and long term value to our shareholders. We will now open it up for questions.
Operator, I'll turn it over to you.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question from the queue. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Mark Fitzgibbon with Sandler O'neill and partners. Please go ahead.
Mr fits given perhaps your line is muted on your end. It is thank you good morning, guys.
I Wonder if you could start by maybe give us a little bit more color on that big C. and I charge off this quarter, maybe what happened what industry. It's it's in and if there were other banks involved with that as well.
No the banks involved it's a.
It was in the pharmaceutical retail pharmaceutical industry. It's the same loan that we took a charge on early on last.
Last quarter and.
In reassessing the position, we decided to charge the vast majority of it off for this quarter.
If I'm not mistaken the last quarter you said it was a onetime event was an employee that had been rectified. It has something changed since then.
What happened is our assessment of the collateral position changed.
We had.
We had.
Somebody independently come in to assess the collateral position and that came up more negative than we anticipated. So was the same cause.
But upon further.
Further inspection of what the what the collateral position was of the company.
We felt it prudent to write it down.
Okay.
And then secondly.
I think you said in the release that you kind of quantified your position on that sort of focusing on rate over volume does that mean that we're likely to see more core NIM compression, excluding the impact of swaps.
So.
Okay.
I would say when we're never going to be the price leader.
So that that to the degree that that is consistent with the way we've been operating the company over the over the years that will remain the same.
What changed was the inversion of the yield curve, which both reduced our.
Our loan volumes very very slightly we're pretty well flat in terms of loan.
Loan originations, but it clearly had an impact on the loan yields. So we had to respond to that competitive market pressure and then simultaneously of course, we didnt see deposit costs go down.
And.
In any way, which surprised us.
So if we look at the back half of this year factoring in the impact of swap.
A rate cut say in July .
And maybe September .
From what you see today would you anticipate.
No compression in the margin, albeit slower than what we saw from one Q2 Q.
I think in the past what we've been able to do is have focused more on the differential between net interest income as between interest income and cost of funds I think we'll still continue to see some pressure.
Throughout the end of the throughout the end of the year. We thought we had seen some stabilization the deposit market in New York did not react that way and as a result, we saw compression both on the.
On the deposit side and then in version of the yield curve as I mentioned earlier.
Cause some.
Some more compression on the on the loan side, so unless that unless that dynamic changes I think we will continue to see.
Pressure on the NIM, obviously any move of the fed that that brings down.
Short term rates will be a positive for us because we do have a fair amount of short term.
Short term liabilities on the in the portfolio, particularly in the government area.
Okay.
And then I think you Susan you had said that.
The efficiency ratio goal was below to mid Fiftys I guess I'm curious how long you think it will take to get there and what are kind of the the main levers that you're likely to.
To pull to achieve that.
The main lever that we need to we need to get there as the increase in the NIM and until we see NIM growing curve not being inverted the growth there we won't see the efficiency ratio in the mid Fiftys.
So we are focusing in on the asset.
The asset too.
<unk> expense ratio in order to just keep ourselves as as.
Close as possible to delivering some to some degree of scalability.
But clearly the.
The companies the company is.
Dealing with some.
Some interest rate margin compression that we don't see.
Moving until the end of the year.
Right.
Thank you.
Thanks Mark.
The next question comes from Brody Preston with Piper Jaffray. Please go ahead.
Good morning, everyone. How are you.
Good morning.
Hi, just wanted to I guess, maybe follow up on the comments you had regarding the rent regulated.
Multifamily book.
Better get a sense for.
I guess, maybe the type of borrower I understand you highlighted that you have little exposure institutional ownership, but just wanted to get a sense for are the are the borrowers that you're exposed to are they like long term type of family office type holders of multifamily properties in New York City.
Yes, the typical borrower is.
It is a multi.
Multi property owner.
And has been in the business for for many many years and.
Typically as you can see by our portfolio low lit with low leverage.
Yes, yes.
And so I guess.
Within this portfolio since since the the updated guidelines have been passed.
Have you have there been any any transactions that have occurred within within the portfolio and what has the impact been to devaluation.
In these cases.
We haven't seen much of a change at this point I think it's just too early too.
To see any any changes.
Okay, Okay, but have you.
Have the have the impacts from the from the European regulations than like a slowdown or a pickup slowdown in volumes.
We havent seen any fall out of any loans that are in the in the pipeline.
So it's pretty much.
Pretty much.
Status quo I think the the the the more important factor is going to be which way the wind blows in terms of in terms of rates that could either accelerate.
Accelerate loan growth or.
Leave it pretty much where it is.
But oh.
Again call your attention to the fact that we're not only doing multifamily would doing Cree and we're also doing cnine as well so.
Whatever happens on the multifamily in the multifamily space.
We feel that we'll be able to make up for it in in other asset classes.
Understood understood and I guess, just one more question on the multifamily before I move on.
With regard to I guess, maybe your allowance methodology surrounding surrounding multifamily just just given.
Maybe some of the potential for for negative impacts to the to the asset class as a whole.
Understanding that your book is as you know.
It's pretty excellent regard LTV and debt service coverage or have you adjusted some of the qualitative factors in your allowance methodology at all.
No no we have not given the ltvs a debt coverage ratios. The stress test results, we have not felt it prudent are necessary to adjust our qualitative factors.
Okay, great. Thank you for that.
Then I guess I just wanted to better understand the interaction between the swaps and.
I guess the CN the great Cnine loan growth that you guys have had over the last.
Several quarters.
I understand the swaps are theres never there those are fixed or floating rate. They are fixed rate borrowings that you've swapped out for floating and thats based off of LIBOR correct.
It's basically it's the liability swap and they're based off the federal home loan bank advance rate I mean, they are LIBOR. Our portion of them is LIBOR, but then the other side is the federal home loan Bank 90 day rate.
Okay, and so as as I guess as LIBOR or moves lower continues to move lower that should continue to benefit the margin correct.
Yes, it should everything else being equal we always have to give that caveat right right understood.
And I guess like as as I think about the interaction between the benefit there from the swaps on the funding side and obviously the CN I I would assume that large a larger portion of the C. and I book is also.
Add to LIBOR.
And then there is a pretty substantial amount that is pegged to like where yes.
Okay, and so I guess I guess, maybe as I as I think about the interaction between those two things the X factor in terms of you guys, reaching an inflection point on the margin is really going to be driven by.
Maybe incrementally lower deposit cost is that fair.
Incrementally lower deposit costs.
Prove our NIM.
Right I mean, the only other factor could be the.
It could be in the of the curve, which I think is less likely the curve moving out of a flatter inverted position because we we.
We have some depression on the loan on the loan yields in the last quarter.
Okay. So I guess as we think about the deposit pricing I think.
Just from looking at some of your offerings coming back on line have you have you moved any of those lower b at at Argo banking or bank purely.
I think we've moved our retail we moved our retail lower.
Okay, but the commercial your starts are still sort of hanging in there just based on the competitive pressures.
Yes, I think we're.
We're clearly not on the top of the you get on the top of the list in terms of what we put out in the <unk> on the Internet. So.
We thought retail was the best place to to move down somewhat and we'll be alert for what happens in the.
In the.
Internet space to see whether or not it's a it's prudent to move down there.
Okay, and then all of which all of which by the way.
Good or better than the than the current short term wholesale funding.
That's that's in place.
Okay, and then one last one for me I guess, maybe if we could try and get like an all in impact, but NIM. If we do get a 25 basis point rate cut here.
In a week or so I guess, what would you what would you expect the impact from that 25 basis points to be added to the NIM all in.
I think thats going to be dependent upon I mean look we have a.
We have a fair amount of government business that could price down.
That is going to depend upon what the competitive pressures are in that.
In that market, but we have seen a little bit of a.
A little bit of.
Lets say give up of of rate on what split some of the competitors. So the government business is going to be a key there and that's the one that can move.
To move most quickly.
And then I think the rest of the rest of the market is going to be dependent upon how competitors how competitors move.
All right great. Thank you both for taking my questions should welcome. Thanks Brady.
The next question comes from Collyn Gilbert with KBW. Please go ahead.
Thanks, Good morning.
Good morning.
Just a question first on the loan growth do you what do you all anticipate or what.
Do you see sort of the pull through rate to be on your pipelines. I know you guys have been speaking about robust pipelines in the past and even as you pointed out season. This quarter's pipeline is even that much stronger.
What do you kind of anticipating pull through rates to be on that.
I mean, it's varied and one in the last quarter, we we pull through almost all of it I guess right.
Weve headquarters as love was 75% and really depends upon the mix the mix of the pipeline at any given point in time.
But probably 75% is a pretty decent number and the loan growth that we anticipate for the full year is the as we've mentioned in the press release and in the comments is the mid single digits I saw somebody had a no doubt the state it was already there but for year to date were little less than 3%. So we expect that to accelerate in the second half of the year.
Okay. Okay.
And then just just back on the swaps.
And and before you in your opening comments you guys had indicated you added more this quarter I guess my question.
It was sort of.
Understanding sort of the rationale behind that because it seems like.
A lot of the disclosures you guys. If offered would suggest that the way that the balance sheet is positioned.
On there should be inherent.
Core NIM benefit, but obviously, we're not seeing that right. We havent seen it through the rate hike last year, and then thinking we get a benefit and now and yet that's not necessarily material I think I'm just curious the cost of adding the swaps even this quarter.
Did you was that pretty high.
So let me just mention one thing we did see four basis points mid cycle off of this four basis points of benefit from those swaps in this quarter. So we have been seeing benefits from those from those swaps in this in the rising rate environment.
Okay. Okay. Just curious have you all calculated.
What the potential hit to tangible book value would be or the cost of capital would be if you unwound the swap altogether.
Oh, no it really exposure because it just it seems like it's a large number I guess relative to the balance sheet. So I'm just trying to understand.
What.
Yes, what the ultimate impact could be if you did ever unwind.
We have not done that calculation since we're getting a benefit to them right now.
There would be no need to unwind.
Okay and and.
Yes, I get it I understand I'm, just I'm just looking at I mean, the market rate environment has been so volatile right and you know just it.
It's a tricky a tricky situation to try to predict where the fed is going to be going.
I'm just wondering.
We understand that okay. Okay. Okay. Okay.
Okay, and then just to confirm that the 1.6 billion that you guys cite on slide four in terms of.
Exposure to the rent regulated space is that is that purely the rent regulated multifamily or that's just all in New York City multifamily.
That's the right regulated multifamily okay, great Alright, I will leave it there thanks, everybody. Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Steve collaborate with GE Research. Please go ahead.
Hey, guys good morning.
Good morning, Steve.
I'm, just wondering going back to deposit pricing for a second you mentioned that kind of activity.
Its competition surprised you guys do you have any sort of why that was the case and why deposit pricing more intense long rates seem to be moving downward.
We saw.
We saw competitors in the government space in particular and the CD space.
Just getting more aggressive.
Okay.
Okay, Hey, there's no there's no particular reason why it just.
You know I I guess, it's just kind of surprising right that that it would happen in this quarter as opposed to any other.
Well the other thing to keep in mind, Steve is in this quarter, we have the seasonal outflows of government funds that were replaced at a higher cost then the government funds what that the government bonds. We had on the books at the first quarter. So those funds should start flowing back in at the end of the third to fourth quarter. So we should see the that kind of reverse itself.
Okay. Okay that makes sense I think that was kind of the missing piece there.
And then.
I'm looking at the the loans close table on the rates there it looks like non mortgage loan rates were up a decent amount whoa mortgage loans were down a lot.
Is there a mix shift.
I don't know maybe in sizes are categories within the mortgage category.
Or is competition just pushing it down that much and then you mentioned that you.
Pipeline yield was was kind of also lower than the clothes yield. So is that kind of a sign of increased competition going forward or how should I read into that.
I think it says most associated with the movement of the yields of the yield curve and the expectations. So if you look at where the curve inherited it was right at the tenor that we had that we generally isolation are generally priced at the five year or so so you you look at the curve and and I think the customer expectations changed in that regard and as a result.
Provided that type of that type of movement.
Okay, Yeah that makes sense, Okay, and then just just slide 11 about the the loan repricing.
I appreciate kind of separating it by year and then I think Susan you mentioned in your prepared comments that you might get not get the full contractual rate, but you know try to basically I was just wondering what kind of assumptions for like the rate environment overall in 2020, and 2021 or or kind of built into these tables.
The assumptions that are built into these right now that slack compared to where we are right now.
Okay, essentially the same environment as now.
Right. So if you know obviously this will come down if there's a.
[noise] rate cuts by the fed or it would go up if they increase it but its just because of our modeling we just left it flat.
Okay, Yes, that's fine I just wanted to know what.
What the basis was there and then just kind of finally for me kind of mentioned in the press release.
Desire to move toward being relatively.
Rate neutral.
I'm, just just kind of wondering thinking about that sort of longer term would would being rate neutral.
I mean without even helped you guys on the margin in this quarter because kind of.
The the degradation in the margin was kind of mostly from increases in deposit pricing.
Right or am I thinking about this incorrectly.
Well I think.
Rate neutral implies some changes in the in the type of.
The type of deposits, we have in the type of funding we have in general so.
I think that that's a key component a component of a of our.
Of our strategy going forward.
Okay. So.
Being rate neutral in the sense that you would shift your deposit mix sort of so that you wouldn't be as vulnerable to to pricing you guys sell it. So just I have a less a less volatile less volatile deposits deposit mix, you know, possibly a little bit less in terms of continuing to grow the noninterest bearing deposit right.
Okay very good that's it for me thanks, guys.
Thanks, Dave Thank you.
This concludes our question and answer session I would now like to turn the conference back over to John Burns for any closing remarks.
Well, thank you very much for for your.
Thanks for your attention and for your questions and as always we're always available.
If there are any follow up questions from any of the analysts or any of the investors. So thank you once again thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.