Q2 2023 Bridgewater Bancshares Inc Earnings Call

Good morning, and welcome to the Bridgewater Bancshares 2023 second quarter earnings call. My name is Chuck and I'll be your conference operator today.

All participants have been placed in a listen only mode. After Bridgewater is opening remarks, there will be a question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys and Swift. All your question. Please press Star then two please note that today's call is being recorded and at this time.

I would like to introduce Justin Horstman director of Investor Relations to begin the conference call. Please go ahead Sir.

Thank you Chuck and good morning, everyone. Joining me on today's call are Jerry Bach, Chairman, President and Chief Executive Officer, Joe Schabowski, Chief Financial Officer, Jeff Shell Burger, Chief Credit Officer, and Nick place Chief lending Officer.

Just a few moments we will provide an overview of our 2023 second quarter financial results, we will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater as website investors that Bridgewater Bank M. N dotcom following our opening remarks, we will open it up for questions.

During today's presentation, we may make projections or other forward looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosure in our 2023 second quarter earnings release for more information about risks and uncertainties, which may.

[noise] affect us the information we will provide today is as of June 32023, and we undertake no duty to update the information.

We may also disclose non-GAAP financial measures. During this call. We believe certain non-GAAP financial measures. In addition to the related GAAP measures provide meaningful information to investors to help them understand the company's operating performance and trends and to facilitate comparisons with the performance of our peers. We caution that these disclosures should not be viewed as a substitute.

For operating results determined in accordance with GAAP. Please see our 2023 second quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures I would now like to turn the call over to Bridgewater is chairman President and CEO Jerry Bock.

Thank you Justin and thank you everyone for joining us today I'll start with a quick overview of the second quarter, which was highlighted by some encouraging trends as we continue to work through this challenging banking environment.

As we've been indicating the pace of balance sheet growth continues to slow throughout the year, but we were pleased with the improvement of the balance sheet composition.

Not only did we see a strong rebound in total deposit growth, which increased nearly 20% on an annualized basis from the first quarter, our core deposit balances increased seven 4% outpacing loan growth of five 6%.

Essentially aligning growth rates on both sides of the balance sheet.

Net interest margin pressure continued during the quarter as expected as funding costs continue to rise across the industry on a positive note. We did see the pace of margin compression slow considerably on a month over month basis throughout the quarter, Joe will talk more about this in a few minutes.

Our expenses remained very well controlled for the second consecutive quarter. This has been intentional and shows that we have the ability to manage expenses as revenue growth slows.

Asset quality remained pristine with no net charge offs very low levels of nonperforming assets and stable levels of watch and substandard loans, we continue to be very proactive and diligent on this front.

Pleased with the performance and quality of our loan portfolio.

At the end of the day. If this all translated to another quarter of tangible book value growth, which is now up over 10% year over year. In fact, we have grown tangible book value every quarter going back to 2016.

Before we provide a more detailed look at our results I wanted to take a minute to share some thoughts on the business more broadly.

We have always believed that staying in front of our clients is priority number one and we have remained vigilant in this commitment.

We had season clients or potential client opportunities our lending and treasury teams are prioritizing in person visits and continue to see record attendance at our networking events.

To further expand our reach we are actively developing a foothold with women decision makers through unconventional events and social channels. These efforts are paying off as we onboard new clients that appreciate a responsive and knowledgeable service model.

We have also taken steps to refine our branch light footprint.

Just last week, we relocated our downtown Minneapolis branch to a more premium skyway location with more space to serve our clients Minneapolis is an important market and we remain committed to serving the downtown community.

In addition, as we mentioned last quarter, we recently purchased a parcel of land in a higher growth East Metro.

Area for our future de Novo branch, which will help us fill out our footprint down the road.

Despite the overall uncertainty in the market today, one thing is for certain and that is the confidence I have in our team we know that Bridgewater talent pool runs deep as a top workplace seven years running we know that.

Engagement job satisfaction and productivity ranked incredibly high <unk>.

Think about the employee experience the same way, we think about the client experience ensuring that Bridgewater is a ways people want to develop grow build community and ultimately thrive is our goal.

If our people are happy our clients notice a difference I firmly believe we have the best bankers in the twin cities and I'm grateful for their commitment to driving the success with that I'll turn it over to Joe.

Thank you Gerry turning to slide four the net interest margin declined 32 basis points to 240 <unk>.

As we expected this pace of compression slowed from the prior quarters.

While the current interest rate environment continues to put pressure on margins across the industry. The pressure we are experiencing is slowing.

The fourth quarter of 2022, we had seen relatively consistent month over month core margin compression in the mid teens in terms of basis points.

This began slowing meaningfully in April may and June down to the mid single digits as rising funding cost decelerated in conjunction with the fed's moderated rate hiking cycle.

Keep in mind that this month over month view is on a core margin basis to exclude the noise from the loan fees and highlight the pure interest component of the margin.

On a standalone basis, our total net interest margin for the month of June was 233 compared to $2 40 for the full quarter.

With the additional margin pressure during the quarter as well as a more moderated pace of loan growth. We saw a decline in net interest income. This was also impacted by the continued decline in loan fees as the pace of pay offs remained slow.

Slide five shows the various components of the margin.

Portfolio loan yields moved higher and should continue to do so for the foreseeable future, especially with yields on new originations typically coming on in the 7% to 8% range many of which are being structured with strong prepayment penalties, which will help cement these higher yields for longer.

The fixed rate nature of our loan portfolio means it will take a little longer for the repricing to occur, especially since we have managed our pace of new originations.

As we look ahead, we have over $500 million of fixed and adjustable rate loans scheduled to reprice over the next year and over $600 million of variable rate loans efficiently floating.

While funding costs have continued to move higher we did see that pace moderated throughout the quarter as our funding mix improved.

Funding costs are likely to remain a challenge given the interest rate environment and ongoing competition for deposits, including treasuries and other market alternatives.

There remains many variables and uncertainties uncertainties that will impact the margin from here, including another fed hike yesterday.

However, we are very encourage giving several several positive trends, including core deposit growth reduced reliance on borrowings.

And the continued upward repricing of the loan portfolio, which together should firm the outlook as we continue to execute.

Turning to slide six we continue to demonstrate our long track record of revenue and profitability, even as the current environment creates near term revenue headwinds.

As expected. This has resulted in lower revenue over the past few quarters as the vast majority of our revenue is spread based.

On the fee side noninterest income declined from the first quarter, primarily due to nearly 300000 of FH Ob prepayment income last quarter, which didn't recur.

As well as lower letter of credit fees, which tend to bounce around from quarter to quarter, depending on client activity.

Turning to slide seven our expenses remained very well controlled after declining six 7% in the first quarter noninterest expense increased just one 4% in the second quarter. They.

The increase included higher industry wide FDIC insurance expense following the revision of the assessment methodology and subsequent replenishing of the deposit insurance fund coming out of 2022.

Over the years, we have done a good job of consistently growing expenses in line with asset growth.

While expenses were lower in the first half of 2023 coming in below asset growth, we would expect to see the pace of expense growth pick up in the back half of the year.

This incremental expense growth will likely come from investments in our people and technology as well as areas that are impacting all banks, such as FDIC insurance expense and Interfile deposit costs.

Over time, we anticipate expenses and assets to continue to generally track in line keeping in mind that assets are growing slower this year than they have in prior years.

Even with our expense discipline, our efficiency ratio has increased into the low 50% range due to the ongoing revenue challenges, we still maintain our highly efficient operating model relative to other banks and expect that to remain the case with that I'll turn it over to Nick place.

Thanks, Joe.

Larry mentioned deposit growth was a highlight of the quarter for us and as you can see on slide eight.

Total deposits increased 19, 6% annualized during the quarter, including core deposits, which were up seven 4% annualized.

Some of the noise from the first quarter subsided, we were able to return our focus toward bringing in new client relationships and growing existing balances consistent with our strategy over the past few years.

In fact, we saw increased balances across all of our deposit categories during the quarter, including noninterest bearing which increased over 4% annualized.

However, the overall deposit mix has continued to shift toward interest bearing accounts similar to what other banks are seeing across the industry.

We were encouraged to see core deposit growth exceeded loan growth during the quarter, allowing us to lower our loan to deposit ratio to 104% back within our target range of 95 to 105.

Finally, only 22% of our deposits were uninsured at the end of the second quarter down from 38% at the end of last year as we continue to optimize FDIC insurance coverage and leverage the inter by network.

Turning to slide nine as expected we saw the pace of loan growth in the second quarter to continue to moderate to five 6% annualized.

On a year to date basis loans have grown at a nine 4% annualized pace, which is in line with what we expected for the year.

Although overall loan demand remains lower than what we were seeing a year ago, we are still getting in front of plenty good opportunities.

These opportunities include expanding existing client relationships and referrals to high quality new clients.

We will continue to manage our growth through selective loan pricing and further use of participation sales.

While we expect loan growth to remain below historical levels in the near term the opportunities are there for us to ramp the growth backup when I when appropriate as the environment becomes more favorable and as we continue recent momentum on the floor on the funding side.

On Slide 10, you can see the loan growth during the quarter was driven by our construction and development portfolio.

This increase continues to be driven by draws on previously originated construction loans.

As these projects complete their construction phase.

Any of these balances will migrate to other portfolios.

Overall, we remain comfortable with the diversification we have across our loan portfolio.

Turning to slide 11, we continued to see a slower pace of new originations, which totaled 47 million in the second quarter down 82% year over year.

Offsetting the reduced originations are slower payoffs and paydowns, which declined 49% year over year.

However, we are seeing our payoff pipeline pick up as interest rates have started to stabilize this could create an opportunity to reinvest some of these payoffs back into new originations at higher market rates going forward.

As previously mentioned, we have also been managing our loan growth by selling participations on new originations, including $109 million of participations year to date. The portfolio participations sold has increased each quarter year over the past year, now over $530 million and nearly $670 million, including unfunded commitments.

In addition to helping manage our growth. This servicing provides an added revenue benefit as well.

With that I'll turn it over to Jeff.

Thanks, Nick.

Slide 12, we continue to feel good about our asset quality as nonperforming assets remained at very low levels, making up just 0.02% of total assets at the end of June we.

We had essentially no net charge offs for the 10th consecutive quarter. In fact, we have had cumulative net charge offs of just $376000 since 2017.

And we had no loans 30 to 80 90 days past due.

All of this is largely due to our measured risk selection consistent underwriting standards active credit oversight and experienced lending and credit teams.

At this point, we are still not seeing any early signs of credit weakness, we're actively monitoring the portfolio and staying engaged with our clients as we do expect normalization at some point.

Finally, we remain well reserved at 136% of gross loans the provision for credit losses on loans was $550000, which was mostly offset by a $500000 negative provision for unfunded commitments.

On Slide 13, you can see that our watch and substandard loans both declined modestly during the quarter. This included one relationship that was upgraded from substandard to pass.

Substandard loans are pretty evenly split between C&I and CRE and now make up less than 1% of total loans and just over 6% of total capital.

Overall, we feel good about the risk profile of the portfolio and believe it is well positioned as we move into the back half of 2023.

Turning to slide 14, we provide some more information on our CRD and office portfolios.

Majority of our non owner occupied CRE book is fixed rate.

Which helps from a repricing risk standpoint, we continue to actively engage with clients that have maturing loans are repricing rates over the next 12 months.

<unk> possible cash flow stream and recommend solutions early in the process if necessary.

The current average loan to value of this portfolio was 61%.

As of quarter end, we had 196 million of non owner occupied CRE office exposure.

There's about 5% of total loans.

This includes only four loans located in central business districts totaling 35 million.

We continue to monitor this portfolio closely and we feel good about the outlook given the lower average loan amount diversified client base and primary Midwest suburban office exposure.

Overall, we haven't noticed any material changes in these portfolios since the last quarter and they continue to perform well I'll now turn it back over to Joe.

Thanks, Jeff turning to slide 15, as Youll recall, we took several actions in the first quarter to reinforce our already strong liquidity position.

We remain in a similarly strong position at the end of the second quarter with nearly $2 billion of on and off balance sheet liquidity.

Robust two and a half times the level of our uninsured deposits, we have not utilized any borrowings from the FRB discount window or the new bank term funding program.

Slide 16 highlights our tangible book value growth and strong capital ratios.

Book value per share increased another 1.7% to 12 15 in the second quarter. We continued to demonstrate an ability to consistently grow tangible book value through varying market ups and downs.

From a capital standpoint, we saw an increase in all of our capital ratios during the quarter, including C. T. One which increased from 848 to 872 intangible common equity, which increased from $7 23 to 739.

We are focused on continuing to build these ratios back up over time, given our more manage pace of loan growth and continued earnings retention.

From a capital priority standpoint organic growth remains our primary focus beyond that we continue to review and evaluate potential M&A opportunities. We also have a $25 million stock repurchase program that was approved by the board in 2022, we did evaluate repurchasing shares during the second quarter with where the stock was trading.

However, we felt it was prudent to remain conservative with our capital given the persistent uncertainties in the environment.

We will continue to evaluate the potential for future share repurchases based on a variety of factors.

Overall, we've been very pleased with the recent positive balance sheet trends, we have seen including our growing capital levels diversified liquidity position and deposit growth and composition just to name a few.

We believe all of these position us well moving forward.

Turning to slide 17, I'll summarize our thoughts on our near term expectations coming into the year, we expected the pace of loan growth to moderate to the high single digit to low double digit level in 2023, which is what we have seen so far year to date.

Or the back half of the year, we would expect growth to likely be in the high single digit range as we continue to focus on better aligning loan growth with core deposit growth over time.

Our loan to deposit ratio briefly moved above 105 in the first quarter, but we were able to bring it back down within our target range of 95 to 105 in the second quarter.

The net interest margin continues to be difficult to predict given the various factors. However, with the recent month over month trends. We mentioned earlier, we would expect the pace of margin compression to continue slowing over the back half of the year.

Depending on the path of interest rates the shape of the yoga curve and the pace of our core deposit growth and loan pay offs.

From an expense standpoint, while expenses were very well controlled in the first half of the year, we do expect an incremental pick up in the back half specifically related to increased investments in our people and technology as well as FDIC insurance expense and Interfile deposit costs.

And as I mentioned from a capital standpoint, we will look to continue to build our tangible common equity and CET one ratios going forward as loan growth moderates and earnings are retained I'll now turn it back over to Gerry.

Thanks, Joe finishing up on slide 18, even though the banking industry has changed dramatically in 2020 three strategic priorities. We identified at the beginning of the year are still the areas. We are focused on midway through this year and we have made good progress on each of them.

We have managed our balance sheet growth and more recently started seeing better alignment between loan growth and core deposit growth.

While we typically grow expenses in line with assets, we haven't been able to manage this expense growth over the past year, well within the pace of asset growth and.

In addition, our ability to actively manage credit risk as has resulted in superb asset quality across the loan portfolio and.

And finally, we're taken strategic actions to help better position us down the road, including enhancing our branch footprint and taken steps to expand our CNI function over time.

With that we will open it up for questions.

As a reminder to ask a question you May. Please press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys and Swift. All your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Brendan Nosal with Piper Sandler. Please go ahead.

Hey, good morning, guys hope you're doing well.

Good morning Brendan.

Just to start off here.

And because he tried to put a finer point on the margin outlook I get that there are so many moving parts that make it tough to to.

Really get a clear sense, but if I just do the simple math exercise, it's taking the monthly progression of margin pressure.

Slide four and continuing to moderated over the next three months I kind of get a third quarter margin somewhere in the range of $2 25.

Kind of curious if that is the.

The reasonable range of expectations for next quarter.

Hey, Brandon This is Joe I think as you said I mean that the the ability to precisely project. The trajectory of the margin is certainly difficult as you acknowledged I think we've been pleased with the continued.

Moderation and slowing of month over month compression.

I think with the funding remix in the second quarter certainly is beneficial for margin I think you know the moderation of the fed hiking cycle is also benefited that.

As time continues to pass in the loan book continues to reprice that that's obviously beneficial.

And so to to.

Talk about the precise.

Number is difficult, but I will say you know we're pleased with the trends and I think you know another thing I'll add to is we are seeing.

You know earlier signs of potential payoff activity in the loan book, which you know as we've talked about in the past is.

He is certainly beneficial to margin two fold I think you know historically loan fees have contributed about 25 basis points to our loan yield.

And so when you think about pay offs, if any of those payoffs have.

Unrecognized deferred fees outstanding obviously, a payoff will accelerate the recognition of those fees and so if you think about the second quarter I mean loan fees were only 10 basis points of the loan yield. So that certainly is a is a catalyst and the other thing I'd say on that is obviously.

Most of those those are potential payoffs are at yields inside of where we're originating deals today.

So that certainly you know margin accretive as well. So if you kind of couple all that together I think over the long haul we feel like stabilization as possible. We're pleased with the continued moderation in slowing.

Got it alright, thanks for the thoughts Joe.

Maybe turning to the funding side of the equation you guys did a really nice job on growing core funding this quarter, which is really nice to see maybe for the noncore pieces, though those higher cost Cds the broker H L. B.

Can you just talk about kind of what term you guys are putting that product on sheet at and then how quickly this can reprice lower should rates off.

Yeah, I'd say, we're trying to be you know really.

So careful about both sides because honestly, we're liability sensitive coming into you know this rate hiking cycle and so you know you don't want a materially unchanged that now when you feel like there's a moderation in the rate hiking cycle and ultimately the curve I don't think we want to materially change the profile. So we'll definitely be imbalanced as we always have.

Then so some of that's you know placing that out the curve three to five years I think we've been really diligent about maintaining the optionality to the extent we can so in the brokered market taking advantage of of callable options as well as in the F N B markets.

The other thing I'd add too, which is something we've obviously been diligent throughout this cycle is leveraging the derivatives markets and that has been directly linked to some of these brokerage Cds.

Well the term of the brokered CD might be short term. The derivative itself is further out the curve, which more aligns with the asset side of the balance sheet and that's obviously boding well for us. So it's a it's a myriad of terms and and options and.

And I think we really tried to stay balanced.

For all rate environments, whether it's we sit here for longer or we see we see the fed cutting rates in the back half of 'twenty four I think it's.

Want to overreact, we certainly want to stay balanced give us options.

Yeah, Okay that makes sense one more for me before I step back.

Just on the participations piece can you just kind of walk us through what the economics of that are you moving so much of your production prudently auction.

To manage the overall balance sheet or just kind of wondering what what do you guys get for doing that is there I don't think there's a gain on sale component, but maybe there is it just the services piece.

And then finally is there the option to ever bring that back onto your old Ballet theater or once it's gone it's gone.

Hey, Brendan this is Nick yeah.

Yeah, we certainly do earn a servicing fee on that portfolio on average every.

Individual participation sale is negotiated individually and depending on that.

The terms of that specific transaction you know the the servicing fee will be higher or lower in some cases. It's a you know that's service at a very very low margin, sometimes if it's a high yielding asset that we're selling our participation on where may be able to get a larger servicing fee on that you know I don't know the exact number that we tend to earn on that over.

Over the whole portfolio, but you know its probably in the eighth of a percent sort of average area and we can follow up but with specifics.

Now your question on bringing that back on balance sheet. I mean, they are participation sales I mean, we have relationships with a lot of these banks that we sell participations to so we don't have any contractual ability to bring that back onto the balance sheet, but you know certainly as loans pay off and.

The participation also pays off and we can free that stuff back up to realign back out.

Got it alright, thanks for the.

Great.

The next question will come from Jeff ruthless with D. A Davidson. Please go ahead.

Thanks. Good morning, just a question on the spot rate on the deposit costs. If you have that at the end of the quarter I guess relative to the average of $2 66. It is question one and then two.

And then looking at that beta.

You know, where do you see that peaking out at them.

Over over over the cycle. Thanks.

Hey, Jeff This is Joe yeah, the spot rate on the deposit side was $2 86 on the beta side.

I think we've been have you been pleased at where the betas that at this far in the cycle I think.

Compare that to prior cycles is difficult and really ultimately to project where that is.

You know where that peaks at I think we while we leverage more the broker deposits, obviously contributes to that increasing but I think when we think about our core deposit base. We feel good about how it's performed thus far so it's difficult to predict but I think.

You know, it's a we're pleased with with how it's performed thus far.

Safe to say the deposit costs month to month kind of mirrored the margin deceleration is that are you seeing that.

Spot at $2 86, and that was that.

Rate of increase slowing.

Yeah, I think as we talked about earlier just the the Remixing of the book I mean, the the core deposit growth that translated in the second quarter.

It certainly comes in at levels inside of you know more wholesale or borrowed overnight.

Levels. So that has a that has contributed to the slowing of the month over month margin compression.

Got it if I could hop to capital.

Interested if you guys have in house, and a TCE and CET, one target and I guess I asked that in the sense that you know.

As you consider the buyback you know a lot of moving pieces, but you know.

Relative to capital levels, and and you know another leg to that maybe for Jerry is just on the on the M&A side I mean as you consider transactions.

Back to those those capital levels and how do you how do you balance those options.

Yeah, I mean, we continue to think of M&A strategically and.

You know continue to be in front of.

Potential acquisitions that that would happen down the road certainly not something and the pipeline for this year.

I guess more than anything I, just said that it depends on the current environment and how that that transaction will be structured but we certainly have access to capital. If we found the right deal.

Okay and targets on on.

The capital levels is that anything in house or is that just a.

That sort of a concerted effort to grow those given the environment.

Yeah.

I think I think we just feel comfortable growing it throughout the year.

But we don't have like a specific I'm not going to tell you a specific number that we're trying to.

Achieve on a percentage basis.

Okay fair enough I'll step back thanks.

The next question will come from Ben Garlinger, what they have the group. Please go ahead.

Morning, everyone.

Good morning, Ben.

Just curious kind of digging a little deeper on deposits pretty solid quarter.

So deserves a gift basket at some point this quarter it was a good uptick.

Thinking about just the relationship management and adding a core deposits, whereas this one kind of are starting to have a new trend. Maybe you found the secret niche or is this something that you just deepening our relationships and they're all kind of came in at once.

Just kind of curious on why this corridor. So good relative to the past 12 months when rates are up so much.

Hey, Ben it's Nick.

Yeah.

Similar to what our story has been you know since our founding you know I don't think that there's a silver bullet here I think it's it's a it's a great mix of of everything I think.

In the quarter, we had.

Lot of traction on are staying in front of our existing client relationships and in some cases.

You know repatriating some deposits that you know maybe it moved to treasuries at some point through through 2022.

So brick, bringing some of those balances back and continued to help.

Jerry mentioned in the prepared remarks, and I Echo those comments I mean, I feel like we have the best team of bankers.

In our market and they continue to get in front of phenomenal new client opportunities.

On the on the loan and deposit side, and we had some great deposit wins on the quarter with some new client relationships.

So I really feel like it's just a culmination of a lot of things are coming together and I feel like the momentum that we have today, we can continue to carry forward with us.

Into the future. So you know there isn't a single answer there. It's a it's a heavy lift a from a big group of folks working on it.

Gotcha.

So on a kind of bigger picture Jerry your work to examine our past life I was curious.

From your vantage point, what you're seeing in banking over the past.

Call. It 30 years or so do you think of the revenue.

Waiters or anyone else.

Kind of suit Tar terms of the people watching over the banks have the same level of concern on commercial real estate and the price degradation that.

Media has obviously over the past 12 months.

See cap rates, becoming a little bit more of an issue with kind of work from home I thought you guys have a serious issue with your portfolio I'm, just trying to get a sense of what's.

What's the reality in terms of conversation on commercial real estate risk relative to the headline Association from news articles.

Well thanks for thanks for age and meet bound jumps with me. He's been he was he's older than I am so, but Ah, but I'll go with it.

No.

We had a conference call with our with our regulators I'm Gonna have all come in exam here and in about 30 days, Yeah. It's certainly top of mind for them on the commercial real estate from there now doing a question here like a pre exam question here on commercial real estate and office in.

And you know what what the portfolio looks like for every every one of them there are upcoming exams.

I come back to.

You know, what it's individualized and I I mean, whether it's Minneapolis or.

Orlando or Miami, or where it wherever wherever their collateral is which we don't have them. There I'm just saying like in general I mean, it comes down to the specifics right. So it's the actual property that security in that loan and so the cash flow it's individual tenants.

You know the guarantor behind it.

Every single deal is different so to it seems to me like the media is just throwing everything into one.

One category and that's that's just not the case.

I think the examiners overall.

Probably we see that our side of that the way Reexplain the way, we underwrite things probably better than the immediate though the medians is jumping on it but that's that's my thoughts Jeff do you have any follow up on that.

No I would I would agree I think everything gets painted with the same brush you know it's either.

Central business corridor, it's class a class B and I think that what is missing from that whole analysis is there is a story for each particular property. Each particular sponsor and if you underwrite things correctly that whether you're in the central business corridor or if you're in the suburban that you can have a decent performing property.

Gotcha, that's fair I think we get it as well on the sell side it by that.

Tough to fight some headline risk because sometimes alright, guys I appreciate the color that's it for me.

This concludes our question and answer session.

Like to turn the conference back over to Mr. Jerry back for any closing remarks. Please go ahead Sir.

Thanks, everyone for joining our call today, we were pleased with many of the trends we saw during the quarter the environment remains challenging, but we have a very strong brand in our market. Our client network is growing and we continue to take market share I remain very optimistic about the future. Thanks, so much for your time today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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