Sterling Bancorp

Q4 2020 Earnings Conference Call


spk_0: they aren't welcome to the starting by corporate forty four to twenty earnings for these conferences been recorded that's that's a lot to say about eight hundred over to check for pinsky please glitter
spk_1: good morning everyone
spk_2: and welcome to the fourth quarter and year and twenty twenty call a jury me today is always must the army be ordonez rob lowe an emblem harmon we invite more people to this call it has a i maybe i'll start with are just some recent announcements from a structural standpoint i think as as you all have seen luis was permitted to the chief operating officer of the corporation and he'll operate as the bank president and will oversee the lines of businesses operations and technology and i'll take care the staff areas sell we send our new c f o b ordonez will report the me also we're really excited to have been join us and i'd really encourage you to get to know her she's terrific and that brings a lot to our company and i look forward to working with her over a long period of time so it's so let's turn to the fourth quarter in urine results to say twenty twenty was challenging would be a massive understatement we aggressively met the challenges of this near zero interest rate environment a global pandemic and the resulting credit challenges as you'll see from our results we have been adjusting our model to set ourselves up for a strong twenty twenty one or fourth quarter results are reflective of those actions during the year to continue to be a high performing that company we are strong fourth quarter driven by three factors one we had really strong growth and core adjusted eap yes driven by improve revenue growth secondly we have margin expansion improve returns an increasing tangible book value and third we had improve you've credit metrics so let's start with start with are strong run rate profitability as you seen from the press release adjusted earnings per share increase for sense the forty nine cents compared to the third quarter adjusted pp are excluding accretion income was one hundred and thirty million dollars which was a seven million dollar increase or about six percent versus the link quarter and frankly was down just a million dollars relative to the fourth quarter of two thousand and nineteen adjusted total revenue grew by ten point five million dollars versus the third quarter and what we've focused on over many many quarters is trying to create positive operating leverage are we create approximately two point five times positive operating leverage as our car margin increase by fifteen basis points code quarter over quarter commercial loans loans net of the sale of tpp loans were up one percent in the corridor
spk_3: the pauses declined as expected do the season while flows of mean municipal deposits
spk_2: finchem we have a strong quarter for fee income as the economic activity continue to improve of the fee income three million dollars where the fees came in the sale the ppp loans and expenses were in line with our outlook guy we had one extraordinary item which on the expense line was a thirty million dollar charge for disposition of the financial centers as we've continued to a decrease the amount of physical locations we have secondly are margin expansion profitability draw strong improvements in return metrics and ten with tangible book value core net interest margin improved by fifteen basis points from last quarter rd nasa yields increased by six basis points cost the funding liabilities decrease nine basis points to thirty three basis points adjusted our a way to yea improved by to basis points or hundred and thirty three basis points adjusted our oh a t c he improves sixty six basis points to fourteen three adjust their operating efficiency was stable at forty three percent and total a book value increased by thirty cents per share over the last quarter year over year total book that you increase the approach me six percent we also continue of robust levels of capital as we've created a strong earnings flow ah you know we pay our a very specific divert and that we have a lot of excess cash coming off of they already inside a t c over t a was nine point five five for versus nine point one five last quarter about a forty basis point increase tier one leverage at the bank level was eleven thirty three eleven point three three vs ten point five via last quarter and then during the quarter we've repurchased approximately one point nine million shares we will contain you look at repurchasing shares as as the opportunities present themselves third we are confident our credit position are not performing assets decline during the quarter and we continue to carry stroke strong loan loss reserves charges for the quarter were twenty three point twenty seven point three million dollars a level and a half million dollars of that represents the core charges and the balance was primarily related to the exit are of our remaining taxi medallion portfolio we wanted to get a taxi medallion behind us once and for all all ah nonperforming loans continue to improve decreasing by forty million dollars during the quarter portfolio delinquency remains relatively constant loan modifications under the cares act are down to one percent of total loans with a majority comprised of residential real stay a borrower's remaining commercial modifications are primarily low loan to value real estate properties criticizing classified loans did increase significantly from two point six percent the four point five percent and these loans are coming off of the cares act mods that are experiencing some degree of cash flow challenges we virtually we raided every loan and our portfolio these loans are are we feel very confident in the loan to value and the borrower supporting these loans but they are struggling a little bit on the are on the cashflow side we've kept the allowance for credit losses of at around three hundred and twenty six million dollars or one point four nine percent of total loans we think that's very appropriate and very prudent ah we consciously decided not to release rollers reserves are we believe that having very strong levels a capital and strong reserves are the right thing to do at this point in the cycle ha and will continue to do so we are confident in our ability to manage credit in this challenging time we were were generally again a secured lender in our loan the values on the real states i continue to be in the fifty to sixty percent range and ninety seven percent of our see and i loans are secured by receivables human tory your equipment you know as twenty twenty one a room a valls will continue to work through the that the issues in the credit for full and we're very confident in the outcome and our ability to mitigate losses sag given thus cured nature of the majority of these credits finally we continue to have all this model and invest in our colleagues technology and risk management in the future that that's really the targeted three groups that we are investing colleagues in we we've been able to continue to hire in retain some of the best and brightest and as we have all this model we have different types of skill sets that we're bringing bringing on if you do the calculation our revenue and earnings per ft as at the top of the peer groups so we get a lot out of our colleagues and they work hard and their thereof really well positioned for the future from a technology standpoint you know we've we are doing two things to big things one we are automating the back office using technology resources a lot of ai a lot of automation along the process and we're trying to digitize everything for our clients and are call and so the investment were making and technology is meaningful and and secondly in the technology a bucket we we are really confident in our ability to provide technology solutions and back office solutions to technology companies it as banking as a service or view is that we will have up the six clients completed and book by the end of the first quarter ah and we view this as a means to create diversity in fun dean and fee income and frankly learn about other companies our topic for mean technology finn tech companies out there providing service to or is asians like us third piece or major on this is around risk management in a we've we've been very succinct and pretty in a contemporary environment relative the risk mantra we've built up a risk management group including credit to be regional bank like rather than community bank like so we've tried to grow in into you know our high level of enterprise risk management ah we're trying to anticipate the future endeavours significantly he and risk management as we go along the as thing i'll say about have all been the model is size does matter so we look to continue to grow both organically and through mm a are we think the economies of scale ah allows us to attract the best in the brightest and colleagues to invest heavily in technology and data invest heavily in that enterprise risk management two items before i we open the called the questions first your know our forecast on page twelve the presentation you know we expect our we will run core niamh higher than all of last year off twenty twenty three income will continue to grow as improving economic trends in addition is the we're an undertaking will be executed against we believe that the they'll be an approving economic and revenue outlook court expenses are expected to grow water modestly about will be investing as i mentioned in people risk management and technology that all naval revenue growth and issues the happen into the future and we also expected return more capital shareholders both on an absolute basis and at so portion of earnings are we have targeted a fifty percent number two to return capital to our shareholders ah and last before open the south but i really want to say got a lot of folks twenty twenty one was at a was a very difficult year and will still when they're obviously some of the out the pan a pandemic been through this process we really have fantastic folks that work in our company as colleagues are they constantly went above and beyond and they constantly adjusted and changed as other conditions change we have great clients clients are really worked diligence lee with us the relationship structure that we have with the teams on both the commercial in the consumer side enabled us to really deal effectively with clients through this transition and by the way we think that there's great opportunity to capture incremental clients into the future because i think we did a better than others we appreciate the strong board members we had done many many meetings and twenty twenty as conditions changed and we appreciate all you as a dedicated investors in a world where we have a model that is effect of and will continue to evolve and were optimistic about while the year and beyond the they go be a lot of opportunities as we go forward they'll be challenges also but i think gas it'll be a lot of great opportunities for us take advantage of so without one are we open up for questions you house
spk_0: thank you you'd like to ask a question please how long have a phone keypad
spk_4: on the speakerphone make sure that you me function
spk_0: it's an a single to reach our a again that a star one to ask question would pause just for brief moment now i want an opportunity to some questions
spk_5: on second thought a star one will take our first question from casey hair from jeffries please go ahead and then is open
spk_6: great thank you my everyone the money the want to start on that jack one start on on the credits ah
spk_7: the the uptick in i criticized classified
spk_6: i'm just curious
spk_8: you expect this to be the high watermark ah i'm i'm a one and and he also mentioned that you know very well secured en la these properties
spk_6: on the opportunities it's more of a
spk_9: a cash flow issue if he does provide some coverage on awesome some colorado on the net service college
spk_10: sure so there's no couple different things they're in all out of time in first and then rob row also love also provide some awesome color there ah meal do things i think that that meal the positive aspect of this is is that the as we called out in our release them vast majority of the migration is contained alone that were already in some form of deferral or some form of coven of related modification or whatever we want to call dog have some some by payment plan right and so what we are very positively encouraged by the fact that we're not seeing non deferred or non modified moans that are part of this migration right so it continues to be contained the that part of the population of loans that we've been working on in that we've been talking about the past meal two or three quarters and that up until this point you'll see that there had not danny correspondent migration in yell nonperforming loans so even though the these loans have migrated from a kind of perspective they have continued to perform ah in many instances because they are relying on secondary yeah and tertiary for myself that you forms of repayment with saab and guarantor support and strong borrowers are but the most encouraging sign it is that we continue to see folks you know that so these properties or the of these various relationships have a tremendous amount of equity in them and therefore you're seeing guarantors and owners of property stepping up to essentially maintain in in ocala cashflows and you know payments dreams the reason for migrating them is is that yes when you look at the underlying credit the to of the individual property of the individual long relationship or that particular loan you are getting the debt service coverage ratios that today because of the pandemic don't cover the credit the district that we require for a loan to not be classified and so the negative side of that you're seeing credit migration the positive side of that you're saying ill people step up and continue to maintain these loans in on a performance as is it i watermarks idea that don't have the magic crystal bomb shaking the magic eight ball here and it's tell me we're not sure yet but what i can assure you it is that the migration that you saw between the third in the for
spk_3: with quarter we do not anticipate seen something like that continuing to progress because again these are loans that we have been dealing with for three quarters now these are not loans that popped up as issues in the fourth quarter of meal for the most part and so that gives us a fair amount of confidence and our and and comfort that we're going to continue to manage added as population there's
spk_10: going to be some charge us in the first in the second quarter we're not we are now we are pockets in of that fact that's why reserve is what it is the reserve was contemplating there was going to be some credit migration we feel very happy with that with with were that reserve is today and again to the extent that there's further migration it's not going to be as we don't anticipate that it's gonna be as significant as what you saw between a third and fourth quarter because it's contained to that same population of loves rob what are you are a then you add the efficacy what i would i would add is that a couple of the pressure points that way
spk_11: we and other banks or talk about a new been asking about or would be the hotel portfolio and and in retail and hotel is really been exactly as described last quarter in that we're talking to our borrowers of the four hundred fifty million one hundred and twenty million of it is operating below one times debt service coverage ratio half of that of about the about half of that a really with with sponsors and guarantor that so much liquidity that they could go years coming out of pocket if necessary to cover the casper the project level so then the other half of that one twenty or so is something that you know we're watching very closely and working with so that's a very you know that contains for us in terms of what what it could mean down the road in terms of potential loss details interesting because he actually performing probably a little better than we would have expected we do or analysis every month for the top fifty borrowers and we go and look at the paper away from the tenant to our borrowers and that was up to eighty nine percent in the month of december that that was a little higher than we would have thought given everything that was go hang on and less than that friend had increased through the balance of the second half of the year nonetheless there are still deal there that are below as we said below the one time the str and our view there's very clear that that's the case they need to either be criticized a classified and really would be that the liquidity of the book of the sponsor guarantor that would make
spk_5: that determination of whether the criticized are classified
spk_6: great thank you thank you to get our hands of the i know that yeah great ah cases is switching to total the i lock for between one arm the longer oh god i was asked by seated of at a billion billion five arm it's just a you know just some color as to what's driving that any i mean surprised to see reggie consumer you expect to stabilize
spk_2: as is begin in home with are more triple paid as it is it you know our portfolio acquisitions just to some color
spk_12: no i i will discuss this this is a organic growth so there's no you know acquisitions and in in this and we think that that that's a good net number to us to grow so we have you know we have we we are pipelines now for
spk_2: love for them major the first quarter in the second course are pretty stronger they're actually stronger than they have generally been in the past so you know of areas like you know certain sectors of a of crv traditional see an ice to mention the affordable housing and public sector with if you think they'll be continued significant growth in the public sector bounces as know this new administration takes hold on this thing and then a
spk_10: the country have a contract that the potential run off of some of the you other multifamily and some of the rez you run off so we're we're pretty confident that given what we see in the market today that his credit worthy and praised appropriately to be able to achieve that target it doesn't include ppp so that the oh so that guide and the ah the target doesn't include bpp and domino the beating of the of the run off of of ready consumer is because we're now news network for your started five billion that football you had liquidated quickly overtime know when we are you know post the a story emerges of for the past three years we've seen no pretty significant run off but then at some point you do get to have nailed to get to a place for that portfolio because of consumer behavior just will extend out some period of know for some period so we anticipate saying the extent that there haven't been know that every five yet in the low rate environment you don't anticipating that same type of refinance activity and continue
spk_6: hundred twenty twenty one which is going to slow down the accelerated repayments that we've seen and we're now down to a level where the small amounts of origination that we do on the residential mortgage side are likely going to offset pretty substantially whatever run off we see in the existing book so net net you are this is going to be the first year where you're going to see a yeah you know a residential mortgage book that should not dad know decrease the overall in a long growth saab know like and have was as it's happening in the past couple years
spk_8: got it thanks and just last one for me on the the the back
spk_10: came in a little bit higher than that it's presented the am and you guys are now saying above thirty percent how how how high card that go arm and and what would die what would be the catalyst stick to to be more aggressive than sixty two percent you're on the fourth quarter it also needed the we are you know the target or setting for milford next doubt and for next year's a minimum of two million shares for quarters are we at one point nine million in the fourth quarter you know we think that two million at a minimum is gonna be a two million shares sorry is going to be a good number to use for a known how we're thinking about the of that the i know that progression and twenty one how high can go again i'm shaking the magic eight ball years later depended on mad you know what we the from a growth opportunity out there right you know what we do know is you know is what we have been talking about for quite some time which is in our long term target for tc eight the quarter were sitting on your a date a quarter sorry we're sitting on nine and a half to the extent that we continue to generate the internal we we continue to generate that amount of internally generated capital ah you know we would be in a position that new substantially know they'll be above that so out of your at the you know the current available capacity under the program is just over fourteen and a half million shares
spk_13: that's not the say that we wouldn't really up whenever we get the room for that type of level but you know it's are you know of a minimum two million into the extent that we don't see growth opportunities in component of the business
spk_0: the know we'd likely increase from there
spk_14: great thanks guys
spk_15: thank you
spk_16: moving on her next question comes from us steve loss from be right securities please go ahead and line is open i didn't i guess
spk_3: good morning
spk_10: to survive on the i should be back to the credit migration here you with the driver this is quarter of a refresh of a data or are you just see maybe more vacancy boy could do they get them would have pie expected you that there's cards you with normal to than one one pines already and in the third quarter and sure
spk_2: of the year
spk_10: in your closet though it is a repressive data so this is of know jack lew to two hundred comments this is now a review be a real underwriting in our lives i it a full review been updated underwriting and view of every me alone that was in some first or second stage of cover deferral working with borrowers getty updated financial information red rolls audio tax returns cetera and then making a and educated underwriting decision regarding the know kind of the current and near term prospects for been or casual and that service covered racial on the loan so you know again one of the things that we have talked about empire calls his you know when we in a way we've when we first started the you know kind of the cover deferral process for other enough
spk_11: early late first quarter early part of the second quarter it wasn't a carte blanche approach of like everybody last for one gets one but for the most part everybody who ask for a deferral gotta go over deferral and so that triggered the start of a comprehensive review of what was a position of each one of those know be one of those borrowers and so the the reason for migraine
spk_16: eating those credits now is that there's been a first rounder deferrals the second round of payment deferral they have now for the most part of fallen off of a different program did you see that the loan to frills are down the just you know one percent but at that point where now making a and updated daniel underwriting decision of what is the casual dynamics of this property now ltv be being a secondary
spk_3: measure but for us a key triggering point of what classified alone is what are the near term castles probably how casual prospects of it so it was updated know updated information and as we said before we're seeing you know good secondary and tertiary sources of repayment a guarantor stepping up but under a credit policy studies that that a
spk_10: no property or alone is in his isn't a yard that service you know below one x you know we know that that requires it that because of either special mention or substandard and we are you know now going to work on getting on my back with each one of these folks
spk_3: okay that fall for it and then in turn to this new drivers in charge offs in the person second quarter or you get think about it perhaps you know remaining elevated first half of the and and moderate and kinda curious
spk_10: on target formation
spk_11: more likely second quarter is where we would see a general elevated you know charge offs i think that we are as you think about the substandard population of loans those are loans that again we think the way to think about the progression of lounges a good chunk of those may over some period of time become longer term tt ours one of the things that gives us a lot of confidence as we were talking about before the fact that there is a substantial amount of equity that's embedded in these in these relationships right and so we are seeing were very encouraged by the behavior that we're seeing from borrowers which is folks are not turn your and nobody's coming in here to hand over keys at this point in time right themselves ah the it's in everybody's best interest particularly when you see he that type of equity in a property to essentially continue to work with those bar was right so i think that is a first stage english as you think about substandard is going to be new update a conversation discussions negotiations with borrowers and you know will likely a result in some tdr formations the extent that there isn't a newly a faster economic recovery and then over some pure to time as you i
spk_14: dent the by neil properties in business models and businesses that are going to be permanently impaired which is probably going to take another nine hundred eighty days that when you would start seeing some know some greater charge up content but that from you might manifest itself more we think in the second quarter than in the first quarter robbery you are feeling that they're no i i agree
spk_16: quigley that the broader trend we would not see that right away because typically if there are chances to asians it takes a while for them to resolve to their finality and from abroad or standpoint we do have a various mechanisms to rate the portfolio we have our actual just risk reading everything alone would you are quantitative
spk_10: and quality of reserves and then we have are at risk by next six to nine months out that we all go through everything and as and the entire executive management team and when you look at the at risk report that has grown slightly but it has not grown anywhere near in relationship to what the criticizing classified has grown ass and so that would tell us that the is not something that's just right in front of us but it's the uncertainty why we can't really give you more clarity about for you know quarters two three and four
spk_3: okay that's awful then you just with that you've been alone demand kind of curious as to where you that it's been a loan pricing is it in a corner be helpful
spk_10: so weighted average origination yields in the fourth quarter were three just under three point seven percent there were three sixty eight or three sixty nine ah the pipeline of business that we're seeing is right around that level
spk_14: ah and that to mix of vibe no fixed them floating rate loans across the know both the middle c r e and my commercial real estate and affordable housing public sector with fixed rate loans and then not been alone that we're seeing and factoring in as it be funding and so forth and nine some the diversified see and i knew vertical so and one of the things that does yoga
spk_17: gives us army against some know some time feel ill comfort incompetent as we move and twenty one is that the weighted average origination yields of about three point seven percent are pretty darn close to the evening weighted average yield that we're seeing on now on the entirety of the loan portfolio which was about three point seven six neil free seventy five so did extent that we get
spk_0: continue to be loaded with see a pipeline that has that type of weighted average yield know we should have some you know some good support for abnormal growth that notion damn dirty when too much into ah into the weighted average yield amounts are we feel pretty good about that and again the pipeline a business will change from a proportion prospective over the course of the year
spk_18: but this is the second quarter of a role that we've had about a three point seven percent dodd a weighted average human and originations and that's where the pipeline continues to our know that for it continued that we we see a building for a meal for twenty one
spk_16: great thank you very much
spk_10: right thanks we now take our next question that comes from alex put it on from piper people who have a lines of the mortgage putting
spk_19: may i want to do i dig a lot more to the ads and moving parts of the and guide for twenty twenty one that maybe just starting with in the fourth quarter a prepaid the contribution from pretended penalties accent or that cannabis to out had lunch your your to talk about lethal the higher
spk_6: ah yeah so the total it was just under just over four basis points that the the prepaid added the nem arm and know we're seeing pretty steady you know volumes there we don't want to get in dead yeah we'll see what happens for a mob know from a quarter over quarter perspective as as we move into twenty one but we're still gonna see some prepay activity
spk_16: tough to save it's going to be exactly four bases point next quarter but it'll be yelled should be right around there and in a we've seen some grader activity in the fourth quarter that we didn't a third quarter but it wasn't materially different so although it's odd knew i'd say that that three or four basis points of prepaid has been pretty steady for a meal for the second third fourth quarter of the of two thousand and twenty so was a little bit higher
spk_10: but not die no not meaningfully i i'm in a what are we know what are we saying we still yeah we're still seeing a fair amount of was in the multifamily side of the house feel there's going to be some great and the incremental prepare activity and first and second quarter and it'll it'll it'll it'll very somewhere around there but it shouldn't die know it's not a main driver of what does what the name trap know nymph trajectory it's for next year and then the court or so and yeah i guess i'll just look looking at as a kind of person is my model and can starting with the fourth quarter i'm kind of come up with and them to be a little bit higher than the guide so with the loan yields gonna be pretty close the book and he said
spk_2: and some contribution from pre is and to clarify the prepay is that four the name or for bitch and moan yield i guess is those are and where were you seen the most pressure and now
spk_6: it was four bits of name and the place or unity the most pressure on you wanted in the security book so in the security book which are weighted average yield is three male three or five to three ten depending on the quarter ah that's where you're seeing the greater reinvestment risk right so as i you know we're going to see somewhere between you'll see between the third and fourth quarter was about a two hundred million dollar decrease in know you know in the total securities book size that you know that was largely driven by just cash flowing of the security bug or wasn't really sale activity that we did so weird that you can you the see that type of repay activity in the securities book ah and use actually factor in meal having to have no buyback got seven hundred get repairing and of reinvest feminine fifty million to a billion dollars of cash at don't offer securities book that we would see the most narrow margin pressure of the it'll be difficult to maintain that securities yield that you know the three handle on yemen the flip side of it is as the cost of funny you know their saw the still some room to continue to move down the cost of funding on this thing so you know we're trying to be
spk_9: the conservative and on a promise and hopefully over deliver on the on the nem so us but there there's you know that a watch it's a little bit of that is the you know we still have room to move some of the funding cost when you balance sheet actions to take get out there that is for sure
spk_2: guy and it it it is look into the first quarter based on all the things you decide what size of the city's repricing and prepaid common and would you expect an empty gonna come in a little bit above that range make of trend into that range as the progresses yes okay well sir and then i just one hit as best as i want oh i did have some something you mentioned in you're prepared remarks jack just on the upper scale and just talk and a little bit about and in a which i guess has been a couple quarters maybe to do really mentioned anyway but he's wanting to know if the parameters of gonna change in the industry three environment or what kind of deals you'd consider that some
spk_20: it it's just stop traditional banks are a few and can look and outside the box into some other had to distances
spk_2: yeah i so one i think there's there's kinda three types of far emanate or one is traditional banks and the criteria that hasn't changed you know we'd look at you know funding sources ability that kinda a reduce costs by putting things together and the the ability to either get new products or new markets in theirself and frankly there's lots of opportunity now days at met in my view reasonable prices the second bucket is still on the commercial you know funny inside so spine portfolios or commercial companies that allow us that just and change the asset mix is something we're looking at there's not as many portfolios and businesses out there today is there have been in this time last year for example ah but those there there are some and summer interesting pieces there are some pieces of that though that are more fee oriented ah which is something the we're looking at the in our capital markets oriented
spk_9: you know syndication oriented things like that that allows us to get them more deeply and do institutional types of the income opportunities are we are we have those on to on tap and then the third areas on it's own the tech area you know we we have us a lot of terrific
spk_2: i'm ah vendors and and supporters on that were using on syntax to accelerate that but there are some up to nice to potentially choir fun tech companies along the way that can supplement what we're doing and howard our doing it
spk_3: next one of the advantages of working with our vendors working as backing as a service
spk_18: and the freighter we've invested in a couple fun ones that are finn tech oriented funds that allow us to see technology
spk_21: from an investment standpoint so i it's those three categories that we're we're reviewing and as you see we have lots a cap on all when the you know we're pretty good about the acquiring in integrating things into our models so it's those those three areas
spk_0: okay and and a lot of opportunities on the traditional banks you know key does remind us the geographic it's as parameters they consider
spk_22: yeah probably northeast from a geographic standpoint they're probably wouldn't go outside of in northeastern lesser is an exceptional situation and and again all these would have to be you know he ps a credo your one you know would would probably target ten percent or more on e p a secretion did
spk_23: have to be totally a tangible book value dilutive no more than a year or two from an arm back standpoint and the i ours would have to be you know eighteen twenty percent plus and virtually all the deals so we have done to date have power
spk_16: mirrored that those criteria and to be taking my questions yeah thanks alex i will now take our next question from for and the a be with some happy please had the lenders open
spk_2: a the morning guys are you good morning thank you good good at a friend's wanted to be and a little more see the loan growth
spk_10: built my first question do you or how much impact in expect the the new ppp roll out to have on seen islands and and the what i'm really talking about it i would imagine that that go there may cause some
spk_22: pressure on the man on the sea and i moan percentage am i am i right in assuming that
spk_24: he actually what what we have done in this round the ppp of we have outsourced ppp processing show for that exact reason we do want to provide our clients or resource so we've partnered with a company to outsource that the that business so as to you know our ability to us
spk_16: focus on some of the categories that the yeah we've highlighted so the to say i think chris that is that different question so that you know the target of your kind of that the the middle market or lower end of middle market commercial that we target for see and i may be real some of those folks maybe recipients of you know of of triple p money button at that's not work to be largely were ppp might be
spk_25: he added directed towards in this go around it for a smaller and smaller business profiled of clients so ah you know is there some impact that thou you know were some of our borrowers may be able to access our guilty bp yes but we don't anticipate that that's when abby material change again we get were targeting more middle market commercial
spk_10: end up middle market korea will kind of smaller corporate middle market commercial for let's see i grow okay great that's that's helpful thank you and them so to get the that one the one point five billion dollars and mangrove i mean do you expect
spk_16: some your london said like see and i am and theory to return
spk_24: i'm pretty close to pre pandemic growth levels are on an organic basis
spk_16: we we do yes okay you're going to see girl getting off the board important public sector business and the diversified c r e affordable housing is still doing well even through the pandemic so there's a really good thing about what we have built on the acid side is is that we have yelled seventy eight different business find that in a given point in time and i'll have bob no different dogs a loan origination and volume dynamics to them and so you can not and others were well positioned in many of those verticals the continue to see is similar type growth the what we have prevented in both in two thousand and nineteen two thousand and twenty so you go look at the progression of two thousand and twenty public sector still grew by about three hundred fifty to four million that's going to continue this year so you're going to continue to seek some of those verticals that we've been growing for the past couple years growing at the same level or more than what we've seen in two thousand and then now and nineteen and twenty okay great thank you and and then just under the sea are you say them and courage and the impact of the runoff of bob broker originated movie family
spk_2: number one in out how much human impact you expect that to continue to have and the an and then i guess
spk_16: second part of that question is that it needs to imply that there are the transactions are are happening abilities refinance activity maybe with the banker or away from the bank and and multifamily despite what i would assume or are pressured that service coverage ratios so are are you feel continued activity and in multifamily as well or a motor that going outside the bank
spk_2: now we we do see increased activity so you know that the not everybody's or i are having challenges with cash flows on multifamily the vast majority of properties are carefully just fine and you know they're they're looking at that you know given wherever they are rape wise the lucky enough to news or refinance and a lower rate environment so there are there are many many properties there there and you know the flows aren't the same as they were prepared damage but the flows or refinance or new multifamily prop properties are are are are still solid got a great thank you and the i guess it's one my question on on the deposit side and i and i wonder if your comment on t v food indivisible but i mean
spk_3: the the industry experience you know excess liquidity and and strong deposit growth and i think a lot of that was related to the the tpp and and government stimulus
spk_24: so do you expect to be a good was hanging
spk_26: that those departed the and continue to see the go through two thousand twenty one you think that there's gonna be some run off than your customers are are not necessarily recipient for the new program and and as those fun starts to get kind of put to work
spk_0: yeah so the story that's a smart question so that the structure the ppp arrangement the we have the the funds that our our clients would get still come through our deposits are deposit structure and so there be a flow just like there was before you know the government stimulus and side
spk_16: this thing we do think that there will be a higher level of deposits through a you know twenty twenty one or we also think that that you know there's a lot of god companies as you seen on the commercial side that have continued to create and food liquidity on their balance sheet the frankly just like yeah luis mention on the of security side for as a result many places where those companies would put the money from an investment standpoint so while we think that that companies in general and individuals specifically will continue to hold cash
spk_11: the old cash back in these kind of uncertain time self bottom line is we think that will still be a a pretty solid and strong deposit flow and twenty twenty one
spk_2: that that's great them except often thank you thank you monitor next that question comes from a dave bishop from seaport told the securities please go ahead can i do is open yeah that sounds like you good morning guys are you i dated the morning eight gauge at cake quick question the any other the two thousand twenty one outlook for for not interest expensive our as he bumped up a bit they're about to offset by what you're expecting and that the income campsite just curious in terms of some of the that the drivers you mention that you call out there were significant hire a commercial banking and small business vertical just curious if there's any say that ah
spk_27: new niches you're looking to get into or are specifically where you're really look it up to hire significantly on the up on the landing nullify or next year
spk_11: yeah so the from a lemming standpoint that you know where where continue to invest in places like we have file with your head i agree year of with our innovation finance group which is the technology landeene area
spk_2: ii other certain sectors of the sea and i am public funny inside a certain types of things like lender funny and sounds are secure zeeshan group more capital markets oriented types of lending i would say those are the ones with add to the once we'd try to modify and not add to would be on the see i resigned so as a as kind of a trade off the so that's one piece of the investment in people from love from a purse and else there both the other side of of the expense increases as the money we're spending on technology so as we kind of continue if you look at this weight cut it down sized girl physical distribution in the financial centers were spending more money on your digitizing the the operator clyde
spk_11: and automating the the back officers and there's a pretty good die road map that we've created both on the technology side and the data side our
spk_10: improve our are offering
spk_28: and then as relate to and and now you just needed to the downsizing a be at the physical branch footprint of the candidate the year and seventy sixer financial centers just years maybe where you see that are migrating to love of the course of two thousand twenty one two thousand for me to tell you know it's it's it's kind of interesting cause
spk_16: it's a cause and effect as as more people use digital an automated m m
spk_2: mobile banking you know allows us to consider to downsize a watch you know i might my view of or bank team is that there's probably fifty percent too many branches in all of thank you we've we've been pretty good i think we started with over a hundred and fifty branches were down the on a combined basis so down the in other seventy eight and you know that will probably look at you know five to ten per year ah as potential downsizing
spk_10: got attacked them and housekeeping question that are not sure on be disclosed this but that the outlook for purchase accounting accretion and come in two thousand twenty one just curious you am an update on that
spk_0: fifteen to twenty million david
spk_29: for the for you
spk_2: or the for you okay great like it
spk_30: yeah just as a as a point on that david wait one of the flu that chris is as we had a models we have too much accretion in our down to about zero or so are these are core not accretion income people love accretion income you know three years ago
spk_29: two years ago they hated occurs split up so we're now now down to are fighting weight on this one
spk_25: data for says gallagher
spk_2: a failure i will take our next our next question comes from matthew rhys from stevens corporate please go ahead the morning the morty matz ask you questions are your first i couldn't help but think you know what the with the increase of a substandard special mention long yeah during this whole process you guys have taken a real proactive approach to meal at a problem that to did tradition
spk_10: yeah we didn't want with would you this time eat is that part of the planet all you know you do laundry don't see chronicle light at the end of the tunnel yeah could we see something similar to what we saw earlier this year and a former that you know an apogee l a of onset young or in a substandard classified bucket yes yes yeah abs absolutely and your i would tell you just were just a point to be made that the precise practised by level that we're at right now is still better than i think the media and of pure bags so we're pretty close to that so you know it's just the way we got there may be a little bit different from what people do closed in the third quarter but you know we see pressure as you suggested in or software follows again we feel pretty confident that the last given default on any of these deals in the future of be very minimum minimal are given their security level the math and so the ill the operational dynamics of the types of longer in substandard are different to what we saw right so remember the loans that we've sold the is of the sales of the third quarter focused on small balance transportation flash equipment and residential mortgage which working out of credit like that is a fundamentally different proposition and the table substandard loans that dob know that robin i have been mentioning right so the majority of that substandard migration isn't the commercial real estate
spk_11: eight after class it's and three the three pressure point that we've been talking about for three quarters of hotel retail some office these are exactly the types of loans that we are very good at working out of because it's much more manageable for a workout function of a bank to be able to manage these types of credit so that the equation for us on going forward it slightly different because when we were talking about the transportation for netbook there was an element of i'm not going to say that we were unable to
spk_31: actually know that the work out of those but it's very different to have to go and repossess you know a truck in wyoming or idaho that have been manage the credit that's in your midtown manhattan for works right and so if you think about me going forward to the extent that we see prices for particular verticals for example in hotels that makes sense in the second there
spk_30: markets we will absolutely execute those but you know we have plenty of capital we have a big reserve against the things and so the extent that we have to work these out over some period of time tdr them get them cash flowing again we are in many respects the best owner of these types of assets and so we have full flexibility there so it's not die in a we're are it's always a a part of what we evaluate is getting rid of some of these sooner than later
spk_10: quoted from on will not that we don't need the have a formal way here to have you will work out of those credit we're very confident that we can realize a substantial amount of value by working these out long term and and matt i'm i'm glad you said substandard because i think you know that special mention those those are with guarantors owners who have plenty of liquidity the care sorry this thing through to the other side of the pandemic and then as it to the as stop the economy bills that right so as he referenced substandard certainly for those the special mention names what we're working with those hours and and it's probably going to be just fine on those names great point
spk_3: i just in the fall of their you mentioned huge stack yeah the elevated charges to apparently emotionally and second quarter your maybe better to for us elevated charges what we could be looking at there and then he also mentioned in the reserves
spk_2: yeah pretty apple on you should we expect any any shortage charges to really come from the reserved buckets others this minimum ah yucky comes disruption
spk_32: yeah joe that the audio the specific question of what is an elevated charge off level we don't know that yet matter what we do know is that we have stressed the portfolio that we have particularly that substandard book we stress that from the perspective of moving down know lt these are an unexpected lt these we
spk_10: move them down for their respective of what percentage of that portion of the book moves into thirty sixty ninety day delinquency buckets which again we have not seen yet any migration from a delinquency perspective because the vast majority of the loans that we migrated know have actually continue to perform and so it's difficult to say charges will be accurately will be why what we are very confident and that we have stressed the portfolio and vr we're we're very comfortable with where the leveled reserves are even when you put that portfolio under a a substantial amount of stress and that's not all going to happen at one point in time so again the good thing about having yields a good thing about the substandard being in in in these larger you're gonna be larger commercial real estate exposures is that each one of these loans will have a different dynamic to them and they will never exposed to different types of our of economic recovery time frames they are you know they're they're not a homogeneous full blown that we're gonna say everything goes bad at the same time so there's no the ability to a new to manage this overtime is how we are you know what we think is going to result in the highest daniel high as possible outcome we're at best and not in your best outcome from valuation perspective and up to the extent that it makes more sense to charge of more vs lessen the on the second second quarter we will but we can't really pinpoint the specific number because each one of these a little bit different but the stress numbers are there in the reserves are they're against the stress levels that we put on the that portfolio and them in and i'd add add on the on the income stay with you the the question us body can stay with for what we see today we would not expect you know that to really affect the incomes thing about
spk_33: the last one rage it down on the margin alex had asked a question on a prepaid impact out the and a release indicated to might have been some just recovery on residential loans or and for parents what was the impact on that engine to watch that you check that to continue
spk_0: it was i've wanted to basis for like there was not significant ah there that is going to continue and there's a glide path for the next two or three quarters of that happening
spk_34: la just because we tell gave me a we took a very conservative view were guarding the ah the initial move of a residential mortgages into forbearance because of you know the broader government programs regarding twelve months of deferrals and so forth that dog know that has known some way shape or form also kind of vibe new trains of
spk_16: tuned into the know the non you're not agency non government loan world but we have been very encouraged from the perspective of know borrowers on the residential mortgage side taking a nail taking us up on various programs that we put out there who's actually
spk_10: modify an extent loans and so forth and so you know as we continue to see different and you'll see that the no longer froze that we have in this quarter of know the majority of them are still on the residential mortgage side and so as you continue to work out the out of those loans and you start putting a loans on longer term audio payment programs that where you're seeing that doubt that increase
spk_16: dom interesting can being recognized on on that component of the months so but it was not big was largely latest what understand okay like richard thank you
spk_2: where you map
spk_10: on our final question comes from chris o'connor from k b w peace to had a line is open hey you more enjoyment
spk_3: ah many christmas my questions have already been as much as wanna do a couple queen up
spk_10: one
spk_14: you guys are there and against the school board in the name sounds of the taxi portfolio and out what the yeah caring value those are during bounces down about six million bucks
spk_2: gotta face an i now as far as you're needing to do t v did you guys the that sorry what was the question for remit or rain ppp fees not so negligible amount as well so with the with the loan sale that we have vibe with alone sales of one and fifty this quarter for still that one hundred twenty million dollars in total loans that are ppp related and the forgiveness process where timeframe for forgiveness of those loans is are in or not dhabi own good isn't all that clear
spk_10: because these are borrowers are not taking the south lawn necessarily have a day cannibalistic and quick no time for him for resolution of that so if you set aside the ppp gain on sale from the fourth quarter net interest come had about seven hundred thousand dollars or ppp interest income being recognized and we anticipate that it should be somewhere close to those numbers for a meal first and second quarter this year but it's not a big driver of vog you know pete remaining ppp feet are not gonna are not a driver of the guy that we have for rob for twenty one
spk_35: diet and then you certainly dad and comedy bit earlier all on the new guidance
spk_36: i mean it's obvious year but the range right now and it seems like there's a couple moving parts are going to benefit on the funding side over the next couple corners at least a while the loud as a young guy held up pretty well this quarter or even if you know back me up some the hire a prepay a income
spk_37: so i guess what though you know what's coming on the opposite side or worse the concussion coming that so it's going to be driving down from yale five bitch about that range down into a range of the course the year
spk_38: yeah again remember this is the four year in and frankly we just believe in a zero rate environment or near zero rate environment you're going to have pressure on as a yields going forward we think we can manage that
spk_39: and in as louis said that the frankly the biggest pressure point is the securities profits going to absolutely come down to combinations out the securities portfolio for sure and then knob you know second is that of the way that we think about it is to the extent that you have that weighted average origination you'll stay close to the levels that we have seen for the day
spk_25: and fourth quarter of about three point seven percent i think that would give us meal substantial no comfort that we would be close to the high end of the range of not feel slightly above the high and and range that we provided however we're being conservative there because there is the potential for greater credit bread compression on the loan origination there is a chance that commercial real estate multifamily loans and pro
spk_22: read their could compress further because they know they are not at all time low that the point in time so no portion of our in a we do real that the three twenty five is above the right that we provided we are being conservative in that we feel good about where the weighted average origination yields are today but there is potential that those are you know that that doesn't know that credit
spk_6: but confession could drive those numbers neil lower and so therefore that would result in some know some pressures well over the course of twenty one and that happens
spk_9: guy under said it's i had pages
spk_40: right thank you
spk_10: i'll you bang for your best way to two the allowed in a charge of does the only get one go around have had a my line opened up the iowa it out a our just teasing you
spk_3: the i hadn't ended at a nearby so come back into the que
spk_10: the idea if i missed his i'm sorry but i'm i'm the actually really talk at the level of the reserve and i think you send you prepared remarks that you decide to consciously to keep her to not release reserves and i was just wondering if you could go to sort of moving parts in there and you know whether or not there's no wiggle room to actually just by having the reserves stay in that sort of one and a half level
spk_2: as we talk about this for a bill for a couple quarters alex in that the you know the composition of the cecil reserve i think when everybody first adopted see so we thought that the seats over there was going to be largely quantitative and not as much qualities in what happened sense adoption and through the first two quarters of the pandemic is is that the quantitative models know have continued to are you have continued to reflect a reserving requirement that was not nearly to the degree of the three hundred point five million dollars and wanted to have percent that we've had for you no sense nielsen's june thirty and until a substantial chunk of our reserve has historically been and continues to be qualitative factor driven the reason for that was in anticipation of a don't have some credit migration that we were going to see right and so we knew full well that as we were putting some of the loans into first and second goal rounds of deferrals that not all of those loans were gonna all magically come back back at the end of this year and you know with things being just perfectly fine and getting back to normal status and so that some of those loans or a good portion of those loans were going to migrate into know criticized unclassified which requires a higher level of reserve against them under a quantitative field are under the quantitative vaudeville reserve requirement so today the allowance
spk_41: now more a relative to what it wasn't the third quarter we have more quantitative reserves which to have a very good chunk of qualitative factors are associated with us and so what we would need to see in order for that number to start coming down his to see some improvement in substandard particular in the substandard component to the extent that you start seeing those bounces a substandard those deeper reese you would start the materially moved down that one and app reset and we think that again you know we are in overtime we will figure out what the right level of reserve is but pre pandemic we were thinking that you know portfolio should have all been a wanda one point one one point one five percent reserve total loans we think that over some period of time as you continue to work out of some of these problem cry
spk_0: it's in some of the problem credits get back to war regular way economic activity we would see some migration back toward those levels over the course of twenty one so it's you know too early to say begin to see that in the first or second quarter but by the end of this year anticipating a substantially lower reserve in the one at present that we have today and again a lot of this continue to be
spk_1: riven by qualitative factors because we are being conservative in an understand until we understand what's for going to happen with that substandard book
spk_42: yeah they entered level one hundred percent for utterances the right way the other dog with a coup the jacket this key quality of a lady into that is we've been through cycles like yes i've been through seven cycles like this i think in my career

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