MB Financial, Inc. (NASDAQ:MBFI)
Q4 2015 Earnings Conference Call
January 25, 2016 12:00 PM ET
Mitchell Feiger - CEO MB Financial
Jill York - CFO
Mark Hoppe - CEO MB Financial Bank
Michael Morton - Chief Credit Officer
Brian Wildman - Chief Risk Officer
Chris McGratty - KBW
Emlen Harmon - Jefferies
Kevin Fitzsimmons - Hovde Group
Brad Milsap - Sandler O'Neil
Preeti Dixit - JP Morgan
Russell Gunther - Macquarie
Brian Martin - FIG Partners
Good morning and welcome to the MB Financial Fourth Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions].
Presenting today are Mitchell Feiger, President and Chief Executive Officer and Jill York, Chief Financial Officer of MB Financial, Inc. Also present from MB Financial Bank are Mark Hoppe, President and CEO, Michael Morton, Chief Credit Officer and Brian Wildman, Chief Risk Officer.
Before we begin, I need to remind you that during the course of this call, the Company may make forward-looking statements about future events and future financial performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to numerous factors that could cause actual results to differ materially from those anticipated or projected. For a list of some of these factors, please see MB Financials forward-looking statements disclosure in their 2015 fourth quarter earnings release.
Please note this event is being recorded. I would now like to turn the conference over to Mitchell Feiger. Please go ahead.
Okay, thank you Laura. Good morning everyone. Thank you for joining us today. I hope those of you on the East Coast have been able to dig out from the storm. I'll begin our report to you this morning, Jill will follow with some more detailed review of our financial results and Mark will wrap up offering comments on market conditions, growth and more, then as always we’ll take your questions.
The fourth quarter was a solid one for MB, especially in our core banking business. We earned $0.56 per diluted common share in the quarter that equates to $0.51 -- I mean sorry that compares to $0.51 in the prior quarter and $0.45 in the same quarter a year earlier. Diluted operating earnings per share which we define as earnings excluding non-core item was $0.52 per share a penny better than last quarter and I encourage you to see our earnings release or 8-K for a complete definition of operating earnings.
For all the 2015 we earned $2.02 per diluted share that $0.71 better than the year before, diluted operating earnings per share was $2.06 versus a $1.86 in 2014, that’s a 10 plus percent increase. All-in-all 2015 was an excellent year for our company, year of improvement in operating performance and earnings and a year of making significant investments in our company to build a robust infrastructure and accelerate growth, more on infrastructure investments in a few minutes.
As I said our banking segment had an excellent fourth quarter, in the end an excellent year as well. One of the more gratifying results in the fourth quarter was our continued strong deposit and loan growth. Loans excluding purchase credit impaired loans increased by over $400 million or 18% annualized. By comparison loans grew 13% in the third quarter of 2015 and 11% in the second quarter. While loans and deposits grew nicely in the fourth quarter and we're quite happy about that, please don't forget that the fourth quarter is usually our best quarter for balance sheet growth.
Each year some of our fourth quarter loan growth is seasonal and it’s likely this year is no different. Though difficult to know for sure we estimate the seasonal loan growth was between $50 million and $70 million in the quarter. Loan growth in the quarter was diverse and spread across all business lines and most product sets. Commercial loans, lease loans, commercial real estate loans and indirect loans all grew more than 4% not annualized in the quarter. Home equity and consumer loans declined and that’s by design.
Deposit growth was also strong, non-interest bearing deposits grew almost $200 million or 17% annualized in the quarter. Low cost deposits which of course includes managements bearing deposits grew almost 10% annualized in the quarter. This follows 14% annualized low cost deposit growth in the third quarter. Mark will comment on our outlook for loan growth in a minute, generally we feel good about our loan pipeline going into 2016, but keep in mind that the first quarter of each year is usually the slowest one for loan and deposit growth for us.
Complimenting loan growth was margin expansion, Jill will cover that in a few minute but balance sheet growth and margin expansion combined to contribute to a $5.8 million increase in net interest income in the quarter and that’s the real growth we've been looking for. I thought expenses were reasonably well behaved, especially given the extensive and continuing investments we’re making in our business. We can talk about this more if you like later but our investments have been focused on improving our rate of revenue growth, non-interest income and net-interest income both as well as building the infrastructure compliance risk and otherwise appropriate for a growing $15 billion commercial bank.
A significant majority of our infrastructure build is complete especially in compliance and risk management. Our revenue growth investments continue and now we're pivoting to increase our investments in technology with the goal of gaining much more control over the technologies that drive our success. We want to build a technology platform that is nimble and swift, client focused and client winning. Generally, bank technology is in a sorry state when compared to our new and rapidly growing non-bank competitors. But I think that banks that underinvest in technology subject themselves to great risk, we’re intent on making sure that doesn't happened at MB, but it does cost some money.
Credit quality was also reasonably well behaved, NPLs and PPLs kicked up but there are no evident portfolio wide trends, charge-offs remain modest and at the lower end of our expected long-term charge-off range.
When assessing our credit performance, it's important to considerable both regular balance sheet loans as well as purchased credit-impaired loans. We've included a table in our 8-K and press release showing non-performing potential problem and purchased credit-impaired loans, the bottom line here is that the combination of all three has to remain very close to $400 million for each of the last five quarters. So, no combine trend there.
Leasing added fantastic 2015, the fourth quarter was also big from the 2015 average but it was still decent the biggest challenge faced at present by our leasing segment is their equipment procurement across the country seems to be slowing, simply put in aggregate it looks like companies are buying and leasing less equipment, that maybe reflective of the general and I'd add troubling slowdown in manufacturing.
Mortgage revenue declined in the fourth quarter due to lower originations as a result of higher mortgage rates as well as seasonal softness in the fourth quarter, in addition TRID [ph] caused a slowdown in originations, but the amount is hard to determine, what isn’t hard to determine is that TRID caused higher expenses in the quarter and year as our mortgage team worked hard to implement as new regulation. Operating return on average assets was 1.06% in the quarter equal to the prior quarter, that number is good but our target is higher as we've spoken about in the past. Operating return on average common equity was around 13%, good again but we believe we can do better. Improvement in ROE will be driven by improvement in ROA.
Finally, we completed our acquisition of MSA Holdings on the last day of the year and our acquisition of American Chartered is progressing as planned.
All right. Let me turn it over to Jill.
Thanks Mitch and good morning everyone. I thought our fourth quarter performance was quite good in many areas, including robust loan and deposit growth and resulted in decent earnings for the quarter. As Mitch noted our net income to accounted shareholders for the fourth quarter was $41.6 million or $0.56 per share, compared to $38.3 million or $0.51 per share last quarter. This quarter we had some non-core items related to the reversal of a $6 million contingent liability related to a former deposit program that Cole Taylor bank had exited, that we no longer believe is required. This was partially offset by some merger expenses related to our recently announced transaction with American Chartered and our recently closed transaction with MSA Holding. Operating earnings to accounted shareholders was $38.6 million or $0.52 per share.
Net interest income on a tax equivalent basis was up $0.8 million compared to the third quarter driven by higher interest earnings assets and a higher net interest margin. Average earnings asset increased by 6% annualized driven by strong growth in average loan balances at 15% annualized. Our core margin, excluding Taylor loan accretion expanded 7 basis points to 3.56% due to a combination of higher asset yields, due to the favorable asset mix change, again as a result of the higher loan balances and higher loan re-accrual interest from the resolution of [indiscernible] and this can vary from quarter-to-quarter.
Last quarter loan re-accrual interest was lower than normal, while in Q4 loan re-accrual interest was higher than normal. The higher re-accrual interest in Q4, primarily impacted yield in the PCI category, which includes our FDIC acquired loans. Our provision for loan loss have increased approximately 1.4 million compared to the third quarter driven by loan growth in the quarter. No provision was needed for the Taylor capital loans due to better than expected credit performance. Net charge-offs in the quarter were 14 basis points compared to 6 basis points last quarter primarily due to the difference in recoveries between the two quarters.
The banking segment net income was up 4 million in the quarter driven by the increase in net interest income as well as higher card and treasury management fees. Leasing had a bit of soft fourth quarter with net income down by 2.1 million from the third quarter primarily due to lower equipment maintenance and promotional revenues. These revenues can vary from quarter-to-quarter. Overall though 2015 was an excellent year for the leasing segment with net income up by 4.7 million or 23% compared to 2014.
The mortgage segment also had a soft fourth quarter with net income down by 1.7 million primarily due to lower loan originations in the fourth quarter. The loan origination volume was due to several factors first of all Q4 tends to be a seasonally slower quarter for purchase loan origination volume. Secondly, long term interest rates were trending down for much of Q3, while they were trending up for much of Q4 impacting refinance volume, and then as Mitch noted while it's a bit hard to quantify, certainly TRID implementation slows down mortgage closings and impacted overall production. We believe that the incremental TRID expense impact was around 2.5 million for the year more heavily weighted to the second half of 2015. Then on the positive side gain and sales margins were stable in the quarter compared to Q3 and overall expenses were lower as a result of the lower mortgage origination revenues.
In addition, as launch from interest rates have declined in January, we are seeing a noticeable surge in interest rate lax, and our pipeline is filling at a much faster pace than January, which should bode well for Q1 originations.
All right, I’ll turn the call over now to Mark to address the market and growth.
Thanks Jill, good morning everybody. Thanks for dialing into the call. I'm going to talk a little bit about loan growth and deposit growth and at the risk of being redundant, but I'm not going to apologize for it because it was a really strong quarter in both areas.
The loan growth was very broad based, it was steady throughout the quarter, there weren’t any home runs, it is just a consistent level of singles and doubles and that's exactly what we like exactly the way we like it. The growth was evident in CNI lending, the growth was evident in ABL, in our lease loans business, as well as commercial real estate and healthcare, and even in our indirect loan area and our residential real estate. So I mean it was absolutely, totally broad based across the board and we feel very-very good about it and I'm pleased to have had the quarter we had from a loan growth perspective.
Deposit growth was also very-very robust and this is many-many new clients, new clients that came through loan relationships, new clients that came in purely through deposit relationships, as well as the expansion of existing relationships. Again a broad based across the board, again no home runs just consistently day in and day out doing what our people do.
Let me talk briefly about the pipeline, the pipeline remains strong and Mitch mentioned this or I think maybe Jill did as well. Traditionally, the first quarter is not that strong for MB, but I have to say that we’re very encouraged that our current pipeline is similar in size and scope to what it was at the start of the third quarter and the fourth quarters of 2015, so we feel pretty good about that.
Talking just quickly about the fee income. The fee income again there were some steady growth exhibitors in the fourth quarter through our wealth management group, our treasury management group, as well as in the cards area, all areas that are key initiatives for us, as it relates to our fee income and growing net part of the business.
Competition. Well it remains very-very challenging. Know there remain concerns about the economy, as it relates to commodities, energy, steel and manufacturing and certain sectors of manufacturing concern us and we’re keeping a very close eye on all of this things, and what's happened is that the competition continues to get more challenging and what it’s led to is margin pressure, advance rates inching up, other than the less stringent loan reporting through documentation perspective.
In fact, the regulators have a name for this, they call layering, as in layering additional risk. We are cognizant of it, we are looking very carefully at it, and we are doing everything we can to make sure we don’t go down in that path.
To sum up, very pleased with our fourth quarter. We’re optimistic about our outlook for the first quarter and to touch on one other item, we’re very excited about the progress of our transition integration with American Chartered Bank, we meet regularly with their people and we’re working well together across the entirety of the two organizations. This company -- this bank is a great group of bankers, there are laser focused on client retention and growth and they’re being successful at both thus far, so we’re excited about that looking forward.
And with that Mitch I’ll pass for the time back to you.
Okay. Thanks Mark, thanks Jill. Laura, let’s open for questions.
Thank you. [Operator Instructions] And our first question will come from Chris McGratty of KBW.
Maybe Mark or Mitch for you. The growth commentary, obviously the ups and downs of Q4 and Q1, but the 50 million to 70 of seasonal growth you saw in this quarter would imply growth in the mid-upper 300 on a dollar basis. Not hold you to a number, but I mean, if you look back over the last four, five years, the first quarter has actually shown declines in loans on a dollars basis. If we connect the dots on the outlook in the pipeline being consistent. Would it be fair to assume that we’ll see some level of growth despite the seasonality in Q1?
It’s hard to predict, what’s going to happen with the pipeline, right. And I would say Chris by the fact that look similar in size like I said to what it was at the end of the third and fourth quarter, but getting from the pipe, the closing and funding is an inconsistent or I should say an inexact science and so I hesitate to say -- we don’t make predictions about exactly what’s going to happen, but I will say, we are comfortable in where we are, but like Mitch did say, there has been -- we know that some of it is seasonal as we’ve seen year-after-year our going from fourth quarter to first quarter just some of the types of clients that we have that are seasonal and there need.
Right. I agree with everything Mark said. I think there is one other factor during the first quarter that affects all banks and that’s a lot of -- or maybe most businesses on calendar year-ends for their fiscal year. And so you like to wait for financial statements generally before booking new loans and sometime that causes loan originations to push from the first quarter, second quarter or even the third quarter’s financial statements get prepared.
It’s a tough thing to forecast, look I mean something keep in mind is loan growth is really the difference between two pretty large numbers, right, loan payoffs and amortization, which is quite significant in a company like ours and then new loan originations. And it doesn’t take much of swing in either one of them to move the net number as you know.
Look, I mean, we feel much -- I feel quite confidence about ability to grow our balance sheet, I think look three quarters in a row we’ve done to really nice job net follows. What we expected coming out of the MB Taylor capital merger and I think the timing is pretty much as we expected as well, but some three quarters isn’t the longest term trend either. So we’re hopeful and optimistic, but I can’t give you any better guidance than that.
That’s great. Thank you. If I could follow-up with Jill. I’m interested and where origination yields where perhaps in the quarter and comparing to what’s on the balance sheet again adjusting for obviously to higher cover loan yields in the quarter? Thanks.
Right. And I don’t have those exact numbers in front of me. The way that we really measure credit spread is we compare what’s coming in the balance sheet with fees, the term in the slab [ph] curve and where there’s at and we compute a credit spread. And I can say that, I think in the last quarter credit spread maybe came in a little bit and new originations, but I would say it’s relatively stable, but I’m not sure where they were at relative to things coming off. I don’t think so that credit spreads had much of an impact on our margin or much of a negative impact in Q4. So I can follow-up with you later Chris, if you like.
Okay. That’s great. And then the last one if I could. You guys didn’t provide for Taylor’s portfolio for the first time. Is that a trend we should be expecting or is it resuming at some portion of the loans that come up we’re going to stuff back in the reserve? Thanks.
I would say that’s likely that we’ll continue to provide on the Taylor loans, we do every quarter though compute the allowance and compare that to what is in the un-accreted discount and given very positive credit resolution and so on, was in the Taylor portfolio is just was one required for the fourth quarter.
Our next question will come from Emlen Harmon of Jefferies.
Mitch, you mentioned a rotation towards technology investment from regulatory and compliance. I guess is that a one-for-one rotation where you wouldn’t mix -- is a regulatory compliance essential off you wouldn’t expect too much of a benefit there and where do you feel like your investment dollars need to go most urgently from a technology perspective?
Okay just to clarify your question Emlen, when you say a one-for-one, you're meaning about investment dollars that we were making in compliance and risk versus investment spending we may make in technology, is that your question?
Yes, actually you alluded in your prepared remarks to nothing less on regulatory compliance and kind of rotating that toward technology, so I am wondering if that affects that trajectory of expenses at all or?
Right, okay, good, an excellent question and you know I don't know the answer today yet because we're looking hard at technology now and I can't say that we have the clearest path to get to where we want to go to it at the moment, we're studying it hard now. But I thought it was important to bring up because I do think we're going to be spending more money on technology probably quite a bit more money over the next few years maybe more than a few years. And I wanted to just alert people that I don’t know how much it is, I also don't know if it's larger or less than the pace at which we've been investing in compliance and risk. And we'll try and keep everybody up to date on that as our knowledge changes and as our investment spending changes, but I didn’t -- one thing I want to make sure is as we rotate away from compliance and risk I didn't want people to think that we were going to stop investing on our business as well.
And we're committed to investing in our business, I didn’t -- one of the things I am quite proud of is that we've been able to maintain a ROA that's well above the market average here in Chicago, I think quite healthy for banks our size that compared to peers I think, we're very much at the upper end of the range. And at the same time we've been aggressively investing in our business. The investments have been mostly but not entirely focused on compliance and risk management, processes and systems and people and staffing, but also in revenue growth producing things new products and services and we plan to continue doing that and frankly I'd like to do more of it, it's really bearing fruit our company has becoming a much better company as result. And now we're going to pivot to technology which I think over the years is going to make a big difference, but I can't -- I don't know yet what the amount is.
And then any products specifically where you think that you want to get ahead in technology?
Yes, well, so the core theme here is to control the technology that will make us successful and so the easiest part of that client facing technology where it’s mobile or internet banking, we need to have good control over that and an agility and swiftness to deliver what our clients expect. So that’s really important. As you know we've been investing for some number a years, in our treasury management, in our payments and cards business, I think we're going to continue to invest in that space.
And then in general we want to build a much more nimble technology platform so that we can be responsive to market needs and competitive factors, we all need to be aware of the non-bank FinTech type companies that are out there are growing at an amazing pace and doing some very interesting things I think. What some of those companies are doing should be a wakeup call for banks that haven't paid much attention to technology.
Got it thanks and Mark a quick one for, you hit on the competition from a lending perspective, you guys operate in a pretty competitive market, obviously, are you starting to see anybody move on deposit rates, at this point with just kind of one hike at the end of last quarter?
It's kind of spotty, here and there you do, I don't there is any one leader in the clubhouse who consist, I mean, we have so many community banks here in Chicago that you see them quite often doing things on the deposit side, but of the larger financial institutions only spotty little things here and there and you almost wonder why they're doing it at times, but we haven't seen anything consistent and nobody is trying to make a big splash to jump out in front of that, at least from what I've seen anyway. I don’t know Jill or Mitchell might thing differently.
And the next question is from Kevin Fitzsimmons of Hovde Group.
I just want to make sure I am hearing the what you're saying on the fee businesses correctly, so it sounds like there has been some issues or some headwinds in mortgage that are going to be more temporary and -- but the lease financing businesses as far as fee revenues that maybe a lower run rate that we're dealing with for a while, just given your comments about manufacturing and less activity, wondering if you could -- if I am hearing that right?
No, I don't think you're hearing that right. We’re not expecting a lower run rate in our leasing segment. And I just wanted to lay out what the challenges were in the marketplace. Our leasing segment we expect to continue to grow and they’re doing a great job, so that’s not it. And mortgage as you know can be quite cyclical and is very much dependent on interest rates and home purchase volumes.
Thanks for clarifying that. And could you just remind us what the impact will be of MSA when that comes on in terms of looking? It will be a pretty much nothing in fourth quarter versus them being included in first quarter. So just what we would expect to see in terms of them? I imagine expenses and certain line items but then also fee revenues as well?
So my expectation is that it might add a penny or two a share. It’s being pretty modest and that would be for the whole year, not each quarter. So, it's pretty immaterial and passed on the company overall, it’s a relatively small company, we’re happy to have closed on the transaction last quarter, but I think the impact in our earnings in EPS is pretty small.
And Jill, where are their fee revenues going to flow through on a line item basis for the most part?
So they’ll flow through wealth management revenues.
And next we have a question from Brad Milsap with Sandler O'Neil.
Jill just wanted to follow up on the margin quickly. I know there is a lot of moving parts this quarter with some of the re-accruals on the FDIC loans and obviously the TAYC launch. But just curious in terms of building in rate hikes going forward, what you guys are thinking, how much of them you would capture directionally particular with all your DDA, what your crystal ball might say for how your NIM might perform the first part of the year?
So, I think as you noted there are a couple of offsetting things, assuming that the loan re-accrual interest goes back to a normal range assuming that we don’t have much in the way of a cred-spread compression. And like I said, I think credits spreads on newly originated loans. So, then fairly stable last quarter, and then building in the impacts of the Fed rate increase. I think those are roughly offsetting. So, I am expecting the margin to be fairly stable, provided current spreads behave.
And just to follow up on capital with the American Chartered deal pending and as you guys down I think TC ratio is little above 8 this quarter. Would you guys [indiscernible] that the buyback with the stock under where it's trading now or are you more apt to hold capital given the growth you may be seeing in first part of the year?
I think we’ll hold capital where it's at, I think we want to maintain certainly an appropriate TC ratio once we combine with American Chartered and so anyway you could also take a look at the recently filed S4 [ph] and it will give you kind of an idea how things will look. [Multiple speakers] and then furthermore as you probably know, we can’t buy back stock now through the American Chartered shareholder folks so till the date of that meeting.
And then Mitch bigger picture question, you talked about wanting to build out profitability of a bank that earns in 110 to 120 ROA or higher and on the reported basis this quarter you were right on the low end of that range. Can you talk about ’16 may have a little bit of a headwind with some of this accretion income running off. Is there an area that you’re focused on, go across the hurdle that you’re looking forward, that you think you can get there in ’16 whether it be on expenses or obviously you’ve got some nice momentum with loan growth in the back half of ’15, but just curious where you are in your mind in that -- in positioning the bank to hit those profitability goals that you’ve laid out?
I think Brad we’re going to just keep doing just keep doing of what we’ve been doing. I think having -- if we can maintain consistent balance sheet growth and our fee businesses which I think are terrific continue to grow I think in the natural course we’ll get there, I don’t know if it’s this year or next year, but I think we’ll get to those goals. Pretty much every one of our businesses is performing at a high level.
Mortgage struggles with cyclicality and volatility and resolved interest rates, but it's pretty good business. Whether it’s the leasing or cards or treasury management or wealth, I mean, everybody’s performing in a pretty high level right now and each one is expecting to grow and improve their profitability. So I think we’re just going to get there in the ordinary course.
The next question comes from Preeti Dixit of JP Morgan.
Mark could you give us some color on how line utilization changed in the quarter? And then as growth has really built here in the back half for the year, any color on how much of this is coming from new customers versus your existing customers doing more with MB?
Line utilization used to be something we would see very cognoscente of and looking at lot, it just seems to me lot of us that line utilization changed dramatically in the big downturn. You had -- and also with capital rules being a little bit different than they were let say in the mid-2000s and as a result our clients have substantially reduced there, in most cases, they’re lined and so the availability numbers -- we don’t even really track it any more, we think about a little bit every ones in a while, we take a look at outstanding and where somebody, group a clients were at the end of the first quarter, if they [indiscernible] third quarter, et cetera, but it's not something we've really have much of focused on.
The second one is like I've said, the loan growth in the fourth quarter, it was very broad based. We and basically every one of our major lines of business, we on-boarded a strong number of new clients and of course we also know there was utilization which fluctuates on our existing client base, I think probably and I've not looked at the growth in the fourth quarter to say, this came from existing and this came from new but there was a substantial amount of new client on boarding that we did across the lines whether it's C&I, ABL, commercial real-estate, healthcare and CRE and other groups through the quarter.
Okay. Got it, that's helpful color and then just looking at the uptake in NPLs and potential problem with this quarter, any color on drivers there and at this stage in the economic cycle are you seeing any trends in terms of credit migration within any specific asset classes or is it just sort of broad based at this point?
This is Mike. The NPL uptake in the quarter was really just two credits both in the C&I categories and nothing really more broad based than that. I'm in the large portfolio and this size in the overview on PPL as well, in a large portfolio you typically going to have some random declines in assets quality, but the PPL little bit more specifically was in the commercial sector with CRE far less active.
Okay, very helpful and then is it fair to say we've bottomed out on the reserve ratio here or how should we think about the direction of that?
So the reserve ratio was at, I think 1.31% or 1.32% of loans. I think that may tick up a bit as we continue to provide for the Taylor loans. So I think, it's going to tick up a little bit.
The next question is from Russell Gunther of Macquarie.
So, I just want a circle back follow up on few other questions. Jill, could you quantify what the higher loan re-accrual interest was this quarter versus last quarter?
So I can tell you that based on what we normally expect, it was about 1.5 million higher this quarter.
Got it, that's helpful. And then I heard you on where you are thinking about that reserve could go, obviously the part of the accounting accretion can be quite volatile and fluid with a little higher than I was looking for, but do you have a sense for what your expectation for how that could trend over '16 and are you still thinking about earmarking a certain percentage to that for Taylor growth?
So, my view is it’s going to trend down in '16 relative to '15 but I agree with you, it's little bit hard to forecast the pace of that. I think will continue to earmark a pretty good percentage of that, maybe it’s in the 50% to 60% of the accretion being earmarked for our provision.
Okay, got it. But I think, I guess, the message was at least as it relates to the first quarter, different puts and takes but perhaps end up flattish to that core 356 and then we'll see where the accretable shakes up?
Okay, that's all I had. Thanks very much.
The next question will come from
Laura, I don't think we can hear you.
The next question comes from Brian Martin with FIG Partners.
Just one question that’s just going back to credit for a second, this there anything that worries you more now, I guess today and given that couple of quarters of a little creep up here I guess on the non-performing side albeit still at a low level but negative, so what gives you the most pause looking into '16 and beyond today and if you can give a little color?
So there is nothing specifically in our portfolio that makes me greatly concerned. But what concerns me are the more macroeconomic trends and in particular within manufacturing, but manufacturing on the contrary has been very soft, perhaps it's shrinking which should mean it's in a recession and we and banks like ours, we have a lot of manufacturing clients and we have a whole lot of clients that had connected with the manufacturing industry, so that's what’s what worries me and I think our people are doing an excellent job looking at our portfolio and our clients and making sure that the clients and we should have and want to have, and that our clients are doing the right things to manage our businesses.
Okay. And in respect to leasing you've talked about some of the challenges, but not really effecting the growth outlook, if you will. And then I guess are there things you guys will do differently or think about to kind of overcome those challenges or you just -- I guess it kind of seam like as the earlier caller had said that there might be a little bit of a headwind but I guess seems like not but are there things you’ll do differently?
Yes. So I think there is the headwind right if it's correct that the equipment procurement is softer in the economy right, the pie is smaller for us to get from. But we continue to add sales people and grow the business at a healthy clip and so it’s a headwind and our folks are just going to have to work harder and smarter, but they’re fully capable of doing it and we expect them to deliver, so I think we feel good about it, but it is a headwind.
Yes. I got you.
I'll just add quickly to that, that there are really four different businesses within leasing and they are very diverse and the type of clients that they have, the type of equipment that they specialize in and I think that helps even things off, I mean the statistics that we see and hear that, there is less equipment being brought that -- it's a fact, but I think the diversification of the businesses that we have help us a little bit, help to offset that.
Thanks Mark. And maybe just last few things, just on the margin. Just given the comments where Mark was alluding to the competition and I guess Jill's comments about kind of maintaining at least kind of this core type of level you are now. I guess is there a lot of confidence that you can maintain it, you were even with the competitive nature given you’re going to be growing a bit more?
So I think, I think it certainly is a challenge, but certainly the Fed rate increase helps us a little bit, so I think that should cover the loan re-accrual interest kind of going back to normal and it gives a little protection and I’ll say a little bit of card spread compression, but it's certainly a challenge, we’re working really hard.
Okay. And then just the last thing was on that. The ROA maybe more from Mitch but just kind of talking maybe you are not getting to your level this year, but just given the investments you are making in terms of these other challenges, I guess it seems as though the current level is sustainable and to the extent you can move it forward, you will, but I guess it doesn’t sound like the current conditions will cause that to decline?
That's for me. Yes I think that's right.
Okay, alright. That's all I have. Thanks guys.
[Operator Instructions] I'm showing no further questions. I would like to turn the conference back over to Mitchell Feiger for any closing remarks.
Thank you everyone for being with us today. We look forward to just talking with you in another three months. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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