Q3 2019 Earnings Call
Good morning.
To the Iberiabank Corporation third quarter earnings Conference call.
All participants will be in listen only mode.
So do you need assistance, placing always hold for specialist pressing the star can you followed by zero.
After today's presentation, there will be an opportunity to ask questions.
You asked a question you were press Star then one on your telephone keypad switch on your question. Please press Star then too.
No. This event is being recorded.
I'll now turn the conference over to Jeff Parker, Vice Chairman Dr. capital markets energy lending and Investor Relations. Please go ahead Sir.
Hi, good morning, and.
And thank you for joining us today for this conference call.
On our call. This morning, Daryl Byrd, our president and CEO will make summary comments on our earnings report after which we will move into QNX.
And they were still our Chief Financial Officer, Michael Brown, Our Chief operating Officer, Fernando Perez Hickman, our director of corporate strategy carry Akins, our chief risk Officer, and Nick Young our Chief Credit Officer are all available for the Q and they session.
This call.
If you've not already obtained a copy of the press release and supplemental Powerpoint presentation. You may access those documents from our website at www Dot Iberiabank Dot com.
Under Investor Relations.
A replay of this call will be available until midnight on October 25th.
Information regarding that replay is provided in the press release.
Our discussion this morning deals with both historical and forward looking information.
Our safe Harbor disclaimer is provided in the press release and in the supplemental presentation.
At this point I'll turn it over to Daryl for his opening remarks.
Thanks, Jeff and good morning, everyone.
I'm pleased to report another quarter of solid results, we reported both GAAP and core earnings per share.
<unk> dollar an 82 cents.
The third quarter.
Given the ever changing economy and interest rate environment I'm extremely proud of our company's ability to produce strong financial results grow our client base.
Oh, good gains in both loan growth and core deposit growth, while remaining focused on expense management and maintaining strong credit quality.
Well the quarter, both on a reported and core basis, we achieved a 1.26% return on average assets a 14.48% return on tangible common equity.
Tangible efficiency ratio of 53%.
In the third quarter total loans increased 321 million or 6% on an annualized basis.
On a year to date basis, we added 1.2 billion in total loan balances and annualized growth rate of 7%.
Deposit growth was also very strong as we experienced growth in all but three of our operating markets total deposits increased 682 million or 11% on an annualized basis with no increase in our broker deposit position.
On a year to date basis, we have added 1.2 billion and total deposit balances and annualized growth rate of 7% with continued client growth and positive <unk> expectations for the remainder of the year, we're adjusting our guidance range for both loans and deposits to between six and a half and seven on a quarter per se.
For the full year 2019.
I think it's important to reflect on the success of our business model over the years and growing up franchise through strong loan and deposit growth and recruiting talented teams for example over the past 10 years, we've grown our presence in Alabama from our initially trucks in 2009 to over 2 billion in total loans.
Over the same time period, we entered Florida and have now almost 10 billion in deposits I'm proud of our ability to develop new markets and continue to see great opportunities to enhance our franchise recruit talented associates and grow our balance sheet.
I strongly believe we're in the white markets in the southeast.
As we've consistently telegraph on prior calls we continue to feel the impact of downward pressure on interest rates and net interest margin net interest margin for the quarter was 3.44% on a GAAP basis down 13 basis points from the second quarter and 3.24%.
On a cash basis.
We hit the inflection point on liabilities as our cost of deposits for September was flat compared to August and we've seen rates begin to decline and the first part of October .
Typically the fourth quarter over the years, our strongest in terms of deposit inflows as institutional and public funds ramp up.
Further we expect to see pub deposit rates continue decline throughout the remainder of the year and into 2020.
The current low rate environment has benefited our fee based businesses throughout this year and continued to be the driver for very strong core noninterest income during the quarter.
Core noninterest income increased 3.8 million or 6% on a linked quarter basis to 63.6 million a.
A record level for us the increases were primarily driven by $3 million gain on the sale of certain non mortgage loans, which is considered core along with increases in service charges on deposits and customer swap income activity in the mortgage business remains very brisk with gains in the quarter consistent with the prior.
Quarter and up 37% on a year over year basis.
The mortgage pipeline remains elevated at 269 million.
As of mid October and provides good visibility, but mortgage activity will remain strong into the last quarter of the year.
A customer swap business, it's also saying significant activity as a result of lower interest rates.
Year to date swap income is up 113% versus last year at this time.
These businesses, which thrive in the lower interest rate environment have helped people bought a partial offset.
To the net interest margin compression.
Given the current projected low interest rate environment. We expect these businesses to continue to perform very well in the fourth quarter and that strength should carry into 2020.
We're also very optimistic that our noninterest income levels.
During the fourth quarter will be at the upper end of the guidance range provided.
Core noninterest expense.
Increased 3.1 million or two per cent compared to the linked quarter, primarily driven by write off of long lived assets again, a onetime expense, but still considered core excluding the write off total core noninterest expense increased less than 1% from the prior quarter, our core tangible efficiency ratio.
Remain strong coming in at 53% for the third quarter.
We have been and continue to remain extremely diligent around expenses.
We continue to allow the investment portfolio to compressors, we fund additional growth in loans at the end of the quarterly investment portfolio was approximately 14% of total assets. We continue to see this was a benefit to our margin and anticipate employing the strategy for at least another quarter.
Banks credit metrics remain strong and stable classified assets continued to decrease and now represent 89 basis points of total assets. Additionally, net charge offs for the quarter were 8 million or 14 basis points of average loans. The famous in the prior quarter, we see no signs of credit deterioration in the loan portfolio.
We also believe our credit culture has and should continue to benefit us if we encounter increased uncertainty in the economy.
During the quarter, we repurchased approximately 552000 common shares at a weighted average price of $72.46 per common share or approximately $40 million in total value.
As a reminder, on July 17th 2019, we announced a new common stock repurchase plan of up to 1.6 million shares or approximately 3% of our outstanding common shares. There are currently approximately 1.2 million shares remaining in the plan.
Which we expect to complete over the next three quarters.
For the first nine months of 2019 through a combination of cash dividends.
And repurchases of our common shares we have returned approximately 94% of net income to common shareholders.
If we continue to look at the projected rate environment. We have again revised full year 2019 got up.
To account for another 25 basis point cut.
In the federal funds rate, which we expect to our CRO. This month. This follows the recent cuts in July and September that we already had factored in for 2019.
As you can see with our updated guidance, we continue to manage through changing environment to deliver solid results.
Specific changes to our guidance include the following.
The range for average, earning assets move ups again slightly as we anticipate coming in between $28.7 billion to $29 billion.
We adjusted the range on net interest margin for the full year, two 3.43% to 3.47%.
We decreased the provision expense range to $38 million to $43 million noninterest income increased to a range of $230 million to $235 million.
Noninterest expense was reduced to between 667 and $673 million, we adjusted our preferred dividend and unrestricted shares allocation to a range of 16 to 17 million.
Finally, we tightened our tax rate to a range of 23.5% to 24%.
This adjusted guidance still aligns us with current consensus estimates.
As I've said many times, we continued to be very focused and disciplined well producing high quality earnings and are not interested and stretching to do a deal relative to 2020, we recognize it where asset sensitive and we may get more cuts, but beyond the one projected for later this month as you would expect we will be very proactive.
Managing our business to help mitigate some of the negative impact of NIM compression, while continuing to grow our business for the long term.
Specifically, we believe that expense savings opportunities exists capital management activities remain attractive and viable and our growth from diverse markets provide some solid offsets historically iberiabank has done quite well in challenging times I would expect us to rise to the occasion once again next year.
Here, we feel good about the business.
We remain passionate about building clat relationships delivering long term shareholder value and investing in our communities. Once again I want to site, our dedicated associates for their focus and hard work and continuing to execute our strategy and grow our franchise.
At this time, let's open the lines for questions Rocco.
Thank you well now begin the question answer session.
That's the question in your press Star then one under telephone keypad.
Use of the speakerphone, please pick up your handset suppressing the keys. So much harder question. Please press Star then too.
I just saw move pause momentarily into several our roster.
And today's first question comes from Catherine Mealor KBW. Please go ahead.
Thanks, Good morning.
Good morning Kathryn.
Well start with the margin if you look at your guidance start fourth quarter.
And we run that for just a fourth quarter then yes from from my math it looks like the high end of the range is getting the margin around 320 fives for next quarter.
So one wanted to make sure that worked kind of thinking about that correctly and then.
Certainly is there anything one time or you know in terms of recoveries are aware of deposit cost.
Better pushing the fourth quarter margin love to load that we may see some recovery from that actually lets 2020.
Yeah for an Anthony's Anthony's got this win Anthony Yes, so Catherine relative to the guide the yes. The 325 would be implied by the by the guide that we've got out there couple of things just to remember right. So we did add an October cut.
Remember that we are asset sensitive we've got from a repricing perspective, we've got about 50% of our loans are going to reprice and I'll call. It a 100% deposit beta with that October move that we're projecting and then like we talked about last quarter's a little bit of a lag relative to sienna deposits come back and move so I think when you look.
Look at the fourth quarter right. We've got an additional cut writes a three cuts in a row from the fed that we're still trying to catch up from San deposits rollover at the same time are projecting a little bit less on recoveries in the fourth quarter, we talked about 20 million for the year, where at 17.7. So we havent adjusted that again recoveries a hard for us to kind of gauge, but we went ahead and brought that down just.
Be safe on the guide I think as we sit here and look at the fourth quarter.
We have start we have started to see our deposits rollover, which is very good I think the pace of that is going to accelerate as we move through for the fourth quarter in the 2020.
And then naturally you know we're seeing some nice offsets from the lower rate environment, that's coming through on a fee businesses. So I think as we look at it we feel actually like.
Not too bad relative to where we where are the only thing it's really different for US is we've got an extra cut we've got to deal with now as opposed to next year. So I think all in all we feel pretty good about where we are.
Hi, I mean, if we look at consensus for 2020 on average the margins at 338 versus that fourth quarter 325, and now I know everyone has different.
Sumption still at rates are going into next year.
Hard to.
It's hard to make sense, if it but I mean, it you've got 325 implies it there's there's fairly significant downside ticket that investments in 2020, as we think about the margin is that fair way to think about it.
I think that there's a host of different estimates out there relative to cuts me. We've got some people talking about five more cuts we got some people talking about one more cut I think what I would tell you relative to 2020 guidances that.
We feel pretty good about we're going to see the October cut I think right now you've got a possibility of another cut some time I'll call. It late into the first quarter mid year ish next year I think the thing that might be missing from the guidance would be.
Yeah, the margins going to come down, but what you don't really see I think embedded in guidance would be the strength of of the fee businesses that we should get from lower interest rate environment. Certainly we're going to have a really good loan to deposit growth given that we think credit will be fairly stable as we move through next year I.
I think that inflection on deposit costs, when we talked about that repricing is going to accelerate into next year, which will help the margin a little bit.
We do have the ability to reduce expenses I'll just point out that we've reduced our expense midpoint of the expense guide for quarters in a row, although we're not out telegraph in big expense moves were very active and you should expect that continue and then look there's there's bible and attractive capital market Restack options that are viable and look attractive and can meaningfully.
Improved EPS next year, so I think as we think about our business, we feel real good about where we where we're positioned today against you know we recognize more asset sensitive, but we've got a lot of other good things working our way and as Daryl mentioned, we've actually done quite well historically I during challenging times. So I think we kind of look at it more as a glass more more than half.
Paul versus our half empty here.
No.
I would add I would add to that look we we can't predict what the right environment is going to look like.
Frankly, as we look at our markets on our clients, whether they're all doing pretty well, which correlates over to we've got we've got excellent loan growth excellent deposit growth, yes, our clients are doing well.
Yeah, we got great credit.
And our fee businesses given the rate environment are doing extremely well. So you know we've always tried to answer the challenge.
And we always try to get ahead of the challenge and historically, we've executed multiple expense initiatives, but as Anthony said, we rarely telegraphed flows until we've already executed. So you know we're going to try to get ahead of this rate environment and certainly do the best we can.
To make it work for us.
That's great that puts it in perspective for sure.
Maybe I could just one other follow up on the margin just to stay on the topic is the on <unk> cash versus reported margin as we think about accretable yield for next year is there any anything that we should be thinking it out for that.
We've seen about 13 million kind of on average and noncash accretion.
Over the past couple of quarters does that change significantly going into next year post diesel or how should we think about that in a place used to world. So so a couple of thoughts where you Catherine one is obviously, we've got recovery income that's embedded somewhat in that line and that's really hard for us to kind of predict we've talked about that but the base level of accretion on the portfolio.
Is fairly constant it'll roll down I mean, the actual income level will roll down as the portfolio kind of burns off but the incremental accretion from a yield perspective on the base levels fairly consistent Cecil not really expected to have an impact on on that accretion level.
And again, we don't we don't have a we don't have a cliff or anything associated with that because most of the assets. We picked up were more mortgage driven instruments was very long life.
Right. Okay. Thanks for that clarity. Thank you I'll hop out.
Thank you.
Question today comes from Abrahams when a lot of bank of America. Please go ahead.
Good morning, guys.
Good morning Am I.
I guess just a question.
Some of the things that you mentioned two Catherine's question that on expenses into focus there.
Like understanding all the macro uncertainties data can you talk about just.
Your expectation to getting positive operating leverage as we think about next year you guys had another good job cutting expensive improving efficiency was the last year, a dual would love to get you are talking domes of if you think that is achievable next year or could we see the efficiency ratio does take Hyatt in can you quantify.
Look we're going to we're going to manage what we can.
I think to Anthony was pretty straightforward, we lowered our expense God four quarters in a row.
My comment is we've done multiple expense initiatives over the last several years.
What we rarely telegraph.
Those.
Until we've executed them for a lot of rates. So you know we're going to worked pretty hard at that.
Yeah. He bramley only thing I would add is next year given kind of low rates. We you know we are expecting to see some significant strength on from fee businesses and that could you just given the nature of those business been b and been very people driven.
Could put some slight upward pressure on on the efficiency ratio again as Daryl mentioned, we're going to be working very hard on on the rest of the expense base. So we'll see if we can offset it I'll just point out, though that we are going to see higher levels of commissions and some stuff next year.
Got it and just show in terms of following up on fees.
It's a pretty meaningfully job on average we've seen banks talk about 20% to 40% increase to the basis, though I don't see feel adoption I was just wondering Anthony if you can talk about any particular characteristics within your loan book, which is pushing at higher.
And how that influences everything about provisioning for incremental growth going forward.
Yeah, So I'll point out that I think the biggest thing driving the percentage increases. The fact that we've got a large acquired portfolio.
That has very little a reserve coverage on it today just by the I guess by the way the accounting is prescribed in the current methodology.
Obviously, we picked up some level of a longer lived assets from the mortgage portfolios that came on the Reggie books that came with the recent acquisitions and so given the longer life of those.
Portfolios as well as the kind of that small residual HELOC portfolio naturally pushes the average life of the portfolio a little longer and so those would be the primary two or three drivers that are making up the bulk of the increase.
Again, not that weeks not that we expect credit to be different just it's a function of the life of the portfolio.
So would the runoff of the acquired vote.
We incrementally positive everything about next year or two.
Oh Im pleased to the thesis map.
I'm sorry can you give give me that will more time, yes.
Well north of the appeal of the acquired sort of.
For the old incrementally positive to just provisioning going forward.
Balances on offer.
Yes.
I will tell you that.
I don't know relative to the allowance perspective that the that the portfolio running off is going to make a big deals. We talk about just provision I think as we move into next year I think what you're going to see us talk about as we have a portfolio I think the concept for us of legacy and acquired well kind of go away because the accounting is largely in different at that point I don't expect to see.
A significant increase in provision levels as we move forward from the new adoption might be a couple of million, but not going to be material.
And so hope that that helps you but that ebrahim.
That's helpful. Thanks for taking my question.
<unk>.
And our next question today comes from Michael Rose of Raymond James. Please go ahead.
Hey, Good morning, guys. Just a question on the mortgage business. So the MBJ forecast, obviously projected declining volumes next year, but I know you guys are you know kind of in the midst of retooling your mortgage business.
How should we think about the ability to continue to drive profitability in that business and do you actually increased revenue next year. Thanks.
Michael on the turned this went over to Fernando, but I'll start by saying, we feel very good about the progress we've made in mortgage like that team has done a great job force Fernando I think that are two components to that question on one hand now.
When we look at their pipeline that we have these year I mean, I sort of these at quarter compared to last year. We're looking at yeah, I find that the these more than 60% higher and that make us feel good about day production in the coming quarters and by the sometime we are combining that Blackstone, we'd find new and my those seem to be from.
Because we are but essent and working on efficiencies we've been working that in the last couple of years.
On reducing the fixed cost over the total amount of cost of the of the mortgage business and to give you some idea of day evolution.
In 17, we had 65% of it though of course whats fixed and now that number 256, and we have people working on efficiencies and standardizing and process improvement due to combine better revenue with that and more viable.
The structure of the cost basis or the of the business.
Okay.
Helpful. And then just as a follow up question you guys highlighted a energy growth. This quarter is one of the drivers of overall loan growth I know, there's been some consternation at least among investors.
Around energy piece talk about how you feel about the size of the portfolio. What you are growing at this point and if we should that there's any worries out there for you guys. Thanks.
Michael we feel good about our energy portfolio, Jeff you want to talk about one so sure I'd be happy too.
We have continued to get good growth out of that portfolio. Since we really reentered the market. Michael I think you know that 2017, 18 and 19 have been good.
You were at 5.9% in terms of the overall portfolio right now frankly, that's not terribly different than where we were at 4.8%.
In 2015.
So we're comfortable with our level of exposure.
I should mention to you at this is important to me last week I had the pleasure sitting down and doing a portfolio review and we had our chief credit officer in my Chief Risk Officer.
And I think I can report to you today that we feel very very good about our portfolio and frankly during that portfolio review, we did not discovery any new information.
As you know we have a balanced portfolio.
Largely even pay 62% of our portfolio and midstream 33%.
Made and oil field service loan in five years, that's down probably from about [noise] excuse me, 35% to 5% today and where we feel good about our mix I should probably also mention to you that 66% of our portfolio is PE backed.
And and we have not seen people back away from the market and supporting their investments.
Also go so far is to say because I've seen several other people make comments on it. The question comes up how about the recent snick exam.
That went on nationally we saw no material impact to our portfolio as a result of that so net net we feel good.
We do continue to see unfortunately.
Probably some misinformation in the markets from time to time people site.
Statistics I saw one the other day, where we will mentioned to have a 20 million dollar exposure and a credit that fully paid off for US 18 months ago. We don't have we have a policy of not.
Commenting on specific credits, but I would say that before people are calculate and and crank date into their assumptions.
I'll look more closely.
If I could add its Michael I'm just.
Energy has certainly been an important contributor to our company and we feel very comfortable with that part of the portfolio I.
I would emphasize we do have a diversified growth story as a company and that we see loan growth coming from multiple markets multiple industries. We've talked last time about our equipment finance business being a strong contributor to the growth of the company that continues if you looked at the numbers for the quarter, we saw a real estate.
Hey loans declined we sourcing a increase that was a conscious effort or is a conscious effort on the part of the company diversify the the loan portfolio.
We've seen runoff in our home equity business, which we more than offset and that runoff is just tied to people refinancing into the mortgage business, which helps fernanda as part of the company out as well. So we feel like we have a very defined growth story.
And feel very comfortable with our ability to garner clients.
So so Larry all that together, Michael fair to say that a mid single digit loan growth for next year is a good starting point.
Yeah, I would say so.
The one of the things that I would emphasize and I didn't and my last.
Comment we've had a lot of success lately with recruiting I mean, that's something we consciously always are doing but Blake we've seen an increase in activity from larger institutions.
With that recruiting.
We're picking up some very talented people who've got access to some large client portfolios that has some very significant upside for us and all of our markets. So start with a single digit the number that you mentioned in.
The potential is higher.
Right. Thanks for taking my questions does.
Thank you.
Next question today comes from Casey Haire of Jefferies. Please go ahead.
Thanks, Good morning, everyone.
One of that wanted to follow up on the deposit costs. It does sound like they are rolling over here or started to roll over here on the and the third quarter.
You know it but it did I mean, it seemed like last quarter, you guys were talking pretty optimistically about deposit costs. So I was just wondering could you give us some color as to what surprised you was it competitive pressures.
And then if we could get spot rates for the money market accounts and Cds, specifically at September Thirtyth, just to give us a gauges to how things are entering the fourth quarter here.
Yeah, Casey couple of things I think last quarter, we talked about that we thought we'd see deposit rates role in 60 to 90 days and that we were thinking deposit rates would kind of plateau during the quarter. So I think what we actually talked about last quarter is actually what happened this quarter.
It's a little bit hard to give you spot rate deposit rates, because we do price deposits differently in every market.
In deposits <unk> deposit rates are very fluid right. So we talked last quarter about we were going to be a fast follower on deposit rates.
We've maintained to that and so what I can tell you is deposit rates are moving down.
And we are adjusting rates fairly constantly across the 32 different markets at different paces.
Now I'll give you. The you know just as a couple of quick examples right. We look at October month to date right. You know Cds are down 25 basis points below the third quarter origination yields. So just in the first couple of two weeks or so in October .
Down.
Just 25 basis points within the CD book right. Just as an example of how fluid that is so a little bit hard to give you a rate I can just target that we are just follow in the market closely and we expect that those deposits that deposit.
Repricing will accelerate in.
To be honest with you the more the fed moves in the more often they move into more headline news the more cover it gifts for us to move rates. So I think we'll I think we'll see some pretty good momentum heading into the fourth quarter and then we'll always being a little bit of a catch up just recognize so if we get 234 cuts in a row, it's going to take us a little bit to catch up but we will get some upside when once we get to the final lend to those cuts.
And Casey we had.
We had excellent deposit growth in the quarter and we're going into the fourth quarter, which is typically our best deposit growth quarter.
Right and I wanted to follow up on that as well there also yeah and when you talk about that is it are you expecting a better mix seasonally you know of more DDIY, then then Cds.
Yes, but it's also a quarter, where we see a lot of public funds come in as well.
Gotcha Okay.
And then just lastly on Cecil just so I'm I'm thinking about the I'm trying to quantify the dollar impact so that that a one to one too.
Well is that what is that what is that what's the comparative <unk> a ratio today as it is it just taking the loan loss allowance.
146, and then the reserve for unfunded, which would it which which is about 69 basis points is that the right way is that the like on like number.
Yes, that's correct.
Okay, great. Thank you.
Yep.
Hey, KC, one thing remember on the capital impact to that remember that that that that onetime adjustment is phased in over a couple of years rates as we think about capital impact.
From that it really is pretty de Minimis, just because of the way it gets phased in over a couple of years. So Walt will not have an impact on our ability to continue to buy shares as we head into next year.
Okay. So I mean, what kind of TC ratio impact do you see as of March 31st.
Are you do.
Hold on well come back to you at the end of the call will not one great. Thank you.
And ladies and gentlemen, as a reminder, you would like to ask a question. Please press Star then one today's next question comes from not only Oh Stephens. Please go ahead.
Hey, Thanks. Good morning, everybody you want to go back to loan growth discussion and can you just talk about the competition levels in your core markets. It seems like some of your bank peers had been growing the lumber global slower and there are highlighting irrational pricing, especially from some of the non banks I'm curious what you're seeing.
Some of your core markets around loan growth.
Hi, Michael Yeah, Yeah, I mean, clearly we've we've been able to provide loan growth our credit quality of staying strong. So we're not dipping in terms of quality and that's traditionally because we bid.
Connected people are the right people in front of the right clients Oh, yes. It is a more competitive environment, yes. The banks are more aggressive on structure and pricing has come in but our view is on the long terms there for banking the right clients from banking them on a relationship basis, which is our focus.
We're going to pick up deposits of Treasury management to wealth that rounded out relationship is going to provide the return we're looking for so.
They were messaging to our people, yes loans more aggressive it's reality, but this is the time to get clients in our mind and if we get before relationship. That's the best approach to use in terms of overall profitability.
And Michael I guess sticking with the pricing discussion is there any product or loan type it seems to be getting more aggressive in your market places than than others.
No I wouldn't differentiate I'm going to think it's it's a generally across the board okay.
Okay. That's helpful. Thank you and then as far as the fees you highlighted a in the discussion about $3 million gain on sale. The non mortgage loans any more color you can provide on this and we'll such sales continue.
I can give you some color they were loans that had come to us through acquisition Didnt fit in with the portfolio that we had its not something that we traditionally have done. It just made sense to take advantage of frankly, the market right now to a to sell them.
Yes, so from that.
We sold things in the past whether it was the reverse mortgage product that we had.
Those loans actually went out at a are on the books were at lower yields than stuff, we could originate today.
And so just made sense to go ahead and let those go sell those take the gain get us some city for loan growth I will say it did truncate our loan growth numbers for the quarter.
And so we've had really style on growth had we not gone hadn't done that but we'll do that from time to time, where it makes sense from a balance sheet perspective, and also just a link it back to the methodology I. Just described in terms of how are we look at clients. They were transactional Oh, there was absolutely nothing more we can do with a particular clients in terms of again, improving profitability and getting the returns you're looking for.
So that just was a logical outcome.
Outcome.
Okay, and so in terms of forecasting it sounds like you don't think that should be in in the run rate per se, but it could happen occasionally again over the next few quarters since that does that there.
Yes fair.
Perfect. Okay. Thank you guys.
Thank you.
Our next question today comes from Jennifer Demba of Suntrust. Please go ahead.
Thank you good morning.
Good morning.
A follow up question on energy loan bucket, Jeff What do you think you guys are doing different from your energy lender appears in this category. We've seen charge offs go up in that in that bucket for almost everybody. That's doing this lending.
As capital markets have tightened.
Jamie.
I'll start, let Jeff takeover, because I think I think the first part of your question is what's different about us from a credit perspective than maybe others.
And it really goes to the point Jeff made.
Relative to a credit paying off 18 months ago.
We have a very active portfolio management process.
And the company.
And we try to get way out ahead of issues from a credit perspective, and and that's whether its energy or some other part of the see at our book or the CR E book now, we're always trying to be out in front from a portfolio management perspective, and dealing with issues that we think are going to be problems down the road Jeff.
Jeff I think one of the things I would add is it's hard to quantify the value of having a team of people.
There have been.
Together for a number of years.
Person, who actually runs is for us over in Houston has been with us for 10 years and.
So we looked back obviously through the last cycle and had to make decisions about how do we proceed.
With the business it but that has been a good business for us and by the way generates a lot of ancillary.
Positives in the form of Treasury management, and peak card and deposits.
But we've been very very careful on diligent and building this.
We have as I mentioned in the earlier question.
It's just it's no it's not the accident that we have a lot of PE backed companies.
So trying to maintain our.
Liquidity numbers and leverage numbers and staying on top of that as Joe said, a minute ago counseling out where you need to do you. So.
Well, we've been will stay on top of that I will say this jennifer.
We're seeing as you know a lot of people will look at the price of oil and so what was $54 everything's fine, but natural gas prices have been soft and they were soft through the summer and that has impacted natural gas credits as we go through the Redetermination period, we'll probably see.
We'll see certainly some borrowing bases reaffirmed but we'll see reductions on some of the natural gas side. So I think that you've got to watch that side right now.
People are speculating about how much risk migration might occur in here.
Over the course of the year, but I think we're very comfortable on as I said a minute ago. We went through that portfolio review recently and.
Nothing new nothing new whatsoever in looking at over 90% of our portfolio.
And if I could add this maybe ties into matts question, that's an extremely profitable business for us.
The reserve based lending space has been good for us throughout the cycle and continues to be our top returning business.
There is obviously the risk impaired and Jeff referred to but we believe we can manage that risk and get an outsized return from that space based on the knowledge base, we have as a company.
Second question.
Just curious environments gotten tougher year over year for every body with low rates Daryl what's what's.
He is interesting acquisitions, right now and where do you see the M&A environment going over the next.
There's.
No.
Yes.
There was a lot of talk early in the year.
But not a lot of action.
And you know really I think the interest rate challenges are out there for everyone.
And from our perspective, we're very focused on our earnings.
And kind of meeting that challenge, we like our franchise with and we like the opportunities we have with US franchises up said earlier.
And our markets and for our clients.
The economy feels pretty good for them.
And so we think we have plenty of opportunities from a loan and deposit growth perspective with the existing franchise.
Thanks.
I don't know sourcing today comes from Christopher Marinac, Oh Janney Montgomery Scott. Please go ahead.
Thanks, Good morning, Daryl and team wanted to ask about the digital banking the cat digital.
Product offerings for commercial customers, how much more as needed there how much more of your dollar I'm just kind of curious if this is something that gets a lot of priority or or.
It is less.
We'll go back to Anthony because Anthony's got business transformation for us and we're spending a lot of time thinking about those issues Anthony.
Yeah, Chris we actually.
You know recognize that the middle market commercial space is really with the what drives the engine Fibria banking, so along with that we recognize that.
The appropriate technology has got to be wrapped around that so we started.
Call. It two three years ago really to make a big push to enhance we talked a lot about treasury management in terms of deeper offering better offering and that includes being able to do all that through electronic means.
We then followed up to really build out I'll call. It our loan origination system that that project continues to evolve we think that's going to be very impactful for us number weighs on the cost side speed to the customers et cetera.
So it's not something that I'd say that we would declare victory on but I think we feel really good we've got a defined focus on where we're trying to get to recognizing that if we wrap excellent technology around our excellent lenders were going to get excellent results and so that's what our focus is if I could add any <unk> Treasury management perspective, we compete with.
Larger institutions on a constant basis them. We win so we think we can go toe to toe based upon a very good product so.
Great. Thanks, guys that that's it and the treasury pieces, what I was going to ask so I. Thank you Michael for fallen off that's great guys. Thank you for the background here.
Thank you.
One quick thing Casey falling back up on the TC impact I think if you look at the range.
Relative to the March 31 talked about 25 basis points. If you just kind of straddle the range.
As what we think we'll see impact to the Tc relative to the Cecil adoption.
Hi, Jeff.
All right.
This concludes your question and answer session I'd like to turn the conference back over dental burn for any closing remarks rock if I do want to thank everybody for joining us today and your confidence in our company everybody have a great day integrate weekend. Thank you.
Thank you. So this concludes todays conference.
Now disconnect your lines and hasn't wonderful day.
[noise] [noise].