Q3 2019 Earnings Call
Welcome to the Hope Bancorp third quarter 2019 earnings conference call.
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Thank you Nick.
Good morning, everyone and thank you for joining us for the Hope Bancorp 2019 third quarter Investor Conference call as usual, we will begin with this like we will be using a slide presentation to accompany our discussion. This morning. If you have not done so already please visit the presentation page I'm sorry.
Investor Relations website to download a copy of the presentation or if you're listening into the webcast you should be able to pieces flights from your computer screen athlete progress through the presentation [noise].
Beginning on slide two I'd like to begin with a brief statement regarding forward looking remarks. The call today may contain forward looking projections regarding the future financial performance of the company Angie Tribeca.
These statements are based on current expectations estimates forecasts projections and management assumptions about the future performance at the company as well as the business and markets in which the company does and is expected to operate these statements constitute forward looking statements within the mean.
One of the U.S. Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance actual outcomes and results may differ materially from what is expressed or forecasted in such forward looking statements. We refer you to the documents the company files piece.
Our yada klee with the FCC as well as the Safe Harbor statements in our press release issued yesterday Hope Bancorp assumes no obligation to revise any forward looking projections that may be made on today's call. The company cautions that the complete financial results to be included in the quarterly report.
I'm Form 10-Q for the quarter ended September 32019 could differ materially from the financial results being reported today. In addition, somebody information referenced on this call today, our non-GAAP financial measures. Please refer to our 2019 third quarter earnings.
He was released for the reconciliation of GAAP to non-GAAP financial measures now we have allotted one hour for this call as usual presenting from the management side today will be Kevin can hope Bancorp as chairman, President and CEO and Alex coal, our executive Vice President and Chief Finance.
Chill Officer, Chief Credit Officer, Peter Koh is also here with us today and will participate in the queue in a session with that let me turn call over to Kevin can Kevin.
Thanks, Good morning, everyone and thank you for joining us today, let's begin with slide three.
In the third quarter, we executed well on our strategic priorities and delivered a quarter or that we view as positive on all fronts and reflecting a continuation of the many improving trends that we experienced in the preceding quarter in a very challenging environment for generating revenue growth we do.
Libert consistently strong profitability by one well, they're improving our deposit mix to lower cost in core deposits to originating a well balanced mix of new loans, three maintaining disciplined expense control and efficient cost structure relative to all rights. This.
Ladies and lost to note, but certainly not the least in terms of important making meaningful improvements in our credit metrics with a 35% reduction in nonaccrual loans and a 20% decrease in total criticized assets outstanding at September Thirtyth 2009.
<unk>.
Net income perspective, we generated $42.6 million during the third quarter or 34 cents per diluted share, which was comparable with all results in the preceding second quarter.
One of the clear highlights of the quarter was the continued progress we're making on our deposit gathering initiatives. We so growth in all of our lower cost deposit categories into third quarter with the strongest growth coming in money market accounts, which increased by $513 million.
Or 16% from the end of the prior quarter, our noninterest bearing demand deposits were also up this quarter by 1% or $24 million no growth in these core deposit segments enabled the bank to reduce time deposit balances by 9% improving our own.
Overall deposit mix [noise].
We have as we have previously mentioned, we have a number of initiatives in place to enhance our core deposits and they have all contributed to our progress this year, but more than anything the Q factors have been the greater emphasis that we have placed on deposit gathering and deposit cost control and how does it.
Initiatives have been embraced at all levels. Our branches are doing an excellent job in engaging with customers and attracting more retail deposits for lower cost categories, which has significantly reduced our reliance on time deposits to fund our loan growth.
As a result of the excellent progress we have made in this area. We saw a deposit costs plateau from during the third quarter.
For the 2019 third quarter, our cost of deposits was 1.62% the same as into second quarter.
Alex will provide additional color.
Our deposit costs, but from a cost perspective, we are starting from a higher point then most mainstream banks. So we believe we have greater opportunities to reduce our deposit costs.
We do however, intend to take a gradual approach and closely monitored the pricing environment in all markets as we continue to grow deposits, while reducing costs.
Moving onto slide four.
As we mentioned on our last call we had a strong loan pipeline that we expect it to result in a higher level of loan originations in the second half of the year, we delivered on our business development goals in the third quarter as our total loan originations increased 38% from the preceding second quarter, we had.
$694 million in new loan originations funded into third quarter off from $504 million into second quarter.
Payoffs and pay downs totaled $633 million into quarter off from 500 than $99 million into preceding quarter. We continue to see large a mainstream bangs, becoming increasingly more aggressive and the pricing and terms they are offering, particularly on long term commercial real.
The seat loans and we have been and we'll continue to be judiciously in our pricing as it relates to securing new clients as well as retaining existing ones.
With our higher level of <unk> loan originations, our total loans increased $128 million or 1.1% from the end of the preceding quarter.
Looking at the breakdown of our loan production by major category.
Commercial real estate loans comprised 50% of total production in the quarter commercial loans accounted for 41% and consumer loans comprised primarily of residential mortgage loans accounted for 9%, we originated $349 million NCR loans for the quarter.
Up from $253 million into preceding second quarter.
With interest rates declining and a flattening of the yield curve, we saw a pickup in demand for CRT loans, and we were able to capitalize on the greater volume of opportunities that we had in our markets.
We also saw a very nice increase since you had I loan originations in the quarter, we had $283 million in new CN I production into third quarter up from $176 million into prior quarter.
Side from the opportunities that we are capitalizing on in the supermarket industry in the northeast and with the subsidiaries of Korean National companies operating in the U.S.. We continue to see a steady stream of business opportunity is from a middle market corporate banking team that is focusing more on mainstream clay.
Intel we also had a strong quarter growth during the third quarter in our warehouse line of business with the addition of a new customer and expansion of existing credit facilities.
We view this as an attractive business given the very low loss rates and the opportunity as it provides to continue diversifying our portfolio.
With our higher level of C. <unk> C N I loan production, we continue to make progress on diversifying our loan portfolio over the past 12 months commercial loans have increased from 19.4% of our total loans to 21.9% while real estate loans have declined from.
72.4% of total loans to 71.0%.
Turning to RSP business, we originated $54 million in SPJ loans, compared with $37 million into preceding second quarter. The average rate on new SB seven eight originations was approximately 7%.
And since we are retaining this production we are seeing the positive impact. This strategy is having when our average loan yields.
While we saw nice growth in SB eight production this quarter the overall environment for us to be a has become increasingly competitive.
We are seeing more banks lending when projections or making optimistic assumptions about improvements in that coverage ratios over the life of the alone we aren't more conservative and do not rely on projections to meet our underwriting standards. As a result, we have elected not to close on all of the.
Opportunities that we had during the quarter at this point in the credit cycle, we feel it is more important than ever for us to be prudent in our underwriting.
With that as an overview our business development effort I will ask all ex the provides additional details on our financial performance for the third quarter Alex.
Thank you Kevin as I review, our financial result, I will admit my discussion to just somo more significant items in the quarter.
Beginning with slide five I'll start with our net interest income, which totaled $816.3 million compared with $217.2 million and the preceding second quarter.
The reduction was primarily due to a 1.4 million dollar sequential decline in our accretion income.
Our net interest margin declined by six basis points to 30.25%.
On a core basis, excluding purchase accounting adjustments, our net interest margin declined by only two basis points.
This reflects continued moderation in the rate of compression in our net interest margin that we have experienced.
The small decrease in our core net interest margin was due to a one basis point decline in our core loan yield.
Which exclude accretion income.
The decline in core net interest margin reflects variable rate loans repricing downward as well as a lower rate on new originations and are declining interest rate environment.
As Kevin indicated all year, our cost of deposits was unchanged from the prior quarter at 1.62%.
While we saw a small bump in the average rate on time deposits.
This increase was offset by a 7% decrease and average balance of time deposits.
We also recognize on anchors and the average balances of our demand deposits.
Both interest bearing and noninterest bearing.
As well as savings account.
In particular.
Average balance of interest bearing demand deposit increased 12%.
Reflecting growth in the money market account balance.
Overall, the favorable was shipped in the mix of deposit is to lower cost deposit categories helped to mitigate the impact of the declining interest rate environment.
Now the expectation is for the interest rate movement has continued to remain volatile so will not make a production for the number of interest rate cuts.
As we did last quarter well, we'll continue to provide guidance is as to the impact of interest rate cuts.
Last quarter, we guided that with each 25 basis point decline in interest rates.
We expected and initial impact of approximately five to eight basis point laws reprice.
To a lower rate.
With a success, we're having with lower our deposit cost following the interest rate cuts.
We are now expecting on initial impact of five to seven basis point reduction, which with age 25 basis drop in the fed funds rate.
Now moving on to slide six.
Our noninterest income was $13 million up from $12.3 million in the preceding second quarter.
The increase recognized from the preceding quarter was attributable to a number of items that positively affected other income and fees.
In an effort to mitigate the impact of currency rate environment. We have expanded our interest rate swap program, which drove higher fee income this quarter compared with the preceding quarter, resulting in the increase in other income and fees.
Service fees on deposit accounts were up 6%, which is the second quarter and they'll roll that we have seven an increase in this area.
Yeah, we attribute this to the growth in our core deposits in recent quarters.
These increases were partially offset by our net gains on sale residential mortgages alone.
Got it declined by 20 to $62000.
As you may recall last quarter.
Sold $49.6 million of seasoned loans.
Our mortgage portfolio.
Which accounts for the higher gain in the second quarter.
Moving on to noninterest expenses on slide seven.
Our non interest expense declined 2% to $70 million.
We benefited from a full quarter impact of our.
Recent branch consolidation efforts and a benefit from the FDIC that eliminated our assessment expense this quarter.
We also had a 4% decrease in professional fees on a linked quarter basis.
Okay.
These cost savings were partially offset by a 6% anchor is in our salaries and benefit expenses from the preceding second quarter.
This was primarily due to an increase in our self funded the group insurance cost pitcher fluctuate each quarter based on the volume of insurance claims in a given quarter.
From an award standpoint, we continue to focus on controlling expenses related to our asset side.
And our noninterest expense true Evers asset ratio improved to 1.85%.
Going forward. We believe we are excellent position to continue to effectively manage our expense levels as really making progress with our growth strategies.
In particular.
We should see on reduction in our professional fees now.
We are in the final stage of our work with third party consultants.
As part of our C. so yes.
Now moving on to slide age Kevin already mentioned some of our key deposit trends.
So I would just quickly run through a few highlights.
Our total deposits increased by approximately 1%.
From the end of prior quarter.
With all of the growth coming in.
Our lower cost categories.
As a result of the improvement in our deposit mix.
Ill timed deposits is increased to 57.6% of our total deposits.
Paired with 53.3% at the end of prior quarter.
As a result of the strong progress we have made in this area, we saw our cost of deposits plateau.
The third quarter at 1.62%.
From a month to month perspective.
Our deposit cost went up in July , but then declined in August and September .
So we are clearly seeing the fruits of our efforts and expect this trend to continue.
We also continue to see positive trends in the repricing gap on time deposit reinsures or the delta between at the Cdis expiring rate and the renewal rate.
During the third quarter.
And for the first time in many quarters.
We repriced Cds.
At a lower rate and the maturing rage.
And this certainly improves our ability to manage deposit cost going forward.
Now moving on to slide nine.
I will review, our asset quality, which is a certainly another one or the highlights for this quarter.
We delivered second.
Second quarter of a significant improvement in our credit quality.
As our nonaccrual loss declined by $22.7 million.
And our criticized loans declined by more than $100 million from Dan Dolev prior quarter.
We cannot attribute much of the improvement this quarter to our proactive identification and management efforts.
As mentioned in our earnings release.
$26 million of substandard loans were transferred to loans held for sale during the third quarter.
We also had a number of payoffs of loans.
It should we proactively identified.
And have been working with the borrowers too.
Then off our balance sheet.
In addition.
We had a number of upgrade which contributed to the overall reduction in our criticized loan balance.
Oh asset quality trends over the past several quarters reflect a continuing of the proactive approach to credit management that we consider eight core imperative.
For the bank.
We have a rigorous process in place for identifying potential problem credits at an early stage that include enhanced covenant monitoring procedures.
Well, we identify a potential problem loan as read did with a number of large credits in the first quarter of this year.
We adequately reserved for the expected loss and develop an action plan for the workout.
And eventual resolution of each loan.
Good day economy is still being relatively healthy.
We have taken advantage of the aggressive posture that many banks have taken in their underwriting and pricing to manage many of this lower rated credits out over the bank.
We believe this proactive approach to credit management has resulted in improving trend.
In the overall health of our portfolio.
And the has helped us kip our losses at very low level.
We had $1.8 million in net charge offs.
Which included approximately $600000 from loans that were transferred to held for sale.
Net charge offs represented just six basis points off every as long as.
Well the annualized basis for the 2019 third quarter.
Well our year to date basis.
Our net charge offs amounted to four basis points of average long.
Our provision for loan losses was $2.1 million.
Reflecting our higher level of a long growth and charge off relate to note sales.
Moving on to slide 10.
Before I turn the call back to Kevin for closing remarks.
Let me provide some color on where we stand on Cecil implementation.
We are running parallel test and are on track for a successful adoption of Cecil effective January 1st 2020.
While our findings are still preliminary we wanted to provide a preview to our current expectation.
[noise] based on the current economic forecast and our portfolio balance.
At the end of the third quarter.
We would expect our allowance for loan losses to increase by approximately.
30% to 40% or approximately $28 million to $37 million to our existing allowance for loan losses.
This estimation is driven primarily by the higher reserve requirement under the CFO methodology for the longer duration, CRT and the consumer loans in our portfolio.
We anticipate there will be no material impact.
For our shorter durations Jan I loans as a result of the change from the incurred loss math it to a seasonal.
This in turn should result in a day one impact of reduction to our coal what Joe one common equity ratio of 20 to 29 basis points.
And a reduction to our tangible common equity ratio of 18 to 24 basis points.
We do want to make it clear that this estimates are still preliminary.
Well, we'll continue to refine our estimation three year end shoe incorporate any change in the economic outlook as well as other key drivers under the thesis on methodology.
With that let me turn the call back to Kevin.
Thank you all ex let's move onto slide 11.
I will conclude with a few comments about our outlook.
While the operating environment has been quite challenging this year.
Very pleased with how we have executed on our strategic priorities.
We have made significant progress on our deposit gathering initiatives improved our deposit mix and more effectively controlled our deposit costs.
We have been disciplined in our expense management for the first nine months of the year or non interest expense to average assets was 1.86% down from 1.89% in the first nine months of 2018.
We have continued to strengthen our asset quality and have kept our credit losses at very low levels.
And we have effectively diversified our lending capabilities. So have a more balanced mix of new loan production that is less reliant on CRT with stronger emphasis on loans with higher risk adjusted yields.
Our loan pipeline is robust going into the fourth quarter and we believe we will see another strong quarter of loan production to close out the year.
Through our continued execution on all of our strategic priorities. We believe we can continue to deliver consistently strong earnings and create additional value for our shareholders with that let's open up the coal to answer any questions. You may have operator, please open up the call.
Well now begin the question answer session to ask a question Chris store one on your Touchtone phone.
Using the speakerphone, please pick up your handset before plus any key.
Withdraw your question Please press star too.
At this time, we'll pause momentarily to assemble our roster.
First question comes from Chris Mcgratty.
Yeah go ahead.
Great. Good morning, Thanks to the question.
Alex Let me start with the margin in net interest income first tech.
Just want to make sure I understand the guide yeah. The compression with was a lot less than we thought this quarter.
And you guys seem like you're lowering deposit costs fairly fairly quickly is the guidance.
Five to seven basis points per cut is that off the reported number or is that off the ex the adjusted number excluding accretion.
It is our reported number.
Okay. So if we get it so we got this September archive, if we get October we should be somewhere kind of reported number should be you know down roughly 10 basis points or so.
Yeah, no cause a it can be accumulate Shiv all the July September as well as no October as we indicated once we have a 25 basis points reduction of the market rate the full impact a we expect to five to seven basis point decline in the net interest.
Margin. So we did see the six basis points reduction in the first core they did not have a much full impact of their rate card on September so going forward.
Again, we don't have a really a crystal ball how many rate cuts will have a we can't give your guidance. This not 25 basis point caught the full impact will be five to seven basis point decline in net interest margin and give you a little bit more color a we do have a good success on.
Deposit cost control and we have about 40% over a long as our variable rate loans and as our rate goes down we have a probably immediate no repricing on the loan side, but I think in a as part of that deposit cost control, which we already seen a improvement and the ring.
Your rate for the CD is actually lower than the existing portfolio. So we would expect to see some deposit cost control will mitigate or offs that little bit on the further compression on the loan yields side.
I understand, but but given that where the rapid succession of rate cuts in the fourth quarter might look on a comparable period, a little bit more often than what we saw this quarter. Okay.
In terms of the accretion expectation that number continues to kind of slowly decline as expected. What's the can your line is what's left to be accreted, you know, maybe how Cecil might in fact, the fact that and expectations for just the next few quarters for accretion income.
Sure there last quarter, we had a higher accretion income in terms of the although it was $8.7 million, what I mean last quarter as a kid share and Q3, we have a total of $7.3 million.
So there was about $1.4 million reduction on the accretion that's good to have an impact about four basis point.
Impact on the margin.
So going forward.
We have been talking in the past in the several call. The we need remaining the accretion Accretable Dallas is kit decreasing so I think it will be in the neighborhood of a $7 million in Q4 and it will continue to go down.
In terms of a seasonal impact.
In all of those net accretion income for the credit related component.
If that Omar is would then or a additional CSL related allowance for loan losses, those balance will be added onto the allow us for the seasonal impacts and we don't have that much of the a credit related.
Although created balances I think it is less the $8 million. We are in the final stage all the quantifying exactly a mild it will be a relatively small amount that will have an impact from the diesel implementation.
That's great that's great color. Thank you for that and one more maybe for Kevin and then I'll step back.
Can you can you offer your updated thoughts on the buyback you obviously, we're not active in the quarter I'm wondering if the expectations that you could resumed the program and maybe what would it take for the for the buyback to be a fully utilized thanks.
[noise] [noise], Walt or you know we have been very aggressive in our prior buyback programs, but Oh, we do.
No nothing we will be as aggressive as we used to be because a lot of factors or are being.
Monitored at this time.
And we will be opportune opportunistic as we said before so.
We are ready to buy back our shares when we believe a it is the right time, but.
We haven't had that time, yeah that and hopefully a based upon our performance of our stock during the past several weeks or a few months, we thought that the opportunistic time has not come yet.
Okay. Thank you.
Thank you.
Our next question comes from Tim O'brien Sandler O'neill and partners go ahead. Please [laughter]. Good morning. Thanks for taking my question first question for you guys happened to know the dollar amount of Cds that are maturing scheduled to mature in the fourth quarter.
Yes, we do have Q.
Next quarter total $1.7 billion.
All the maturing.
And actually rate for that.
1.7 billion is all about 2.35 for Stan and then you give you a little bit more call on the range.
Our recent offering all of those snake coolest T.D. and like a 12 month is under 2%.
So we'll see those in the renewal for those you did I will mature it will be repriced at a lower rate.
[laughter] and that's for the fourth quarter, the 1.7 billion.
Yes.
Oh, no Alex would you happen to have the first quarter much surety number also just by chance.
Yes, I do you have that is a $1.2 billion at a rate of 2.5% little bit higher.
Going forward.
Sure to 2020 and going for the Rage is 2.3 and 2.29, so it's a little bit lower Q2 2020. The dollar amounts in case, you need as well, it's under $1 billion and that should three designed a neighborhood over $1 billion its respective quarter.
Do you get a sense that there might be some opportunity to lower rates on money market poor and other.
Non term deposits.
Cure in this quarter.
Yeah, Tim as you recall in our bankers hall, or we have a higher deposit beta when the interest rate was rising in the earlier. This year. So that's why we had an increase on the.
The balance of the C.D. as well as a high.
Deposit cost.
I think when we are actually a in a reverse situation, meaning we had started with a higher deposit costs, but as the market rate goes down we take actually a strategy to lower our deposit costs gradually what I mean gradually in anticipation of the rate cut we have.
I would like a five basis point reduction and the also next time, we have an additional five and also when it.
A market actually cause we reduced in a small amount so gradually decrease those rate and that in a gradual reduction strategy has been in place for one or two quarters and now we see the fruits of those in the strategy and we do believe this will contain.
Thank you too.
Our top priority or strategy too.
Control, our deposit costs going for it, especially if the market rate goes down I think a we do have a ruling for further reviews and that is I think relatively banco hopes and the deposit position is better than our peers.
Thanks for that color and then switching gears looking at the loan fundings Cnine loan fundings 283 million this quarter.
I have a sense Alex of.
What the.
[laughter] how much the dollar amount of that that was funded with active floor at current level or if any.
Were you able to impose active floors on some of that production.
Yes, we do have a policy to impose those no floor.
We don't have that much we have only a small amount of those variable rates.
Well I think in a $400 million, although actual floors in place and the rate that we actually had about $80 million origination was relatively low because we did have a C and I.
And the warehouse loan portfolio.
While we are actually thinking for the opportunity to put in place a floor or kind of a kick in but again, we don't have much.
Dollar volume that is subject to this no slower rate at this moment and just just to add this is Peter I think on a new originations and particularly I don't think that theres many opportunities to put the floors and as we are looking at them. So I think will we will be opportunistic there but in terms of originations are I think our most of them.
Already being priced without the floors.
So it's fair to say that.
Selling feature for you guys to generate that businesses.
Not imposing floors like some other folks.
Seem to be doing or having success doing an app that allows you to [noise].
That's something that is in demand in the marketplace.
For your clients is that fair.
Right I think for the types of originations that we are pursuing right now I think there are less less opportunities to put floors, but we will stick those opportunities as we move forward as well.
Right and then last quick question, just a point of clarification on the new [laughter] NIM guidance with a rate cuts is that a instantaneous kind of effect is that how you're looking at the five to seven basis point compression or is that extended over 12 months.
Per card.
Sure Thats, a full cycle of the repricing, our deposit and I don't think it is a reprised.
I know it takes a year it will be more in a quarter or true for that timeframe. We would expect type of margin compression about five to seven basis points great. Thanks for answering my questions appreciate it.
Good thing.
Thank you.
Our next question comes from Matthew Clark Piper Jaffrey go ahead.
Hi, good morning.
First question just on the core loan yields down one basis point.
I was wondering if there's any prepayment fees in that number I'm just trying to square.
Repricing.
That occurred during the quarter from the fed cuts and the new production that winds down.
Think about 74 basis points.
[laughter].
Yeah, I don't think you know yeah, you're correct, we have oh about a one basis point reduction.
On the.
Yeah that is from.
The reduction of.
Our loan yield the rest is a combination of investment securities.
And others and there was no about prepayment impact it was a relatively small about in the neighborhood of about $1.5 million I don't think it does have a impact substantially on the loan yield as well as a low net interest margin.
And let me let me give you any color on the average rate on new loan production in the third quarter, which was a somewhat lower than the rates that we had into second quarter.
I I think the lower overall rate environment, any and a flattening of the yield curve and a larger volume of warehouse credit lines in our new loan production contributed to a lower average rates on our.
New loan originations into <unk> in the into third quarter, which was 4.72 per se.
Okay, and then [laughter] on the expense to average asset ratio I think previously you provided guidance on that.
At least a range is.
Our expectations for the upcoming quarter I think last quarter you targeted 185088, you did 185.
At least on a reported basis any any update there at least for the upcoming quarter.
With the savings on the professional side.
Yeah, Let me give you a little bit more details on the Q3 is a non interest expense component and we did have a FDIC CSS men that this quarter. We have a zero balance is a reason for that was a we've got the for credit we offset is completely.
From the onetime nature of the FDIC assessment, so in Q4 and going forward because that credit was intended for the small banks that have happened to be under a 10 billion, but we were able to clients for that so I don't expect Q4 door snow.
FDIC feel sat someone a benefit will continue so.
Although quarterly basis about 1.4 $1.5 million, we have that should it be in Q4.
I'd also Q3, we did have a kind of unusual increase on the salary and benefit coming from the.
Insurance claims we have a self funded in the insurance claim and it happened to be in Q3, a large claims came in and we have about equal amount of an increase on the salary and benefit expenses.
So with that and I would expect to have a professional fee a will slightly decreased as I indicated on the Pete.
Prepared remarks cease all is are we are in the tail end undergoing for 2020, a little I have a better.
Efficiency or expense controls, so with that and all I would it still a chip those same guidances Oh in terms of a net interest expense over evers asset and be train, 1.5% to 1.88% range.
Okay, great. Thank you.
Thank you.
Next question comes from Gary Tenner D.A. Davidson go ahead. Please.
Thanks, Good morning, I'm wondering just to.
Ask a follow up as it relates to the margin and kind of a third quarter delta with the fed rate cut so you'd guided to a decline of five to eight basis points. You came in at six on a GAAP basis, but there was four basis points less benefit from accretion. So really it seemed like you outperformed the guidance and your guidance for the fourth quarter didn't really change change materially so.
I'm just wondering is your guidance for the fourth quarter does that include the full.
Sort of projected benefit of the C. D. Repricing gap that you may have in the fourth quarter or would that act as an offset to that five to seven basis points about.
Yeah, five to seven basis point, it does have an impact from both loan side as well as a deposit side not the deposit cost reduction will definitely offset.
The full impact of the.
Loan yield compression.
So the five to seven is net over the C.D. repricing.
Yes, okay.
Okay.
All right, Thanks, and then.
You have the average mortgage warehouse balances for the third quarter.
[noise] ever isn't warehouse mortgage.
Yes are we do a half.
And I Miss it.
Okay got it averaged problems for the quarter is $208 million and ending balance is $432 million right.
298.
Okay.
People to 88.
And then after the average balance what was the average.
Well see happening over the second quarter or do you, averaging close to 47 and ending balance was three over $1 million.
Okay.
Perfect.
I think that covered my questions. Thank you.
[noise] next question comes from David Chip Verine Wedbush Securities go ahead.
Hi, Thanks, a couple of questions starting with.
If I know your guidance for 2019 for loan growth is 2% to 3% and that you know assumes or I should say incorporates an elevated level of payoffs and paydowns as we look out to 2020, and assuming that you know payoffs and paydowns kind of trend back to a more normalized level should we think about.
Loan and deposit growth more in the mid single digit a neighborhood.
So you're talking about 2020.
That's correct.
20, 910, [laughter] well I I think it is a little premature to to give you any meaningful guidance for our 2020 loan growth or deposit growth, but hopefully the growth that we will have in 2020 will be bigger than what we will have in 2019.
So in 20 910, we are targeting at 2% to 3% loan growth and hopefully we will achieve higher growth done that in next year. So.
I I think mid mid or single digit Ah could be a reasonable.
ER expectation at this time, which can be a further finalize as we get closer to the era.
I appreciate those comments and then shifting over to credit quality overall credit quality you know it looks very good I was curious about credit quality in your SP. A portfolio now that you had been holding onto those SBO SP loans, you know for a few quarters now where they are performing as expected.
Yes, I think that they portfolios as it's actually performing just in line with the rest of our portfolio. So we're not seeing any.
Additional stress or anything like that there so far.
Great. Thanks very much.
Thank you.
Again, if you ever question. Please press Star then one.
Our next question comes from Chris Mcgratty KBW go ahead.
Great. Thanks to the follow up.
Alex.
With respect to that the whole funding structure. I mean, you do have six or 700 million of FHLB advances I'm interested maybe your thoughts and whether.
There might be something to do there to repay the higher costs and you know maybe strict investment portfolio or how do we think about that dynamic of next several quarters, given where rates are.
Sure you know I think we gave them we have a some success and a loan portfolio increase especially comes from the core.
Loan on the Cnine and we'll like to maintain sufficient liquidity or funding sources. Obviously included in the core deposit that we have seen a 1% growth that is a good.
But we also reduced the broker deposits substantially for this quarter.
And FHLB advance is not our primary sources of funding for our long growth and the crown level is kind of adequate but in a wall make sure you know a real optimizing the cost of though.
Feature advanced fees, because sometimes a we're comparing this with a core deposit is a and others. So we'll be much flexible. So I don't expect substantial reduction again, given our growth potential and the lending side I will will be very mindful pain.
Oh.
If we see a success in our deposit gathering from our core the pod.
Okay, Great and then same for them the consequence to be the securities, but probably stays about at current levels in terms of you know billion eight or so 60% of assets in like that.
Yeah, you know given to recycle I don't anticipate substantial change on the high investment portfolio.
Okay. Thanks again.
Thank you Chris.
This concludes our question answer session.
Turning the conference back for the management for any closing remarks.
Okay. Thank you once again, thank you all for joining us today, and we look forward to speaking with you in three months for the next quarter.
So long.
[laughter] Conference has now concluded. Thank you for attending today's presentation you may now disconnect.