Q3 2019 Earnings Call

Good day and welcome to the independent Bank Corp. third quarter 2019 earnings call and webcast.

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Before proceeding let me mention that this call may contain forward looking statements with respect to the financial condition results of operations and business of independent Bank Corp. actual results may be different factors that may cause actual results to differ include those identified as well what part what Form 10-K .

<unk> earnings press release.

Independent Bank Corp. cautions you against unduly relying upon any forward looking statements and disclaims any intent update publicly any forward looking statements whether in response to new information future events or otherwise.

Please note that during this call. We will also discuss certain non-GAAP financial measures as we review independent Bancorp's before about.

These non-GAAP financial measures should not be considerable placements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings press release, which contains reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional and from.

Nation regarding our non-GAAP measures.

Also please note that the of that is being recorded.

I would now like to turn the conference over to Chris or at least President and CEO . Please go ahead.

Thank you Andrea and good morning, everyone. Thank you for joining us today.

Like I'm a company today by rockers own our Chief operating officer, Mark <unk>, Our Chief Financial Officer.

Our string of record quarterly performance continued in the third quarter.

Well, we think M&A related charges.

Loan sale gain operating net income grew to $51.7 million or $1.50 cents per share.

Which was a bold above both prior quarter and prior year results by a healthy margin.

Our year to date basis operating U P. S is up 24% over the prior year [laughter]. The stars aligned this quarter as we benefit from several advantageous items Mark will cover shortly.

The strength of our underlying fundamentals remains very much impact quarter was marked by solid loan generation, which was masked by ongoing run off in various acquired loophole portfolios, along with elevated pay downs and juice by the low rate environment.

Continued strength in our demand deposit generation.

Across the board gross all major fee income categories.

Continued investment management success with assets under administration rising nicely to.

$4.5 billion.

Lower expense levels benign credit quality trends strong operating our away you said our ways.

And ample capital levels with tangible book value per share rising another 4% in the past quarter alone.

So another solid quarterly performance.

Our assimilation of our largest acquisition did they Blue Hills Bank is proceeding well integrating acquired banks is a comprehensive ours is borne out by our proven track record over the years. Our combined revenue generators are now hard at work pursuing the added business opportunities presented by this merger.

The more expansive mortgage platform brought overbuy Blue Hills I spent a home run in the current freight environment.

As I know a $11 billion plus bag, we are equally focused on ensuring that our infrastructure keeps pace in order to accommodate our bigger size and growth opportunities.

This will require ongoing investing at a cost us won't matter.

And evolve deepening our risk management resources amplifier side to security efforts, keeping measured pace that digital space at fortifying our overall operating platform.

It's always well be attentive to bottom line considerations, while keeping medium and long term value creation in mind.

Near term, we continue to maintain momentum with initiatives designed to sustain our progress. These include we recently launched or credit card offering aimed at retail high net worth and small business customers.

Oh, we have committed openings of two new branches and targeted markets.

We're expecting a soccer Salesforce kit sales force to our retail businesses to enhance our marketing sales and revenue and service efforts, we streamlined our home equity application process and we've completed conversion of a major upgrade to our investment management business system.

On the economic front, we continue to monitor the increasing risk associated with trade tension Brexit and a tire tighter labor market.

In addition, we've seen some signs of a slow down within the nationally to kind of data. Despite these challenges we continue to operate with a robust economic environment nationally. The tenure expansion is continuing to the back of a strong labor market with unemployment, reaching a 50 year along with September at 3.5% Q2, GDP is estimated at about two.

For sat down from 3.1 in Q1.

Importantly, locally the Massachusetts unemployment rate is expected to hold steady at an incredible 2.9% with an estimated state GDP at 1.4% in the second quarter.

Well, we have a lot going going on at our company remain laser focused on the customer this extends to our price you're right ease of access service quality.

Kind of how does the stakes your keep getting raised here, but we feel confident we have the scale market presence and brand to sustain our success.

Well it gives us much confidence and the is the undying commitment in energy of our Rockland colleagues and their desire to excel.

They bring such passion and enthusiasm to our customers, which has led to our superior customer satisfaction service quality competitive rankings.

All of our success as a result of my colleagues quest for excellence and for that I'm very grateful.

That's for my comments Mark [laughter]. Thank you, Chris I will now cover the third quarter results in more detail.

GAAP net income of 51.8 million in diluted EPS of <unk> dollar 51 in the third quarter 2019 reflect increases of 69% and 70% respectively from the prior quarter's results as the prior quarter included 24.7 million in pretax merger and acquisition expenses associated with.

The Blue Hills acquisition.

Excluding merger and acquisition expenses in both quarters as well as a gain on sale of residential loans in the third quarter in conjunction with the company's balance sheet deliberate strategy and their related tax impacts not income and diluted EPS for the third quarter were 51.7 million in $1.50 respectively. Both.

New records for the company.

At going Chris his comments everything seemed to fall our way this quarter as the adjusted results reflects 6% increases from operating income and diluted EPS in the second quarter.

These record earnings results drove a 1.77% operating return on average assets and fueled in additional increase in tangible book value per dollar 36 in the quarter, bringing the September Thirtyth 2019, tangible book value per share to $33.36.

This represents a 21% increase over the prior year level inclusive of the two acquisitions completed over that period. In addition return on average tangible common equity on an operating basis was 18.1% for the quarter.

With our continued strong capital growth modest balance sheet broke and industrywide pressure on stock valuations, we approved a 1.5 million shares of stock repurchase program yesterday.

Our long term views regarding prudent capital management remain the same and the buyback program is another tool to effectively manage capital we will only buy back shares on an opportunistic basis, if and when the stock price and overall impact meets our financial criteria.

Shifting back to the third quarter results not loans decreased slightly in the third quarter due to strong closing volumes being offset by heightened payoff activity.

And as noted last quarter this payoff activity as being further accelerated by anticipated run off of certain Blue Hills loans.

What the majority of payoff activity being driven by refinance opportunities and accelerated exit events, such as sales of properties within the commercial real estate category that loan segment contracted during the quarter.

On that strong demand continued to drive growth in the commercial construction and commercial and industrial portfolios.

Further evidenced in robust new business activity the approved commercial pipeline rose to 275 million as of September Thirtyth 29 team.

On the consumer real estate side, the small net reduction in balances due primarily to a couple of factors, including the current shape of the yield curve shifting home equity demand to more cash out refinance mortgage opportunities.

That was such that shift in demand in the company's strong mortgage production is reflected primarily in its mortgage banking income results versus balance sheet growth as the majority of production continues to be sold in the secondary market.

On the deposit side relatively flat core deposit growth is also reflective of strong new deposits sale activity being mitigated from expected run off in certain pockets of the higher cost Blue Hills Bank acquired deposits as well as a couple of larger single customer outflows.

From a liquidity management perspective brokered deposits obtained over the last two quarters were used to successfully replaced maturing Cds within the Blue Hills deposit base as well as to significantly reduce the company's overnight borrowing position with the federal home loan bank.

With minimal impact from the mix of deposits in the current quarter. The overall cost of deposits remained relatively consistent with the prior quarter at 50 basis points and increase of only one basis point.

On the heels of both July and September Federal Reserve fed funds rate cuts. The net interest margin of 4.03% for the third quarter reflects a six basis point decrease from the prior quarter.

And as a result of the strong loan payoff activity noted previously margin compression was mitigated as loan accretion income on acquired loans remained at an elevated level with approximately 3.9 million recognized in the third quarter.

Shifting gears to non interest income Oh, sorry to noninterest items.

Included in third quarter noninterest income was a $1 million gain attributable to the de leverage sale of 67.2 million of Blue Hills banks acquired residential loans.

Excluding this gain third quarter noninterest income of 30.9 million reflects a 7.7% increase from the prior quarter as every major fee income category increased during the quarter.

Some key items to highlight for the quarter include strong business momentum driving increases in deposit fees ATM and interchange income.

Another very strong quarter of originating new assets under management combined with a significant short term single customer custody inflow of 200 million drove assets under administration in the wealth management business to 4.5 billion.

As such fee revenue for the third quarter was consistent with Q2 results. Despite Q2 benefiting from seasonal tax preparation fees.

And lastly for mortgage banking income and loan level derivative income increased significantly over the prior quarter as both line items experienced some level of outsize benefit from the rapid decline in rates during the quarter.

When excluding final merger related expenses incurred in the third quarter as well as the second quarter total noninterest expense of 66.8 million for the third quarter of 2019 represents a 2.2% decrease from the prior quarter.

The decrease as a reflection of the company's full realization of cost saving initiatives associated with the Blue Hills acquisition as well as the following key differences quarter over quarter.

FDIC assessment expense was zero in the third quarter due to credits received as a result of their research of the reserve fund, reaching its target level at which point small bank credits were to be allocated. In addition, the company has an additional $2 million in credits available to be offset against future quarterly FDIC.

Estimates, assuming the fund reserve level stage stabilized.

But then the other expense category a reminder, that the prior quarter included a net loss of approximately $1.5 million realized on a 47 million dollar de leveraged security sale.

Whereas current activity, whereas current quarter activity included in approximately 400000 dollar write off of other real estate owned as well as increased advertising and charitable contributions.

The combination of strong fee income and contained expense management further reduce the operating efficiency ratio to 49.3% for the quarter.

Asset quality metrics remained strong during the third quarter. The company was able to successfully settle a previous charge off claim resulting in a $1 million recovery.

With minimal other net charge off activity for the quarter and stable loan levels no provision for loan loss was needed. In addition, nonperforming assets remain consistent with the prior quarter out approximately 48.2 million or 0.4% of total assets.

We continue to move forward with implementation of the current expected credit loss or seasonal model.

We are performing a full parallel run of the seasonal model in tandem with the current incurred loss model using September Thirtyth 2019 balances.

While it is too soon to disclose Cecil model outcomes apparel, and Ron will help us finalizing document our seasonal model over the next couple of months.

I'll now provide an update on guidance for the fourth quarter.

Anticipating minimal changes and the competitive and economic landscape.

<unk> loan growth is expected to remain relatively flat while deposits are expected to grow modestly in the fourth quarter.

Regarding the net interest margin, there's certainly a couple of moving pieces first when adjusting for a more normalized level of loan accretion to the third quarter margin would have been in the mid three ninetys range second what the full impact of the September rate decrease assuming a normalized loan accretion level.

And assuming no other fed funds decreases in Q4, the margin is expected to where trite down to the low three ninetys for the fourth quarter.

And to reiterate last quarter's guidance any future 25 basis Fed reserve rate cut would expect to further reduce the margin prospectively by approximately six basis points.

Excluding the Q3 gain on sale of loans fee income is expected to decrease in Q4 when compared to Q3.

The degree to which depends on how long mortgage banking and swap income remain out there elevated levels, which is certainly hard to predict.

Although the rate environment is expected to keep early quarter mortgage and loan level swap demand strong at this point, we do anticipate the activity in those categories to eventually taper off later in the year.

Also items, such as BOLI death benefits in debit card incentives would not expect to be recurring items in the fourth quarter.

Excluding merger related expenses incurred in Q3.

Noninterest expense is expected to be flat with the third quarter levels.

Provision for bad debt levels should continue to reflect general allocations needed for organic loan growth with no immediate significant credit concerns noted.

Lastly, the tax rate is expected to remain around 25%.

Includes my comments, Chris [laughter]. Thank you Mark and we are ready for some of question [noise].

[noise], we will now begin a question and answer session.

You asked a question you May Press Star then one on your Touchtone phone.

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If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And our first question will come from Mark Fitzgibbon of Sandler O'neil. Please go ahead.

Hey, guys. Good morning, good morning, Mark.

First question I had is on your funding costs. I mean, you guys have done a remarkable job holding your funding costs, particularly deposit cost down are you seeing any pressure at all out there on any particular categories.

No I'm Mark I think what's what's I'm optimistic to see is certainly the rate environment is helping to drive down some of the promotional pricing on the C D base.

In particular to our situation, we're continuing to have a transitionary.

A couple of quarters, where where we have some of the Blue Hills deposit base and funding base roll off and we are redeploying that that money either back into inter brokered Cds or to the extent from a liquidity perspective, we don't need that we may just some some level of sort of short term.

Funding wholesale borrowings.

So I think in the immediate near term we're not seeing.

Significant challenges in the market in terms of <unk> pricing from a funding side and I think we'll be able to to hold the line pretty well on the deposit base.

Okay, Great and then.

Certainly applaud the buyback given your capital position in a desire to support the stock. If you know we have pullbacks in the market, but I guess I'm curious.

How do you think about tangible book value dilution. It strikes me that the earn back of tangible book dilution would be fairly long with your stock trading at the valuation level than it did it currently is can you help us thinks about that yeah, absolutely in to that point that the decision to put this in place is really an opportunistic decision.

Should or shouldn't in the event that our stock price is at a level that we think it makes sense, obviously managing initial tangible book value dilution and earn back a expectations I think to your point given that the current stock valuation today.

It could be safe to say that that that would infer there's there's more tangible book dilution than than we would be comfortable with so this is really just to provide an opportunity should we see.

The price trading maybe at levels, we were seeing earlier in the year or as we continue to grow capital at the pace. We are and have bought us balance sheet growth. This may provide an opportunity in the future should the economics makes sense.

I'm just curious why not just boost the dividend a bit and as a means to deploy some excess capital.

Yeah, we typically.

I don't view that as one of our.

Our most opportunistic deployment of capital I think we feel the buyback processes is a better longer term solution.

And give us a little more flexibility to to act when we think it's prudent.

I think there's not a general sort of.

Conservative or sense is that we don't want to increase the dividend unless you're pretty confident we can maintain that dividend well into the future.

Got why doesn't it make it doesn't make a ton of increase it.

More than typical to sort of drawdown some of the capital then sort of bring the dividend back on line.

And that's similar to my call and it certainly won't preclude us from increasing the dividend the future Mark we typically evaluate the dividend on.

Annual basis, and as you've no I have increased it nicely in the last couple of years.

And based upon a current earnings growth rate, when we make that evaluation and the first quarter.

We would likely come to the same conclusions so.

Does not include <unk>.

I'm sorry.

Just does not preclude us from increasing the dividend one we revisit that decision in the first quarter.

Okay, and then I'm curious are there any particular lending niches that you're sort of you know watching closely or maybe dialing back given the environment that we're in today.

Yeah, I'd say markets, it's been pretty consistent over the last few quarters in terms of constantly assessing.

Our our underwriting standards and looking for the right credit spreads I wouldn't say there's.

As niches in particular, a that that were.

Heightened heightened concerned about but as you can see in our in our overall balance sheet growth. We continue to stay very disciplined theres a lot of great opportunity out there that the pipelines very strong we continue to have very good success.

In our corporate banking initiatives and our asset based lending programs. So so we still think there's there's good opportunity out there, but we continue to be.

He disciplined ensuring that all credit metrics are are aware, we were we need them to be I would say that I mean, they've done that that high end multifamily I mean, we do watch our concentration there and.

We we see a lot of that going on around here. So no. We haven't we out we have our ice pillsbury for that I'd say.

Okay, and then lastly, Chris you guys, just sort of pretty involved with M&A and I'm curious, whether you feel like M&A chatter sort of picking up slowing down or or maybe about the same [laughter] I'd say as Oh I thought the sample a lot of a lot of chatter and I don't count on anything until something actually lands on my desk.

And we certainly are super.

Now we've been on a <unk> instead of our trend is a one every year and a half herself in the last.

15 years, and now I would hope that we continue but I've, but you never really now so we just focus focus right now as I've really crossing that 10 billion dollar is really.

Firming up our operating basin.

Making some infrastructure investments and.

Getting ready for the next opportunity.

Thank you.

Our next question comes from Dave Bishop of D.A. Davidson. Please go ahead.

Yeah, good morning, gentlemen.

Good morning day morning here is.

Maybe a circling back to the marks question.

You know every so often up.

Right.

Oh, there's some acts about maybe just the supply demand balance maybe in the greater Boston or Boston market. There just curious what you're saying.

Within that market in terms of the overall, especially on the commercial real estate.

Yeah, I think to Chris is point certainly.

There's pockets of of real estate deals, where there's an element of of concern over valuations and looking at making sure. We feel good about debt coverage service ratios.

So so were certainly.

Heightened in terms of understanding that dynamic in today's marketplace, but I think in terms of opportunity. We continue to see of plenty of opportunity in that market. We've we've continued to.

Expand and bring on a couple of new officers that have good ties in that market. So I think there's still opportunity. There. We just continue to be very selective over which ones to go after.

Got it and then from a pricing perspective, or I guess interest rate risk perspective, any sense in terms of loan portfolio. How many are at floors or maybe hit floors within the next.

One or two rate cuts.

Yeah. So so just a reminder, there David what we've done over the last couple of quarters is put in place a macro level hedge program.

To address obviously, the the primarily our swap book and other variable rate loans. So as of September Thirtyth, we have $750 million of hedges available to protect on rates going down.

552, 600 million, depending on a couple of basis points of where LIBOR is today are already in the money and I've already provided protection on further rate cuts. The other 150 to 200 million will provide coverage over another another cocker too so on the commercial book.

We feel very good about how we've been able to effectively mitigate.

Much of the risk for rates going down on the consumer side. We've also been very.

Very successful in getting floors on our home equity a generation in new home equity loans. So those are already originated with floors on them that fail will will vary depending on on the time and the rate environment at which they were originated but there's also good protection on that portfolio as well.

Got it then one final question the FDIC assessment credits that you had.

2 million available that.

That should we see that offset the.

Or flow into 2020 before being used up some midyear, but you're right. So assuming the reserve stays at that level with the credits are available to be utilized we've been running out about a 752 800000 per quarter.

<unk> expense charge so to your point if you just do the math that wouldn't be able to absorb two and a half quarters worth of expense.

Great. Thank you.

You're welcome.

Our next question comes from Laurie Hunsicker of Compass point. Please go ahead.

Yeah, Hi, good morning.

Turning Lori how are you great. Thanks, Mark just wanted to go back to your comments around margin. How you were talking low 390 range.

For fourth quarter can you just share with us, but your accretion income assumption is for fourth quarter.

Sure. So so for the fourth quarter that range that I provided would assume a sizable decrease in accretion income.

It is a tough number to predict as you can imagine.

But as we as we guided and I believe talked about last quarter.

I continue to sort of peg, our our normalized accretion level in the in the two to two went out $1 billion on a quarterly basis.

So should that level come in that range that would equate to to the low 390 margin that I got it got it okay that makes sense and then I guess.

In terms of accretion for full year 20.

How should we be thinking about that because that does run down pretty quick.

It does you know I think.

It will certainly be dependent on payoff activity and that's been the biggest driver over the last couple of quarters. So a little of that will be predicated on whether this environment continues to foster accelerated pay off and run off activity, but certainly you know my my guess.

Yes would be going into 2020, we should certainly see the accretion income come down to sort of those normalized levels that I just alluded to.

That were included in the fourth quarter guidance.

Okay, all right I mean, if were thinking Oh I'm sorry go ahead I was it has its tough to get through an actual number just because of of the payoff volatility chair, yeah that makes sense I met and I guess.

If we look at core margin. So if I just if I take your fourth ran strip that out.

Oh, the Christian commitment Threeeighty. Its he had 15 basis points just have accretion income if if we think about just that 388 margin as we head into next year, what the shape of the yield curve can.

Can you help us think about Directionally, what margin would look like if we asked them to markets.

How should we be thinking about that or whatever I should ask what are you assuming how should we think about that sure. So just just to reiterate.

The earnings guidance outlook.

Our 25 basis point cut currently we anticipate that to have about a six basis point reduction in our overall margin.

So.

You know I think that could could vary a little bit to the extent you know certainly we have.

New production coming on at lower rates versus what some of the run off as a trading off at so that that could skew that number a little bit a basis point either way, but for the most part.

With the hedges, we have in place and current assumptions over where we'd be able to move the needle on the deposit side, we estimate about a six basis point reduction with each cut.

That's helpful. And then that you all mentioned two new branches when when do those open and.

Are you gonna be doing deposit specials, how should we be thinking about that in terms of.

Deposit growth.

Also on the expense side.

Hi, laureates, Rob Hey, Rob how are you.

Oh, the two branches one in Needham and December is our current expected open date. The other is a first branch in the city of Worcester.

Back to open that.

In January .

And as we've talked about over the last handful of quarters.

We are adding staff and the city of Worcester and expect to continue to grow our wister operation, which will include.

Likely Oh, hopefully a couple of retail locations and the next 12 to 18 months.

But first one there will be in January in terms of deposit growth expectations from those two new locations.

We have very modest assumptions when we think about the first couple of years of growth and a branch shows not really going to change the trajectory of our deposit growth meaningfully from a total company perspective, because we focus on building out relationships. We will open a new branch with a couple of Dipal.

As it promos bolt rate driven promos as well as some cash offers.

But spend more time getting ourselves and better than the community and finding the right staff that have connections in the community to be able to really generate relationships.

And so I'm sorry, so when you think about just how those might growl over the course of the next year or you're projecting that you could maybe get 50 million per each one.

Given that the prime assets or are you thinking has that how should we.

Would it would be meaningfully less than 50 million per location in the first 12 months.

And as we get going back a little lumpy use our Boston location as an example.

We just exceeded $20 million an hour Boston location.

And that's been open for about 10 months now.

Perfect. Okay. That's helpful. Okay, and then on expenses I, just wonder Mark if you can just take us back through on the other other expenses to 17.3 to 6 million.

No that there was the 400000 dollar Oreo was there anything else.

Anything else there that's onetime in nature.

I like I'm missing something.

We had.

Compared to the second quarter, a couple of elevated items such as charitable contributions.

And advertising was up a bit but nothing nothing specifically that was unusual or Oh, I would consider sort of onetime.

Okay, and and how much was the charitable contribution.

Ah that was 250000.

Catherine.

Pretty much right, Okay, Great and then Chris just last question for you and I've asked you guys. That's why you certainly publicly said that you would like to be that's 20 billion at some point can you just help us think about you know even with T cell coming how your how you're viewing M&A and in light of your your west or expansion, how you're thinking about that.

Yeah, well I think for the for the Westar only talking about west or first of all we've had our eyes out west her for well over a decade.

Hi, as we thought it was even before came into Volvo very attractive and before that low socks and they very attractive.

Market as well, we just weren't willing to go in until we really felt comfortable we had the team to do it and.

With the hiring and Mike Crawford to.

Six nine months ago ally.

Over a year now allow time buys a he is building out a team across all our business lines and that's that gaining some nice momentum with our retail branch opening up in December that I think that really is going.

And as a bode well for us so over the medium and long term on the acquisition piece, how it's it's one it's a very if you take a look at our last 15 years and we first are really has developed a formal M&A strategy back in 2000, and maybe 2004 or is it was all about being opportunistic because.

We really had no known competency and you had.

Sovereign bank, North and citizens, having just major apparatus snow mopping up bags.

And so we got our stars are very modestly with found the COO and found that.

Analysts and followed by Slades ferry and we've built upon our expertise our performance give us some good currency in 15 years later debt 10 bank acquisitions to non bank acquisitions.

I looked at river your Amir Lora, and say held whose acquisitions are pretty critical to achieve scale that we need today to survive, but instead of in this highly regulatory very good regulated environment.

So so when I look now in 2019 on the cost for 2020.

Hi, I can't do anything, but say that we're still opportunistic I mean, we have because banks are sold not bought I think I don't go out on Alam by predicting that the secular trend that's been underway for 35 years of bank acquisitions, both nationally regionally will continue.

There will be opportunities.

And with our currency I expect to be at the table and I would very much like to be there and and even less look at the list as a publicly traded companies yourself, It's a limited number.

Each of them has started a unique set of positioning in story and I have no predictions as to which one will raise their hands first but I hope for there and I hope, we could strike a deal and I hope I do firmly believe.

That this region would would like a bank in that.

The.

15 to I said 12 to 18 years ago and set up that that 15 to 20.

That is a ace no really solid as we are today, a very visible more visible alternative to the big banks that pretty much can offer anything that big banks can we exception that maybe some.

Complex international stuff.

So I don't have any specific insight for you I can just lay out the vision as I just haven't I was a long winded sorry about that.

Thank you Chris I appreciate it.

Our next question comes from Collyn Gilbert of KBW. Please go ahead.

Good morning, guys.

Aren't on Han [noise].

Give us an update mark on where the sort of the legacy Blue Hills portfolio stands and maybe what you're sort of anticipating in terms of potential pay off still to come in the near term and maybe what the corresponding yield is of that just trying to get a sense of how far into this process.

<unk>.

Sure. So so in the third quarter.

The the payoff activity across the board from Blue Hills was around 90 million so similar to what.

We I believe we talked about in the prior quarter, we were anticipating in about 100 million of continued payoff activity.

And going into the fourth quarter, we still anticipate.

Some more pay down and payoff activity associated with that portfolio.

And.

As we look at it today I would I would gauge it's in that that $75 million range again going into the fourth quarter and now this isn't primarily.

On the commercial book side, the residential portfolio as you know we had already carved out.

The portion that we were looking to sell as part of the de Levered strategy last quarter that sale executed in the third quarter and those loans are off the books that portfolio is naturally go into or try just with with normal paydown activity.

And as were continuing to put most of the whereas we're continuing to sell most of their production balance sheet additions on the residential side would would be somewhat limited. So that that portfolio were just naturally attrite down and that'll be combined with some expected.

Hey off on the commercial book as well going into the fourth quarter.

Okay. Okay. That's helpful. And then just in terms of you know I.

Absolutely understand and appreciate volatility within the mortgage banking line in the derivatives line and hard to predict going forward, but can you just kind of give us an update as to where you've expanded or the resources to support each of those businesses. I mean, you know we knew obviously with Blue Hills. They brought a great platform and that was going to be kind of the focus for you guys.

You've been building out the commercial strength as well on your side to just kind of sort of give us a little bit background as to what the resources look like now that are supporting each of those businesses going forward.

Sure I call and it's Rob and healthy I'll speak to mortgage first and then I could talk little more about commercial and I can add color if needed.

On the mortgage side in terms of the actual sales staff, we essentially doubled the sales staff will lessen double went from just over 22 about 40 and and total number of originators.

Blue Hills former originators.

We're much more heavily geared towards self sourcing.

And not necessarily partnering with the branches on the existing deposit customer base like legacy Rockland Trust.

While it offers is often do so we had a combination of increased lows with access to more CL wise, because the Blue Hills.

Loan originators leverage relationships with real estate agents attorneys and and alike. So a lot more of their production is coming from a non customer perspective. So we've been able to combine those two not dilute the combined production because we're not fishing off the same.

[noise] peers, and really leverage what we've been able to do so total production on third quarter was 275 million.

Healthy record for for Us certainly.

On the support side, we've obviously had to add to the fall more Blue Hills operations team just to deal with a combined volume.

But the scale effects in the mortgage business are very strong and so we've only at this point added a handful of individuals we have a couple of open positions pending.

But you know it's the to the tune of about six or seven I think in total and we've had to add to the operational.

Team to support this increase production level.

Okay. Okay. That's helpful.

And maybe just to add color on on the loan level derivative program.

I I guess I wouldn't necessarily say there's this.

Added.

Cost or resource allocation that seems to that as you know we've had Uh huh.

Our loan level swap program in place for a number of years already to commercial lenders are very familiar with that program. Our treasury team is very much in all running and taking a look at those opportunities. So really that that growth is primarily just a function of of the rate environment and.

Our customers are taken advantage of what the yield curve is providing for them and and making a decision to actually go ahead and get some fixed rate pricing at rates that are that are very.

I'm very compelling in this environment. So that's a program that we've had in place we've continued to utilize.

It's primarily the current rate environment, that's that's driving that those elevated numbers.

I'm from a resort station it doesn't require.

Much of a change of anything okay. Okay. That's helpful. And then I guess just more broadly is as we look into next year [noise].

You know how are you guys thinking about just balancing of growth and margin on you know specifically, obviously any asset that you're putting on the books today is going to be margin dilutive from where you are you know how do you think about that in in terms of just the trajectory of growth on it from an organic standpoint, obviously, Chris I get it from an M&A standpoint, but just think.

And about the incremental.

Asked that AD.

In the rate environment as we look in next year.

Yeah. It does a lot of factors to consider <unk>, calling in and certainly where we are if.

We believe all of the.

The reports and the data out there are we in the late innings of of the expansion. So certainly we're cognizant of of being careful about our growth in selective about our growth on the loan side.

And and to be honest with with the challenges of the rate environment, it's tough to to look at opportunities and bring on long duration assets at fixed rates that that we feel just doesn't make a lot of long term economic sense. So a couple of headwinds on that.

Out front certainly.

Challenge, our our our growth initiatives, but as I said earlier that the pipeline is very strong I'm going into the fourth quarter, we continue to see a lot of opportunity. So.

In the event, Hey pay down our payoff activity starts to taper off that would just naturally equate to maybe a little bit more growth than what we've seen over the last couple of quarters.

Certainly where we enter into 2020 very cautious I'm continuing to protect the margin.

And they can credit concerns into consideration.

In each deal that we're looking at so so naturally where we're not we're not going to ER has I sit here today I don't think we'd be going out with 2020 guidance of double digit loan growth for this back. Thank you Mark.

[laughter] like have you ever giving doubled on growth guide.

[laughter] [laughter], Okay, alright that side that's helpful color I'll leave it there. Thanks guys. Okay. Thank you.

Again, if you have a question. Please press Star then one.

And our next question will come from Bernard Horn of Polaris Capital markets. Please go ahead.

Hi, Bernie.

Oh, Andrew I think he's dropped off.

Our dog. Your line is open do you perhaps haven't needed on your end.

[noise] [noise], Okay, Andrea we can.

Well well reach out to Bernie offline to see it if he has a question.

He is still there okay. If that's the case. This concludes our question and answer session and I would like to turn the conference back over to Chris Oddleifson for any closing remarks, great. Thanks, Andrew and thank everybody for joining us. So that's called we look forward you talking you again in January have a good weekend bye.

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