Q3 2019 Earnings Call
Good day and welcome to the he or she earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to President and CEO Jim loudly. Please go ahead Sir.
Thank you Corey.
Thank you all very much for joining us to walk into our third quarter 2019 earnings call.
Joining me this afternoon, Scott Goodman, President of Enterprise Bank and Trust and Keene Turner, Yes, I see Chief Financial Officer, and Chief operating Officer.
Before we begin to watch remind everybody on the call that a copy of the released an accompanying presentation can be found on our website <unk>.
The situation in earnings release for furnished on form 8-K yesterday, please refer to slides choose a presentation titled forward looking statements and our most recent NPK intense you for reasons why actual results may vary from any forward looking statements that we make today.
Overall, I'm very pleased with our results for the third quarter.
Cotton gene will discuss the specifics on results, but overall the quarter shows the strength of our company as we displayed our ability to organically grow the board business.
Further integrate trinity into our culture.
Improvement already solid credit profile, you officially operate the business and prudently manage your growing capital base.
For the quarter you FSC earned one dollar an eight cents per share on a fully diluted basis. This was a record for a company.
Year to date, we've earned $2.45 inclusive of 54 cents per share of expenses related to Trinity.
Our way for the quarter and year to date was 1.60% and 1.26% respectively.
I'd now like to turn your attention to our financial scorecard that can be found on slide three.
When comparing the third quarter performance in 2019, how it performed in 2018, many things stand out.
First of all we were able to increase our earnings per share by 11% and drove net interest gross dollars by 31% when compared to a year ago.
Certainly the successful integration, it's really had a positive impact, but our ability to continue to grow our loan portfolio through quality relationships, but a significant part and the success.
Secondly, we just spend its marketing well.
We're all very familiar with what does this current interest rate environment has done to the earnings of many financial institutions. So to see our net interest margins only decreased by five basis points over the last 12 months speaks to the quality of our franchise and the great relationships, which it is comprised.
Our credit statistics remain solid.
Non performing loans total loans decreased by 10 basis points compared to last year.
Gene will speak to the specifics by all measures our credit quality compares very well to our peers. The bottom line is that we're not willing to sacrifice quality for growth.
I do find is somewhat ironic that we improved our core operating leverage by 1% when compared to a year ago. It enterprise, we preach to our associates that where they should try to improve what they do everyday by 1%. This mindset has become a way of life for us.
Finally, the ability to add to an already strong deposit base is an everyday focus for our company.
Certainly integrating trends you into our company played a significant part in the 34% increase.
This was aided by the 5% Andrew increase that we experienced organic deposit base.
Scott will provide some details around this growth.
Slide four shows where we where we remain focused.
As it relates to the ongoing integration of Trinity I can only tell you that I'm extremely pleased with how these two companies have come together were four months post system conversion and our teams in new Mexico have done an amazing job getting themselves in our client base, well acclimated to the enterprise way.
We will now begin to focus on the opportunities that we have to grow these markets.
As it relates to our other markets and specialty businesses I can assure you that the leaders are these businesses are keenly focused on running through the tape and achieving organic loan and deposit goals for 2019.
Scott will give you details, but you can see from our numbers how well these businesses continued to perform.
I mentioned earlier in my comments are focused on continuous improvements. This is a way of why for our teams and continued improvement in our sales and operational processes is what is expected.
For details on our lines of businesses in our region I would now like turn the call over to Scott Goodman.
Thank you Jim and good afternoon, everyone.
As you'll see on slide number five falling on a strong second quarter, we continue to generate solid loan activity in Q3 with growth of 79 million.
Year over year, the loan portfolio was up 23% inclusive of the Trinity acquisition.
Organic growth as of Q3, a solid for the same period at 7%.
See you know I increase is outlined on slide number six represent nearly half of total grows in the quarter at double digit pace not the Trinity portfolio impact.
As we continue our plans to integrate the treaty client base I'm pleased with the overall stability of the book.
The minor loan run off roughly 20 million is mainly related to successful workout of some PC I loans.
And residential mortgage payoffs, which are shifting from a legacy portfolio approach at Trinity to our preferred secondary market strategy.
In general origination volume increased in the quarter.
Our sales activity across the markets and within a specialized units is producing consistent new opportunities.
I remain confident that our diversified origination strategy will continue to produce loan growth in a range of 6% to 8%.
The business segment changes are outlined on slide number seven entitled loan details.
Growth in general Cnine Investor owned theory, and construction reflects my prior comment on solid origination activity within the geographic markets and I'll touch on this in more detail later.
Within the enterprise value lending or easy L. portfolio performance reflects both environmental challenges and internal discipline on credit structures in this space.
As we have experienced over the past few quarters payoffs and Paydowns are elevated as our private equity partners to take advantage of robust capital markets and high valuations to Opportunistically exit portfolio investments.
Additionally competition, including non bank sources are in some cases, pushing credit parameters beyond our risk appetite.
I discuss this a bit last quarter, but it's mainly around total leverage and extended amortization of unsecured exposures.
That said, we do continue to see steady deal flow from my partner relationships and origination activity was up quarter over quarter.
I expect new deal opportunities to continue with some seasonal upswing in Q4.
We also continue to expand our base that relationships and we will selectively add sponsors to extend our brand and further increase deal flow.
Life insurance premium finance has experienced strong growth over the past 12 months.
Q3 reflects typical volumes on originations.
And advances for premiums on existing policies financed.
Couple of larger payoffs muted quarterly growth.
As we walked away person from some price driven competition, which was well below our threshold.
But despite these specific deals there has been a general moderation of the payoff activity and the outlook is for typical seasonal increases headed into Q4.
The reductions in the residential real estate portfolio of $23 million in the quarter. It's like my prior comments regarding the Trinity book.
And I was also impacted by some increased mortgage activity in general with the falling rate environment.
Within our business units on slide number eight.
Specialized lending mainly reflects the impact of the changes in email.
With some modest growth in aircraft finance and agricultural portfolios.
Regionally Saint Louis posted solid growth of $81 million in Q3.
And by a strong uptick in originations.
Highlighted in the quarter was providing the senior debt on the purchase of a high profile commercial real estate portfolio in Western Saint Louis County, with one of the Premier Investor groups in the Metro area.
Yeah, and I activity also included equipment financing for a transportation company and acquisition and recapitalization for financial services Company.
Arizona also had a particularly solid quarter up $31 million in growing roughly 12% year over year.
Well just coming from a number of sources, including fundings on construction loans originated over the course of the year.
As well as new loans for Investor real estate clients in hospitality and mixed use categories.
We also continue to see more see an eye opportunities, including new loans with companies in the electric contracting medical services and storage industries.
I'm encouraged by the momentum we're seeing in this market driven by our robust economy as well as our ability to attract new talent some competitive disruption.
Phoenix is frequently cited among the best economies in the nation.
Leading most cities in GDP performance job creation and population growth.
And while this is attracting the attention of new bank entrance to the market our experienced local bankers and our long term presence here is resonating with the business community to produce an expanding pipeline of new opportunities.
From an overall perspective early in Q4, the near term loan pipeline look solid with an exit new seen I relationships theory across all geographies and seasonal upticks in specialized lending.
Turning now to deposits on slide number nine.
Balances were up by 65 million in the quarter and show solid growth of 8% year over year, excluding the impact of Trinity.
Growth is being driven by new commercial and business banking deposits through an execution of a consistent sales process, which incentivizes new relationships in client consolidation of balances to enterprise.
This is also positively impacting the mix as DTA rose to 23% of total balances.
The growth in Q3 was also encouraging, particularly considering we saw some of the larger and more concentrated in higher cost commercial balances, which had provided growth to us in prior quarters moves down this quarter.
We also continue to see depositor behavior, pushing moot to move idle balances to higher yielding alternatives.
Our sales teams have been able to execute well to retain relationships, while a lot, allowing the higher rate transactional deposit balances to move.
Overall this strategy is producing good results.
During Q3, we're consolidating and originating more new balances at better terms than what it would have taken to retain one is leaving.
We also continue to originate net new deposits, but new balances totaling nearly three times that have closed accounts.
But then new Mexico as expected the local banks and credit unions are aggressively courting our bankers and our clients.
We've been executing a strategy that strategy to introduce our brand by highlighting the retention of local talent.
Defending their relationships, we've acquired as well is continuing and increasing the community support in partnerships for which Trinity was known.
So far we've been successful and minimizing run off as well as turnover and feel good about our ability to retain the low cost well diversified nature of this book.
Now I'd like the handed over to Keene Turner for review of our financial results.
Thanks, Scott and good afternoon, everyone.
The third quarter results were strong and demonstrated our stable balance sheet and continued execution on all fronts.
Revenue was a highlight of the third quarter at $76.6 million and it was a 4% increase spend the linked quarter that it was driven from both net interest income and fee income growth.
We reported $29.1 million a bit net income or a dollar eight per diluted share for the third quarter and that produced a return on assets of 1.60% and a return on tangible common equity at 19%.
Our earnings continued to build our capital position, increasing the tangible common equity ratio to eight <unk> percent.
The strength of these returns allowed us to return excess capital through repurchase of approximately 300000 shares at an average price of $39.03 during the third quarter.
We believe that this activity is an important way we can continue to return value to our shareholders. In addition to driving earnings and continued dividend increases.
I'll begin on slide 10, where we roll for EPS in the second quarter, obviously, the largest linked quarter driver in the in from the second quarter third quarter is 30 cents a merger related charges that improved <unk>, yes, generally we feel like the Trinity expenses are mostly behind us we incurred.
About 400000 in the third quarter.
We had a good quarter and noninterest income primarily tax credit income. We also realized some security gains and the proceeds of west were reinvested in new securities at higher yields.
We also had additional income from loan workout activities that benefited the quarter and with a 5% improvement from the link second quarter.
Other items noninterest expense incremental accretion in the change in our shares on tax rate combined to increase yes by five cents per share.
The increase in incremental accretion was from a successful resolution of several non core acquired loans.
[noise] well move on to.
Net interest income on slide 11.
The current interest rate environment impacted our core net interest margin in the quarter. Nonetheless, our efforts to grow the balance sheet contributed to modest growth in core net interest income compared to the second quarter.
To that end, we were able to grow both loans and deposits in the quarter and bolster the investment portfolio.
This did require the use of some funding from the FHLB. Another wholesale sources in some of these actions negatively impact the linked quarter trend in the core net interest margin, which declined to 3.69%.
However, given the 70 basis point plus decline in one month, LIBOR, which weighed heavily on our asset yields we were able to mitigate much of the trend through assertive not aggressive deposit repricing balance sheet growth and most importantly growth of new and existing customer relationships.
It's worth noting the overall cost of deposits was stable at 94 basis points to book third and second quarters, and we were able to be getting decreasing pricing within the managed an index money market account.
There continues to be some opportunity there as clearly there's some lag in deposit pricing and that's we've not yet seen the full benefit of actions taken in the quarter to reduce our deposit costs and we're careful to protect it managed relationships along the way the primary goal being fair to both customers and shareholders.
Generally we believe that we're well positioned as we begin the fourth quarter and look forward to the upcoming year. Our liquidity is strong and we work to continue to further improve all all of our liquidity measures.
We believe this helps has positioned us to deliver consistent strong financial performance as we navigate through the current environment.
Our expectation is the generally defend core net interest margin from here and to the extent the current interest rate environment behaves as we plan that is not to say that we don't have any major rapid shifts that we got the last several quarters.
I'll, just reiterate that our expectation our goal continues to be to grow core net interest income.
And defend net interest margin as we did during the third quarter.
Turning to slide 12, and our credit trends loan growth of $80 million, an eight basis points. The net charge off resulted in a $1.8 million provision for loan losses.
Our nonperforming loan levels improved during the quarter as the two loans that we previously noted were administratively past due were positively resolved.
Credit metrics remained strong and continues to compare favorably favorably to all of our peers.
On slide 13, noninterest income increased $1.6 million in the quarter, principally due to an increase in tax credit income and other income from loan workouts.
We're on target and continue to expect high single digit growth in 2019 fee income before Trinity due primarily to opportunity and tax credit card services.
Operating expenses on slide 14 were $38.2 million and reflect our execution on the integration Trinity.
At this point most of the cost savings or the transaction had been realized we incurred under half million dollars a merger expenses in the quarter compared to $10.3 million into second quarter. A similarly modest amount of merger charges could be incurred in the fourth quarter, but our efforts for the integration are largely behind us.
The core efficiency ratio was 51.7% down nearly 2% in the linked quarter and 50 basis points from the prior year.
Operating expenses were in line with our forecast between 30 $739 million for the second half the year and we continue to forecast this level for the fourth quarter.
To wrap up on slide 15 through a measured combination of organic loan and deposit growth as well as M&A, we've consistently grown the balance sheet and improve the overall quality and risk profile of the company.
We're well positioned with a strong liquidity and stable credit quality.
We expect to continue to utilize operating leverage to drive stable returns and consistent earnings.
We continue to plan and execute in multiple facets of the business, where we've been successful in growing earnings power.
We're pleased with the current performance and we have high expectations of ourselves and our teams for the future. We appreciate your continued support and for your time and we'll now open the line for questions.
Thank you if you would like to ask your question. Please sitting in my pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask your question.
Pause momentarily to allow everyone an opportunity to signal for questions.
Well take our first question from Jeff Fruitless with D.A. Davidson.
Thanks, Good afternoon.
Hi, Jeff how are.
Good thanks.
Wanted to follow up on Scott's comments regarding the how did they the competition in your markets makes sense that new Mexico is is a bit unique and given the transaction, but yeah. I was wondering if kind of broad based or the rest of the footprint in other areas in particular.
Heavier competition, both loans and deposits.
And maybe some areas where there maybe see more rational thanks.
Sure.
Thanks, and this is Scott.
I think generally we're seeing maybe take loans first on the loan side and some of the other markets.
Generally local banks, you know can see need to extend.
Term offerings in the seven to 10 year range on balance sheet, and I think we've been seeing that for a while.
Maybe fixed rates I think we tend to see them pricing on a coupon basis in many cases sub 4%.
I think that's that's kinda factor, we're continuing to see we continue to stay disciplined in some cases, if we're going to extend term, we're using a swap floating rate, but that tends to be on alone side, what we're seeing a lot of I think credit structures.
Maybe seeing a little bit more limited a non recourse and we've seen that on the theory side for a while but it's kind of emerging in the lower end of the Cnine markets.
Again, usually from a local or smaller bank.
And then on the deposit side.
I think what we tend to see is more rational pricing from the regional than nationals.
The locals and many times are trying to index, the fed funds or above fed funds.
And I think some of the balances that I alluded to that we're letting walk away their transactional that's kind of where we're going there whether going in that and that's fine.
That's probably.
What we're seeing that I would call, although that crazy on the deposit side.
I think the other other factor I would just add.
The thing a lot more non bank competition.
Credit unions on the commercial side, particularly on the Cnine business.
And then for idle cash balances I think we're obviously, we're competing against what we're seeing from the swaps into Dallas. He's that are going after after that idle cash are our posture is we want to retain relationships and in many cases do we need to there, but if we want.
That's a lot idle cash go that's kind of what's going.
Right, Okay, I think Scott and switching gears on just the capital and I guess anyone to to address this but.
You know the buyback appetite you your.
Average price of the buyback this last quarters about Oh, well, you're about 10% above that are or more today.
You'd I guess you touch on anything M&A indoor buyback just the current update on.
Capital use.
Yeah, Jeff I don't this is Kent I don't think arc, our priorities of change I think you know one if we can achieve organic growth you know, that's first and foremost, but I think you're earning at a high level with with strong balance sheet returns. So M&A is obviously a priority you know if we can continue to to leverage our talent there for integrations and.
Brand companies together I think you know that would be second and then obviously, we just continue to maintain the dividend as as part of growing the earnings power certainly the share repurchases of stop gap I mean in third quarter I think it there was nice to take advantage of some of the volatility there and.
Maybe a little bit of what was weakness in the shares but to the extent that.
We continue to have strong stock price performance I think we view it as a capital management activity and not necessarily something that that is you know market driven and as long as we feel like we're not paying too much for the shares will continue to manage incurring the capital levels.
Between eight and a half a 9% as it really don't want to to get to out of line I think we knew wins or spec. The the capital that our shareholders have given us and we certainly don't want to sit on too much excess capital for too long. So we get a little bit more aggressive and have a have a stronger appetite between here and 9%.
At Keno.
Where you can offer any cecil guidance in coming quarters.
We expect you know, where we're not going to lead that effort out in terms of a peer group but.
We're going to put C., so guy that's out in conjunction with our our fourth quarter. So I guess I can tell you that you know, we're well down the path and working on you know final validations in various scenario planning for our models and certainly you know from a directional impact I wouldn't say two things one.
You know the PC I portfolio and the credit discount there is obviously going to add to the absolute allowance and and you'll be able to get that specific number when we when we filed a third quarter Q and then I would also just say maybe on the the but for size of that when you're seeing you know maybe in the larger institutions report where they.
I think there increases are gonna be the loan portfolio is is short here in duration compared to you know what most others look quite particularly given the cnine nature.
Of what we booked in the most recent years and so I think battle you know mitigate the increase but I think our general posture is to.
The prudent and on the conservative side of Perten definitely as we look toward a allowance imprisoning.
Great. Thank you.
You're welcome Thank you Doug.
Thank you we'll take our next question from Andrew Liesch with Sandler O'neill.
Hi, guys [noise].
Just want to Andrew it's on the margin here briefly the I mean on a car basis down 11 basis points, but didn't look like you had too many opportunities there you weren't as aggressive lowering.
Deposit costs as maybe you said suggest suggested a a quarter ago.
But yeah library content needs to come in and more prospects for for rate cuts, but how should we look about this.
Going forward here, maybe if you are able to lower the <unk> lower your offer deposit rates this quarter and or Oh, a lower rates in some of the exception accounts that could be a benefit but still having.
That earning asset yields come in to maybe not as much a compression as last quarter. Recognizing you do you are trying to defend the core margin.
Yeah, Andrew I think what we said last quarter as really come to fruition, which is I think we gave a longer term view of what we thought the overall change was it certainly I think the environment, maybe got a little bit more dramatic than we were expecting at that point I think it seems like as we sit here today, there is a little bit more clarity on what what is the most like.
Finally, I'll come here, so I think we feel a little bit better about our forecast than we did last quarter. Let me just say very quickly that number at Threeeighty last quarter and that included two basis points of purchase accounting that was not repeatable. So you know were down nine from there and we let the investment portfolio grow a little bit and we knew that the the pie.
Isn't repricing the bag. So we haven't taken our eye off the ball on the deposit or club the pricing, particularly the you know managed money that we were talking about in the index stuff was obviously moving its just that you had lieberthal 70, Bips and you know from the from the started a year and you've had fed funds down.
You know 50, and hopefully another 25, so I think that it's it's a timing issue I think we generally feel pretty good about where margin is today within a few basis points and we're optimistic that we can you know generally hold stable and use that to as a basis for growing core net interest income from Q3 to Q4 and thereafter so.
You know that's our that's our hope and we're trying to do the things that.
You know that that retain customers and balances over the longer term and don't just simply become margin focused and sort of shrinking net interest income, but for the sake of having margin optically look better so I.
I would also just point out and then I'll wrap this up that we we were not aggressive with C.D. repricing whatsoever. I think you did a balances might have even been slightly up in the quarter and certainly a rate on that was a little bit higher with the.
Vintage of what was coming off and coming on and so we really wanted to that's a lever that that we can pull there, but again I don't I don't know that there's any great.
Urgency there as long as we continue to get good balance sheet growth and I think really the driver for the most near term quarter will be what happens with D.A. growth and and our commercial accounts and we typically expect there to be some strong seasonal trends there that really should help us on the next time.
Got you, okay, but that's really helpful.
And then I'd just follow up I think that from earlier on M&A stock at 192, a tangible you guys have a better current season than some other folks out there right now recognize that trinity's still kinda fresh for like what's your appetite for acquisitions right now and I.
I mean, how how are conversations with respective targets are going.
Hi, Andrew This is Jim you know.
That process is always ongoing so you know it doesn't necessarily speed up one season or another so we've had an active discussions.
With several companies nothing that is obviously two to four alone report on but it's about making the making the franchise better you've seen the last two opportunities and what the.
What the make up most companies are and that's what we're focused is really improving the deposit base of our company.
Like we have the last two times.
Gotcha. Thank you that covers my questions.
Our next question comes from made some race with Piper Jaffray.
Hi, guys afternoon.
Right.
So the discussion on the NIM the core NIM for the fourth quarter can you just curious to get them to updated thoughts on how you kind of see the core loan yield trajectory in the fourth quarter.
Got 11 minutes or so here <unk> third quarter.
HM.
And you got the weighted average rate on new loan production. The court at 466, where it would imply you know some further pressure, particularly on the heels of the September rate cuts, but I imagine that for 66 is partially a function of the composition of production. This quarter. So just curious to get your thoughts I'm, just kind of core loan yields in the fourth quarter.
Yeah, I guess need maybe first and foremost that I think we felt like we saw the though LIBOR rates moved down a when the third quarter rate cut became pretty apparent. So I think our view our optimism is that that won't be an underlying issue for you know the LIBOR based loans, if that is and what I'm about.
Let's say, we'll get a little bit more severe and we'll have to defend that more aggressively but.
I would say secondly, the for 66 I think was I.
I don't want to call it a low point, but I think it some of that just for a flat when you look at the.
Categories that those loans were in the types of borrowers that we bank you know maybe a little bit of wall from from where we'd expect to see it. So when you start to segment that by you know what she or variable cnine. Those those rates are a little bit better and then when you look at some of the more fixed rate CR.
I read those are fairly short term, but those are those are driving.
That rate down a little bit so.
Our expectation would be that maybe that doesn't get more severe but as we see.
Tivity in certain pieces of the business contribute a more like they have in the path that could help aid that yield as we've seen previously so I think our expectation is that it's maybe not quite as aggressive a repricing or a downward pressure from Q3 to Q4 and that we can get a little bit more movement both in the mix.
And overall rate on deposits.
At the same time and again, you know not to not the talent the wholesale position, but wholesale funding has helped us and we'll have brokered Cds and other items that are maturing in the fourth quarter that also help provide a little bit of runway.
On the funding side.
Yeah, and she just remind us along those lines I think it was like a billion for and deposits that you've had either kind of harder salt indexes sort of the curve is that accurate. So.
Yeah that that number hasn't changed so yes, it's a 806 hundred or vice versa indexed and.
An exception managed.
Great and then just changing gears a little bit in thinking about loan growth maybe for Scott I think you mentioned you had some in central run off in new Mexico touched some purchase credit impaired loans, maybe and I think girls are trying to read makes that portfolio away from some single family.
Central loans. So just curious if there's anything left to do on that front and you know when you. When do you maybe you expect to see some growth, though that franchise because it seems like you guys had been doing some hiring down there of late.
Yeah, Nate I think just relative to more run off.
The majority of that 20 million difference.
On the P.T.I. side, I think the mortgage impact was.
Well, it's fairly small I wouldn't I wouldn't expect that to be a significant headwind, it's not something that when we looked at or if that opportunity at the beginning we expected that we would grow I think the opportunities for us.
Exist and widening the relationships with existing clients were bringing a bigger checkbooks as a table with more capabilities.
And then I think Albuquerque presents a just given the metro market, which we're familiar with bringing some of our strategies that have worked in the other than that trails like business banking and see an eye to the table. So that's really where the plan exists when I think if you look at the pipeline.
It continues to rise so opportunities are good near term with those existing clients.
And I think our team out there is well positioned to execute a CRO strategy Albuquerque, Thatll come over time.
Okay, Great I appreciate guys, taking the questions. Thank you.
Our next question comes from Brian Martin with Janney Montgomery.
Hey, guys.
Hey, Brian how are you.
Hey, Jim just one question on M&A, maybe instead of if I missed it but just have you seen any pickup in discussions that magazine for some from some other banks. It there's been more discussions or they've known to pick up have you guys seen any of that I know, you're looking and it's a strategy, but have you seen a pick up.
Well John .
The answer is we were we have a very consistent pipeline. So I don't know from what level. These other companies started but I would tell you ours is then just consistent over the last several years.
As it relates to pick up I think I think banks in general who are looking to partner may feel in some sense of urgency.
Relative to some of the headwinds that all companies are going through so maybe that's maybe what you're seeing out there.
Yeah, Okay, and then maybe one just back to the margin came just kind of you. Appreciate your comments on the margins just your outlook I mean.
End of your commentary change at all if you think about the context it may be having three rate increases year over the next couple of months I mean, if you do you have in October and you know at December and January cut just kind of how you think about the margin under that type of scenario versus kind of what you kind of already outlined.
Yeah, I think we've done a number of things to attempt to stabilize the base earnings power getting in a variety of scenarios Tonight I guess I would say, we've certainly I think we believe that we've worked through.
All at the majority of that near term and if we continue to get lagging we're going to start to be able to at least called margin, where we are because if you get another rate cut or the idea of a rate cut in that affects lie before we'll have the existing rate cut to help improve the.
Deposit side, and I think as I indicated in my comment we haven't.
We haven't been aggressive we've we've been fair to clients unfair to shareholders, along the way and we're hoping that that pays dividends not just in the next two to three quarters, but over a much longer term horizon, where you know we might get back to a scenario, where we've got you know a high ninetys or low hundred.
For sound loan to deposit ratio. So we're we're trying to be very a very thoughtful about what we do with clients and and where they come from how long they've been with us and how long. They maybe have had or have not had a rate increase and I think you've seen us do some more things on the fee income side.
To try to help mitigate that and drive revenue growth. So I think you saw good color around the tax credit side I think we expect.
No more of the same on the fees for sort of low or mid mid to high single digits. When you blend it all in with a full year of Trinity and continued progress on the tax credit front. So I think we're looking at that overall in thing how do we how do we you know drive a respectable revenue growth knowing that the the interest rate.
And environments difficult and then just really be thoughtful about how we deploy expenses to make sure. We're driving you know the kind of S. and returns that we want so I mean, that's the formula. It's all very fluid we're trying to do the best weekend with the current environment, but we're also just like I would say on efficiency ratio were not targeting inefficiency.
Ratio, it's a byproduct of how we manage the business I would say net interest margin is the same and we're just trying to be really deliberate about the actions, we take both and how that fields from an associate experience from a client experience and hopefully leverage challenging times into you know more prosperity in growth for enterprise.
Okay. That's helpful. Thanks, and just reminding them of course, you guys have in the portfolio today and kind of it.
How many are at their floor.
Well, let me, let me dig that I have I can I just have to find a page where we don't have a lot. That's currently on the floor and I think we're seeing good progress getting things on the floor. So we've got about 800 million in the portfolio on a that has a floor and you've got about 25% at all floor. So there's a little bit.
Protection built into it to your point, if you get some more rate cuts, particularly once you start to get you know two more rate cuts call. It you know that starts to really kick in.
Okay, all right and the last two for me was just the at the incremental accretion this quarter that pick I can't I guess it to be fair to say, we should see it you know a downtick there just kind of how to think about a you know that level going forward.
Yeah, I think the way we think about it is you know we've got your whatever you're thinking about four core net interest income and then you've got another penny or two per quarter of incremental accretion that were that were thinking from the noncore acquired book.
Okay.
All right and the last one was just on the you know kind of how to think about the core efficiency as we go for it I mean, I guess, if you're trying to go into the environment. When with this rates are ways, possibly going lower impacting revenues just as you guys think about.
How do you think about driving the core efficiency ratio lower next year do you think that's doable what kind of road map you've outlined I was just the organic growth with defending the Mars and what we can see the core efficiency improvement next year as or more likely to be kind of flattish or up a little bit.
Yeah, I would say, Brian I think the efficiency ratio, we expect to improve seasonally for the fourth quarter and then we always get a little bit of a resets in Q4 to Q1 with the way.
Tax credit revenues work in that time period as well as the seasonality of expenses, but you know I think the level that we're operating out here in the low Fiftys you know feels like it to a level that we can achieve and I think that our idea would be that if we can continue to execute on you know gaining.
New customer relationship and driving fees, we want to make sure that we're taking that and deploying that back into the business and so maybe historically when you've had some margin expansion that incremental efficiencies been more like 30% to 40%.
You know, we think of it very simply as you know 50% on marginal efficiency I think that reflects maybe some expectation of you know having rates be more of a headwind than I help or neutral, but also our ability to manage expenses appropriately and yeah, we're not gonna not hire somebody who's good in the markets. Its just.
The man sufficiency ratio if it's the right thing to do long term because that that also gets to be a vicious cycle to sell me I think that's generally what were thinking but you know if you start growing revenue quarterly and you have a marginal 50% efficiency ratio, you'll make a little bit of gains there, but you're not going to be knocking it down one or 2% of core.
Gotcha, Okay I appreciate all the color. Thanks.
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Well again, thank you Corey and thank you all for joining us Ah. Thank you for your support of our company and we look forward to speaking to you all next quarter, if not sooner have a great day.
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