Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Alchemy did they third quarter 2019 earnings conference call. During today's presentation. All parties will be in listen only mode. Following the presentation at the conference will be open for questions with instructions to follow at that time as well.
I know this conference call is being recorded I would now like to turn the call over to Mr. Drew Lebed Chief Financial Officer. Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate your participation in our third quarter 2019 earnings call with me today, It's Keith Mastrich, President and Chief Executive Officer as a reminder, a telephonic replay of this call will be available on the Investor section of our website for an extended period of time.
Additionally, a slide deck to complement today's discussion is also available on the investor section of our website.
Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
We caution investors that the actual results may differ from the expectations indicated or implied by any such forward looking information or statements investors should refer to slide two of our earnings slide deck as well as our 2018 10-K filed on March 28, 2019, and our other periodic reports that we file for.
From time to time with the FDIC for list list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. gap.
A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our web site.
At this point I'll turn the call over to Keith.
Thank you drew and good morning, everyone. We're excited to be here today and look forward to discussing our results with you.
This morning, I will discuss the high level details of the third quarter and then provide an update on our strategy to grow the franchise value of the bank drew will then discuss our third quarter financial results in more detail.
To start there's a few highlights I'd like to emphasize from what was a very solid quarter for the bank first we surpassed $5 billion in assets, which is an important milestone for amalgamated and speaks to the dedication and hard work of our employees.
Second our deposit franchise continues to experience strong broad based growth as we benefit not only from the run up to the 2020 presidential election, but also robust growth across the many business sectors that we focus on including unions in their funds nonprofits social enterprises and plan for Peace Importantly, we saw deposit growth in all.
All three of our major markets of New York City, Washington, DC in San Francisco.
Third loan growth was very strong in the quarter as our expansion into sustainable lending continues to gain traction in the headwind from our strategic decision to run off our indirect see an IDE portfolio abates. Additionally, our residential mortgage business had an excellent quarter.
Fourth we made strong progress, reducing our future expenses, which positions the bank for improved profitability and will help to mitigate the headwinds from a lower interest rate environment looking to next year and lastly, as we work everyday to build on our reputation as Americans socially responsible bank. We're proud to have announced a number of E.S.G. related commitments. This quarter include.
And becoming the first U.S. bank to endorse the United Nations principles for responsible banking and joining the collective commitment to climate action.
Turning to the third quarter, we delivered net income of $13.2 million or 41 cents per diluted share, which compares to net income of $11.2 million or 35 cents per diluted share in the linked quarter and net income of $9.4 million or 29 cents per diluted share for the third quarter of 2018.
I continue to be quite pleased with the performance of our deposit franchise. As you can see from slide five deposits grew by $185.9 million or 17.8% annualized from the second quarter.
As we have noted previously given the volunteer volatility in our period ending balances. We believe average deposits provide a better view into our deposit franchise.
For the third quarter average deposits grew $117.4 million, representing a rise of 11.3% annualized from the linked quarter.
Yes. This growth was largely in media accounts, which now represent 46% of our deposit base up from 43% at the end of the second quarter.
As we look forward our deposit pipeline remains robust and our bankers continue to expand our commercial relationships across verticals, while our political business continues its upward trajectory.
As a 2020 election approaches we continue to experience an increase in political deposits as seen in the growth experienced during the third quarter of $91.5 million to $510.9 million as compared to the second quarter deposit balance of $419.4 million as shown on slide six.
Our deposit franchise remains a competitive advantage for the bank in the quarter. We continued to experience healthy growth and continued to benefit from what is one of the lowest cost of funds in the industry.
During the third quarter, our cost of deposits was 37 basis points, which was modestly higher than the 34 basis points that we reported for the second the 2019 second quarter.
Although our cost of funds has ticked up over the course of the year. The overall deposit cost increase was mitigated by an increase in D.A. balances.
Additionally, although we did see some end of the cycle pricing increases in EM EMEA accounts, we have implemented programs designed to mitigate this pressure and expect a more stable cost of funds going forward.
For the full year of 2019, we have already reached the upper end of our previously guided range for deposit growth and are now expecting 14% to 18% growth adjusting for the $327 million of short term deposits at yearend 2018.
Moving on to loans, we experienced very strong growth in the third quarter as loans increased $176.3 million or 21.4% annualized from the linked quarter.
Drew will touch on this growth in more detail, but as I mentioned earlier. This was the first quarter in which we did not experience the headwind from the run off of our indirect see an eye portfolio that we saw in the first two quarters of the year.
As we continue to grow our franchise organic growth will remain a priority. Another driver to growth is a strategic expansion into regions of the country, where our culture and values will resonate with like minded people in institutions. During the third quarter. We performed extensive due diligence on three potential M&A opportunities. Unfortunately, the targets did not meet our stress.
Economic and strategic criteria to move forward and we decided to pass on these opportunities.
We will continue to explore acquisition opportunities, but are also looking seriously at organic growth through the formation of commercial banking offices in our target markets to successfully started de Novo office, we need to find the right banking team, who understands our core customer base. This will be an additional focus for growth as we look to 2020.
I'd like to spend a few minutes highlighting a number of recent SG initiatives in which the bank continues to expand its commitment to promote advance more sustainable future first amalgamated was one of only three U.S. base banks to sign that you on principles for responsible banking.
As part of the company's ongoing leadership position in social responsibility and sustainability I had the pleasure of representing amalgamated at the United Nations announcement of the global launch for the UN principles for responsible banking or UN PRB in New York last month.
In conjunction with the announcement of the UN PRB. The bank has also United with partners to endorse the collective commitment to climate action in order to help facilitate the economic transition necessary to achieve climate neutrality as such amalgamated is committed to implementing and reporting a set of metrics and targets, including five setting science based targets that.
To support and accelerate the shift towards low carbon climate resilient technologies business models and societies.
Amalgamated also led to launch of the partnership for carbon accounting financials are P. caf and I'm proud to serve as the chair of the international Steering Committee.
Decaf enables financial institutions to assess and disclose greenhouse gas emissions of loans and investments. The partnership currently consists of 50 plus financial institutions, representing more than three trillion dollars in assets, which is the first global initiative ever created that allows these institutions to measure in their carbon emissions across all asset classes.
Losses in order to reduce their climate impact.
In addition to efforts to reach climate neutrality amalgamated Bank also received the small cap Board diversity award by the National Association of Corporate Directors. This award recognized our efforts in support of greater diversity and inclusion at the board level and throughout our organization.
The aforementioned commitments are yet another example of our commitment to advancing environmental sustainability through our operations. The clients we partner within our balance sheet. The banking industry has an important role to play in achieving a low carbon more sustainable future and we hope that other industry partners will follow our lead and join US in meeting this goal.
As our brand continues to gain recognition through our sustainability leadership, we believe pursuing a de novo strategy to extend our geographic reach will enhance our organic growth overtime.
Another area for growth as the enhancement of our fee income with a focus on our trust business. Currently we have nearly $45 billion and assets under management assets under custody.
For many of our commercial clients. This is seen as a significant competitive advantage as we can handle the custody aspects of their investment funds, but also the disbursement of those funds to their clients and ideal wholesome package to our commercial clients.
As we have detailed in past calls this business is largely a breakeven business for us, but this past quarter. We launched two major initiatives designed to increase profitability in this area.
We have initiated a study to determine if we can deliver our custody business in a more cost effective manner by partnering with a major outsourcing partner.
Additionally, we are exploring ways to more effectively deliver the investment management bonds that are currently on our platform and to expand our offerings that are valued based clients desire in the E.S.G. space. We have several months of hard work ahead of us and we will update you on those efforts on future calls.
We will also continue to maximize shareholder value through steady return of capital through a consistent quarterly dividend, which remains a top priority for the bank.
We will also be opportunistic with our $25 million share repurchase plan.
We have repurchased $3.8 million of stock or 237000 shares through the end of the third quarter at an average price at $15 an 84 cents.
To date, we have repurchased a total of $5.7 million of stock or 355000 shares at an average price of $16 in one sense.
To conclude I am pleased with the growth that we have achieved during our third quarter and Im excited with the long runway for growth that we see ahead of US our brand continues to resonate with our customers both current and future as we continue to do our part the better the communities, which amalgamated serves well building and delivering upon our reputation as America's socially responsible bank.
I'd now like to turn the call over to drew for a more detailed review of our third quarter financial results.
Thank you Keith as Keith has already detailed the success that we've achieved in growing our deposit franchise I will start with loan growth on slide seven.
For the third quarter, we delivered loan growth of 176.3 million or 21.4% annualized as compared to the second quarter of 2019, and then ended the quarter with $3.5 billion of total loans.
Loan growth was primarily driven by an increase in residential first lien and pace loans multifamily NSP, a U.S. da loans in CNS category.
For the first six months of the year, our loan growth has been hindered by this strategic reduction of our indirect cnine portfolio, which year to date has declined by $175 million.
The third quarter was the first quarter in which we did not experienced substantial runoff in that portfolio and the loan growth that we have been experiencing is now visible.
Looking forward, we expect to run off we expect the run off to be at a more measured rate with only $61 million left in the portfolio.
Our loan growth guidance for the year was 6% to 10% and given our expectation to be at or above the high end of the range for the year. We've updated our loan growth guidance, we now expect 9% to 12% loan growth for the full year, which includes the impact of the indirect cnine portfolio run off.
Skipping ahead to slide nine our net interest margin was 3.5% for the quarter compared to 3.66% for the second quarter of 2019, and 3.65% in the year ago quarter.
The yield on average, earning assets was 3.92% for the third quarter, a decrease of 15 basis points as compared to the linked quarter.
The yield on loans decreased 20 basis points to 4.22% compared to 4.42% during the second quarter as the result of the runoff of the indirect cnine loans in the second quarter and the impact of lower market rates on our loan portfolio.
Our most recent full year NIM guidance was updated to 3.55% to 3.65%, but we're currently running at 3.60% for the first nine months 29 team.
We expect to be near the low end of that range for the full year and have tightened our range anticipating our full year NIM to be in the range of 3.55% to 3.60%.
Now onto noninterest income noninterest income for the third quarter 2019 was 7.7 million an increase from $6.3 million in the second quarter of 2019, and 100000 dollar increase compared to that with the third quarter of 2018.
The increase from the previous quarter was primarily due to growth in trust and asset management fees and fees on deposits and a lack of losses on security sales in Oreo properties that occurred in the previous quarter.
Turning to slide 10, noninterest expense for the third quarter of 2019 was $31.9 million, which compares to $31.0 million in the second quarter and $34.1 million in the third quarter of 2018.
The slight increase in our non interest expense was due to higher expense from projects such as Sox implementation and an increase in the bonus pool for employees.
As mentioned on our second quarter call. We closed our Chelsea branch in late August , which will generate an approximate 800000 dollar run rate annual savings.
In terms of headcount related to this branch positions were relocated or re determined there was no reduction in headcount attributed to the Chelsea branch closure.
As previously disclosed we have successfully finalize one of our vendor contract negotiations, which will in turn generate an annual savings of $1.6 million annually.
Those savings will start to be realized in the fourth quarter of this year.
We anticipate further cost savings opportunities in the future. We're quite pleased with the progress made thus far as we manage our cost structure.
Our previous guidance for expenses was 31 million to $33 million per quarter and that is unchanged.
Skipping had to slide 12, nonperforming assets totaled $71.6 million or 1.42% appear yet period end total assets at September Thirtyth 2019.
Which was a decrease of $2.4 million from the linked quarter.
The decrease was primarily caused by the expected removal of $13.9 million in loans that were 90 days past due in accruing.
This was partially offset by the addition of a 9.3 million dollar accruing TDR loan that was a result of restructuring the one indirect cnine alone that had moved to sub standard in the previous quarter.
During the third quarter, we did have one $3.7 million sub standard construction loan from the NRP acquisition moved to non accrual, which we hope will be a fast workout as alone has a low LTV and no specific reserves were required for this loan.
The overall class classified and criticized loans from the bank decreased by $17 million to 71.6 million in third quarter compared to the previous quarter.
The improvements were mainly in Cnine seery loans.
During the quarter, our provision for loan losses totaled a release of $600000 compared to a 2.1 million dollar provision in the linked quarter.
The release in the quarter was primarily driven by the recovery of a $1.7 million related to one indirect sienna alone.
It had previously been charged off in 2016.
Offset by 800 by $800000 in net charge offs in seeing I do a couple of small loans from the NRP portfolio.
Turning to slide 13, the allowance for loan loss was approximately flat at $31.7 million compared to the previous quarter end.
At September Thirtyth 2019, the bank had $71.0 million of impaired loans, which includes performing tdrs for which a specific allowance of $6.2 million was made compared to $59.3 million of impaired loans in the linked quarter.
For which a specific allowance of $3.9 million was made.
The ratio of allowance to total loans was 96 basis points at September Thirtyth, 2019, and 101 basis points at June Thirtyth 2019.
Turning to slide 14, our return on average equity and core return on tangible common equity were 10.9% and 11.4% respectively.
The core return compares to 10.5% for the second quarter of 2019, and 12.2% for the comparable period in 2018.
Lastly, we remain well capitalized to support future growth.
Before I turn the call over to the operator, I would like to summarize our full our expectations for our full year results, which are included on slide 15.
We continue to expect pretax pre provision earnings of $66 million to $72 million and expenses of 31 at $33 million per quarter.
As mentioned, we have updated our expectation for deposit growth to 14% to 18% adjusted for the $327 million of year end deposit flows in 2018.
Loan growth expectations.
Between 9% to 12% and net interest margin for the full year of 3.55% to 3.60%.
To conclude and before we open up for questions. We're pleased with our third quarter results remain conservative regarding our outlook for the remainder of the year as we take into account the current rate environment.
Thank you again for your time today, we look forward to updating everyone on our fourth quarter results in January .
With that I'd like to ask the operator to open up the line for any questions operator.
Thank him if he would like to ask your question. Please press star one and your telephone keypad.
I mean should tell indicate your line is in the question Q you May press star to if he would like to remove your question friendly Q.
I have tested using speaker equipment and may be necessary to pick up your handset before pressing the star if he is.
Our first question is from Steven Alexopoulos with JP Morgan. Please proceed.
Hey, good morning, everybody.
Morning, Hi, Steve I wanted to start on the deposit side. So you saw pretty notable increase in interest bearing deposit costs again this quarter give some color on what drove the increase in Threeq, you and why wouldn't we expect deposit cost to continue rising, particularly given you're still so far below peers.
Yes, so good question.
We did see a little bit of what I would call end of cycle adjustments that we made for a handful of customers.
That we're still looking for some interest rate increases that the at the end of what is.
Was there a perception of a rising rate environment.
I think what you'll see in the future and obviously you know there's this somewhat predictive but we have done some additional adjustments in terms of our across the board commercial pricing.
That should ameliorate any kind of additional increases and have looked at you know a number of the one Austin and anything that we were seeing has definitely slowed and I would not anticipate.
You know any continued increase in the interest bearing deposits of our current customer base.
Okay.
That's helpful.
And then to switch gears I wanted to follow up on this potential for Denovo offices in 2020.
Maybe I'll start what are you thinking in terms of target markets. Then the thought at this point a larger presence in one market or maybe smaller presence in several markets, how you're thinking about that.
Yeah, I think more the latter you know we continue to look at the kind of markets that we talked about that have a significant concentration of our core customers in the political nonprofit and union sectors. We've been pretty clear that we think the best markets for that R.L.A., Boston and Chicago as we have not been successful and finding.
You know satisfactory M&A opportunities in those markets, we are looking at.
In 2020, putting de Novo staff in those markets I do think you know it it is not going to be the kind of classic loan production office that you would think because we would not want to lead in loans. In these markets. This would really be deposit gathering operations and really the.
Folks working on expanding trust opportunities for us to drive that noninterest income. So I look for us to do a couple of markets. Those are plans that were sort of hatching as we speak and really beginning to build into our 2020 budget projections.
Okay. So these would be actual branches Keith at this point, whether it be commercial office is I don't think we'll stop them with a full branch Steve in terms of actually taking cash and the in the and the operations. It would be Cas was commercial offices focused on commercial deposit acquisition.
Okay, and then a final one for drew I was hoping so we get delayed but not looking likely.
So maybe that it takes place here shortly what are your thoughts on the day one impact.
Well so for seasonal.
Steve we are actually now eligible to be a 2023 adopter.
Which we've come to that conclusion after the Fas be release there.
Took their vote on the revised guidance. So we're still talking about when we will actually implement we're currently our current.
Project plan as you know has us implementing in 2021 a year later.
I have an option to go longer and then we're going to evaluate that option and certainly it's an advantage I don't think theres, a first mover advantage in seasonal so us being waiting at least a year to adopt I think will allow us to look at.
What's happening with banks and in the industry as as its being implemented so.
So just as just as a reminder, Steve do we already had the year delay opportunity as an emerging growth companies and now we may have a longer deal. We believe we have a longer delay if we choose to take it.
Okay, but it sounds like you would take it.
For what drew saying.
No I wouldn't I wouldn't say that yet Steve I think we're really literally last week guidance.
Our legal counsel came to the conclusion, it's it's not a straightforward as you might think like most things with Cecil.
But so we did we did they did come to the conclusion advise us where 2023 adopter I think the tradeoffs here are.
Obviously, it's an advantage to wait a year and watch what happens at some point, though.
You become the one bank our size that hasn't adopted and we need to figure out if thats a place, we really want to be or not in future.
Okay.
Terrific. Thanks for taking my questions.
Thanks, Steve.
Our next question is from Alex Twerdahl with Sandler O'neil. Please proceed.
Hey, good morning, guys.
Yes.
And just one first quick housekeeping item do you have drew the amount of the FDIC credit that you got in the third quarter.
Yes that was.
Just over 400000.
Okay, and then as we think about expenses in some of the things you did during the third quarter two to lower your costs and in some of your prepared remarks, you talked about the further cost saving opportunities into 2020.
As we weigh that against some of the de Novo branch.
Virginity is and considerations that you mean has talked about a minute ago. How do you think about expenses going into next year do you think that those two will be able to offset each other and expenses you remain flat or is are these de novo opportunity is going to push expenses higher you know what these cost saving initiatives initiatives.
Yeah, I think we're well we're now ready to give 2020 guidance, which which I think is what you're asking and I don't know it will be a direct offset between the two but I certainly think that that there's some progress that can be made on the expense side that will go a long way to offsetting some of those increases from the de Novo losses.
Okay, and then just a switch gears the margin here for a second.
The margin guidance kind of being revised lower is that more a function of just the timing of anticipated rate cuts I assume that you have an October cut.
Baked into your margin guidance for the full year and then just the second part to that question now that the indirect cnine portfolio is kind of an mostly in the rear view mirror, how do you think about rate cuts impacting the margin.
Ongoing basis.
Yes, so there's the immediate impact of the rate cut on the short term of the curve, which is really going to be felt more in the investment portfolio than on the loan side, because the indirect see an eye runoff that happened those were.
Entirely floaters, except maybe one loan so taking that out has added a lot more duration to the loan side of the balance sheet. So the immediate effects going to be on the on the investment portfolio.
Shape of the curve as you as you all know obviously impacts were NIM is going to go over the longer term and I think the middle to the long end of the curve has already baked in a number of cuts it'll be interesting see how it reacts when we finally get the next fed decision.
I'm, giving you all the variables here, Alex sorry, and then the last one I think is actually just the risk premium on the loans that were originating and so while for example, or interest rate risk modeling assumes parallel shifts.
Impacting income it also assumes parallel shifts in the risks spread.
On a different asset classes and so we havent seen those risk premiums come in as much as the curve might otherwise indicates so thats been helpful. As well so lot of variables. There. If you. If you think of the disclosures we've given previously we've said.
2.5 million for every 25 basis.
Assuming a parallel shift in the curve and in the risk premium. So that number is probably going up a little bit to closer to 3 million because of all the DTA that we've added on and where we're at with the.
With the convexity.
Portion of the curves, especially on residential mortgage but the guidance is largely the same as it was performed.
Okay and then just a final question for me just to clarify so.
You increased the.
Guys for deposits entered into year increased loan growth guidance margin lower end of the arrangement range unchanged expense is basically flat yet the pretax pre provision income I would've thought maybe given all these things put together would actually take a little bit higher. So is this kind of just suggesting that maybe there is a little bit of increased confidence just to hit the upper.
End of that $66 million to $72 million range or would that be to both of the statement.
Hey, maybe a little bit bold, let's see what let's see what the fed doesn't where things coming in Q4, but the range. We didn't adjust we have NIM. Obviously has gone lower balance sheet has gone up so I think thats, maybe a little positive for Eni Wild wild.
NIM is impacted by the rate environment caused staying the same we're kind of in the same range. We were for when you add it all up.
Okay. Thanks for taking my questions.
Yes.
Our next question is from Bryan Maher and with Barclays. Please proceed.
Good morning, Thanks for taking my questions I think we'll start maybe on the loan side.
Can you talk about where you're seeing like your origination yields across the different products.
Yes, so what's the mix.
Yes. So for example, residential we have US moved away from 30 year originations, though I will say.
The the reason revive boom that that has been happening impacting Q3, and we'll we'll certainly carryover into part of Q4, I think we picked up a little more 30 year, there than we anticipated and we've taken some steps to move away from that but the shorter end on residential is probably 325 to 350.
Certainly lower than where our loan yields or loan yields are right now, but higher than where anything is coming on the securities portfolios. That's still a positive trade versus the securities portfolio, the multifamily markets pricing anywhere from.
325 to 375, depending on the duration of the deals and where you're at on the.
On on Dbi and LTV.
And then the other deals were doing pays originations commercial loans those are coming in in the.
Anywhere from 4% and higher yields so thats, a place where we're getting more attractive yields in more differentiated yields from the rest of the market and then Brian I would just that kind of putting your and Alex's question together, a little bit that focus for us is really in that higher yielding part of the other portfolio. There as we shift make some moves to try.
And shift our loan to deposit ratio very very focused on what in our conservative portfolio still remains our relatively higher margin yields in that in energy efficiencies basin.
And the pace lending space in particular.
Okay, Great and then maybe mix between fixed and floating on these loans.
Okay.
Most of what we're putting on his fix now.
Fixed for example in residential I'm going to say a five one arm as a fix now to floating I think you're looking you're talking about pure floaters, but for the most part whats coming on is fixed rate and Thats, where we've certainly been targeting.
Our loan originations.
Okay, Great and then maybe you could talk a minute about the via use the loans that are coming on this new program that you got started.
We've been doing it over the past several quarters. So we put on about 50 million.
This quarter and those are coming on or at least this quarter. They came on at 350 I think the spreads have come in a fair amount over the past couple of quarters.
Very attractive there, obviously pretty much risk less from a credit standpoint, and with the exception of some we put out at the beginning to have very good prepayment protection as well so.
In attractive asset class and again, when we compare to alternatives in the securities portfolio. It looks like a good addition to the total loan portfolio.
Okay, Great maybe moving on quick one on expenses.
There is a pickup in the kind of legal and professional fees looks like driven by some.
Fox related expenses.
Hello.
Just to continue as is going to ours is like a onetime type of an item.
Well I don't know if I call. It one time certainly the Sox work is I think mostly one time theres, a pretty big implementation costs, there that that needs to happen in stocks will be finished at the end of this year.
So that will go away I think where and I think there will be some some decrease in those costs I think where there will still be some professional services spend is Keith alluded to some of the projects that were going on in the trust and asset management Department and I think there will be some project spend there over the next.
Keith what six months, probably six to nine months, yes, six to nine months that might keep that number a little bit elevated, but but we think the benefits of those projects will.
More than more than justify the cost increase thats that'll happen in the near term.
Okay, great. That's it for me thanks.
Yes, Brian .
Our next question is from Chris O'connell with KBW. Please proceed.
Good morning, everyone.
Hi, Chris.
Just wanted to see if you guys could give the breakdown on.
What what the loan purchases were this quarter and maybe what the yield was on those purchases.
And then also.
What the yield is on the remaining space at 61 million of indirect cnine.
Sure, Yes. So so we did a 12 million in purchases on.
Residential solar which is sort of finishing up a flow agreement that we had in place with one of the.
One of the company's there and that was a about a 6% yield on those loans.
We did 16 million in pace.
Which which I will add is a space, where we're doing some work to increase our originations.
I'm, sorry increase our purchases in partnerships in that space. So I think will maybe a more to talk about that in the future.
I'm not going to give the pricing there because we're in some negotiations, but it's it's well within the range of our existing portfolio in terms of yields.
And then the government guarantees that Weve, the 50 million I previously mentioned those were at 3.5%.
And then the 60 million we have in the indirect portfolio those are going to be LIBOR plus.
Threeeighty is where those are right now.
And then Chris I would just add just as a reminder, why we like the purchase base here is.
The all in cost of acquisition of these assets is significant really lower than the origination of anything we directly sourced ourselves and these are all servicing retained options for us so very very efficient way for us to originate and service loans.
Got it and so what was the breakdown I guess in the originated loans for the West Coast franchise in the East Coast and if you guys have been seeing.
You know the ramp up and kind of the west coast.
Legacy new resource.
Build up but you.
Kind of wanted to see coming into the year.
Yes, I don't know that we look at it really in terms of geographically, where they're located I would say that the team that we brought in from new resource.
Very very pleased with what's happened on the loan production side.
On that exactly what we wanted to do particularly in the energy efficiency and in the.
Renewable energy space I'm seeing loan originations really across the country in that space generated by that sometimes sourced by our commercial bankers and then and then handled by that team and using our bigger balance sheet to really put on on significantly larger sized facilities in those in those spaces, whether it's a purchase package or.
Individual loans were very very happy with what's happening from that from that transaction that is where the vast majority of RCM activity of being is coming from it may not be in California, but it really comes for as a result of that have that the acquisition of that team.
And the one thing I'll I, didnt mention or didn't make entirely clear, but up to 70.
78 million that we purchased in Q3 all of that was energy efficiency related so as residential solar pace. Obviously, we've talked about before but then the government guaranteed were all use da solar farm loans as well so.
So while they are purchased loans are going along way towards our mission on the renewable energy standpoint.
Got it.
And just.
You know thinking about the credit outlook going forward.
I don't know if there if you guys can speak to whether any of this indirect seeing eyes or has fallen off or or been paid down in the fourth quarter already.
Or if you have any thoughts as to kind of.
The normalization of.
The recoveries are net charge offs and and.
Any thoughts on if we could see kind of a more normalized provisioning charge off in kind of reserve quarter in the fourth quarter. This year.
So I would say generally we're not seeing any any trends that.
Concern us from a credit standpoint the.
You know the obviously, we had to pay down 17 million reduction in criticized and classified loans actually had another 6 million reduction here in Q4, so feeling pretty good on where the criticized and classified they're going as well.
The only the only loans out there that.
I think cause any concern or are really those three indirect cnine indirect cnine loans that are part of that $61 million out there and we continue to watch them every quarter and.
We'll see what happens to those three but I think that that portfolio is.
It had a pretty fast run down I think it's probably just going to dribble from here on out, but we might be surprising get a payoff here or there.
Got it.
And then just last one year I mean, you've you've announced.
Some pretty good progress on the share repurchases already in the fourth quarter.
Is there can you remind us if there's any.
Tc ratio or capital ratios that.
You want to keep at a certain level.
Maybe with some margin of safety your buffer there.
In terms of capital to keep that allows for M&A or comfortable level that you'd like to operate up.
Well the range that we've talked about in the past is operating in this seven and a half day in half percent tier one capital ratio, which were at 9.03. This quarter. So we're at the higher end and we feel like we have some some room to deploy capital.
Share buybacks, one way, we meet with our board this week to discuss the dividends so.
Well, we'll see where that comes out later this week the.
And by that I mean, I don't mean, it there may be an opportunity to raise it will see with the board decides to do there the but I think every quarter, we have a conversation with our board on capital and what we want to do on the buyback and on the dividend and we'll continue to do that thoughtfully and think about how best to use capital, but our metrics remain the same as far as M&A I think weve.
Run through the the main potential targets, we hadn't really didn't come up with yield as Keith said that made or exit met our economic criteria. So I think right now there's there's really nothing in the pipeline that were staring at to do a deal on but if we were able to still be that three year or less payback that we'd be looking for.
And then we think share buybacks as sort of an opportunity to acquire more of ourselves. So that metric certainly wouldn't be higher than three and a half year three years in terms of where we do a buyback as well and then obviously like every bank were just watching Cecil to figure out what we may have to reserve from a from from a perspective there.
Got it.
Great. Thank you.
Thanks, Chris.
Our next question is from William Wallace with Raymond James. Please proceed.
Thanks, Good morning, guys.
Hi, Wally.
Hi, yes.
We've talked a lot we talked a lot about a lot of the moving parts with all the line items when it comes to net interest margin and what happens with a cut.
I'm just want to maybe you can help us just put above on this as we think about our models. So if the fed cuts. This week and then pauses well once we get passed the impact of the fed cut.
With your loan mix potentially shifting but your deposit mix also shifting as you continue to build up the.
Political deposits would you anticipate that margin would be stable or do you think there'd be pressure moving on or you think deposits that you're bringing on could.
Actually drive expansion.
I think is I think it's going to be tough to get NIM expansion and less the curve makes a.
Pretty dramatic move from where it's add more so the long end of the curve because over time.
It's going to be tough to not have those lower rates as kind of the three to 10 year point bleed into your margin right and then we have the levers we talked about in the past, which is a loan to deposit ratio deposit growth and I think those can definitely help offset.
But most things going on the books now are coming on lower than than where our loan yield is right now with the exception of the commercial loans and we've we have a pretty good pipeline there in the near term. So I think we can help offset a lot of that pressure, but but I think we're not going to be immune to gravity over the longer term if the current still stays low like this.
Okay. Thank you that's helpful.
Keith in your prepared.
Remarks, you talked about diligence on three potential transactions that.
Ultimately didn't meet your criteria.
Can you tell us what's the criteria that that you missed on was it all around pricing or did you find when you sat down and started to take and that.
Culturally.
These transactions didn't work out.
Yeah, I would say strategically really I mean, we could probably have made some of the deals work from an economic perspective, but when you stared at what we were actually getting for the transaction from a sort of deposit quality and composition standpoint, and then really from an asset quality and composition standpoint for relatively small transactions.
We were looking at things and we just said you know for the strategic value that we're actually getting from these transactions. The degree of difficulty of doing this especially when we're staring out the possibility of using that same capital to buy back around company. It just didn't make sense for us as you know at the end of the day and that and the failure Pos.
Ability right from an operational integration standpoint.
Just felt not right for us so I call it strategic rather than cultural but maybe that's the same thing in your head.
That's fair and then should should should we take your.
You're kind of initiation of commentary around looking to enter some new markets on a de novo type basis should we take that to mean that that you feel like M&A opportunities or perhaps.
Less.
Less attractive than maybe you thought.
Six or 12 months ago.
I'd say, we're still looking for M&A opportunities they come in our markets. We've always said, we're going to be choosy, but I would also take it to say, we're not going away, we're not going to wait for an M&A opportunity to get in those markets. We think right. We have significant runway in other markets and we think you know we've we've we've been able to achieve growth in in a market.
Washington, without having to do it through an acquisition. We think we can do it in other markets and and while there are certain advantages to being able to have an acquisition and give yourself a head start.
We think next year is year, we can just go into those markets and began.
Working our tails off to actually build our business.
And.
For what it's for what it's worth I mean, what about what about looking to invest more in markets like DC in San Francisco, where you have a very small.
Presents relative to the size the overall size of the market.
Not really an either or decision in our minds, but really a both and how do we actually grow the franchise, both in our organic markets and add some inorganic opportunities as well.
Okay fair enough.
And then one just one last housekeeping you said it was 400000, our FDIC credited fourth quarter.
Do you anticipate or are you going to be accruing that credit in the fourth quarter as well.
Or did you take it all the third quarter.
So we so so what we took as a credit just directly offset what our assessment was in Q3 so.
I believe you know if the if the FDIC funds stays where it's at that credit should be available continuing into Q4, as well and probably into Q1.
Okay.
Thank you Thats all have appreciate it thanks Wally thanks.
Ladies and gentlemen, we have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.
Thanks, I just want to again, thank everybody for taking a little time. This morning, joining US again, we're very very happy with the quarter I think a lot of great clarifying questions came from the folks who have questions. This morning, we appreciated and look forward to talking to you all in the future. Thank you.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.