Q3 2020 Heritage Financial Corp Earnings Call
Ladies and gentlemen, thank you standing by welcome to the Heritage Financial quarterly earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require often assistance you made the press Star then zero as Rick.
Hi, under today's Cosby recorded replay information will be given at the conclusion of conference.
I'll turn the conference over to your host President and CEO, Jeff do please go ahead Sir.
Thank you Kevin welcome to all who called in and those who May listen later this is Jeff dual CEO of heritage and.
Attending with me are Don Hinson, our Chief Financial Officer, and Bryan Mcdonald, our Chief operating officer.
Earnings release went out this morning pre market hopefully you have had an opportunity to review it prior to the call.
We have also posted a third quarter investor presentation on the Investor Relations portion of our website.
Please refer to the forward looking statements in the press release.
We are pleased with our performance in the third quarter, we continue to operate the bank effectively with the majority of our branch lobbies, hoping by appointment only at about 40% of our workforce working remotely.
Despite the challenging circumstances, we've adapted and this operating model has worked for us.
It has worked well for us and actually has helped us identify some new areas for efficiencies and increased productivity.
We have reached something of a plateau with regard to reopening the economy and the two states where we operate.
The major metro areas are still generally operating in a more Atlanta fashion, then the less populated rural parts of our footprint.
The downtown areas of Seattle, and Portland feel pretty empty, but.
But there's a lot more movement outside the core metro areas.
We expect to remain in the current level of activity until we have some relief from a vaccine.
We announced the consolidation and closure of nine branches or 15% of our locations. This.
This move is in response to our ongoing efforts to improve efficiency.
And at the same time respond to the evolution of the industry overall, we can.
We continue to focus on digital enhancements in the back office to continue to improve the customer experience. Our goal is to optimize operations by integrating systems that process automation, which will allow us to do more with the same workforce and also better serve our customers.
Well no we'll now move on to Don Hinson, who will take a few minutes to cover our financial results, including color on our core operating metrics with some specific comments about credit quality and Cecil.
Thank you Jeff.
As reported in our earnings release, we recognized earnings of 46 cents per share in Q3, and our way of 1%.
We also showed improvement in or Chris efficiency ratio from the prior.
From the prior quarter in spite of a lower margin.
Moving on to the balance sheet net loan balances were relatively flat compared to Q2 levels we had.
We had an increase in sea or <unk> loans and commercial construction loans this being offset by decreases in CNO and consumer loans.
Impacting c. and I was a continued decline in utilization rates for operating lines of credit to 23.3% at September 30 from 26.2% at June 30.
Consumer loan balances are decreasing due to indirect auto loans, which we ceased originating earlier this year.
Bryan Mcdonald will discuss loan production in a few minutes.
Deposits increased 121 million in Q3, due primarily to a combination of new deposit relationships obtained in conjunction with the SP PPP lending process and existing customers maintaining higher cash balances.
We continue to have very strong balance sheet liquidity.
At quarter end, we maintain combined credit facilities at the federal home loan Bank Reserve Bank and fed funds lines and other banks of over $1 billion.
In addition, we have unpledged investment securities and overnight cash balances totaling over $1 billion.
And broker deposits currently make up less than five basis points of total deposits.
Our loan deposit ratio was 82%.
We continue our long standing strategy of operating a balance sheet with low leverage, which we believe will service well in our current economic situation.
Regarding credit quality, our net charge offs for Q3 were 481000, the bulk of these charge offs were due to to see and I borrowers impacted by COVID-19.
We also experienced an increase in non accrual and potential problem loans due to the continuing impacts of COVID-19.
The increase in non accrual loans was due primarily to three commercial lending relationships total lease up totaling 17.4 million related to covert impact in high risk industries.
The increase in principal problem loans was due mostly to loans that have been modified under the cures Act provisions a true showed signs of credit weakness.
Moving onto loan modifications of the expiring first round of modifications, 21% have received a second modifications.
At the end of Q3, we had 260 loans that were in payment for a modification status totaling approximately 117 million, which represents 3.1% of the loan portfolio ex PPP loans.
At September 30, approximately 42% of these current deferrals were interest only payments and 58% were for full payment deferrals.
81% of the loans and payment deferral status or on their second modification.
Oh, the $117 million of loans and modification status at the end of Q3, approximately 41% our loans related to either the hotel restaurant industry, which are too high risk industries, and our portfolio most significantly impacted by the cold shutdown.
Provision for credit losses for Q3 was 2.7 million compared to 28.6 million in Q2.
The provision for Q3 included a provision for increased unfunded commitments in the amount of 410000 due to a combination of an increase in forecasted loss rates on CNO <unk> loans and the lower.
Physician reach our previously mentioned.
At the end of Q3, the allowance for credit losses on loans increased to 1.57%.
Of total loans were 1.53% at the end of Q2.
Excluding PPP loans, which are guaranteed and not provided for the allowance for credit losses on loans was at 1.93% at September 30, an increase from 1.8% at June 30.
This higher allowance was due to an increase in the number of individually evaluated loans moving to non accrual status during the quarter offset partially by a decrease the allowance for loans collectively evaluated.
The decrease in the allowance for loans collectively collectively evaluated was due to a marginally improved economic forecasts.
The magnitude of future provisions will be dependent on a combination of factors, including economic forecast charge off experience and loan growth.
Our net interest margin decreased 26 basis points in Q3. This occurred due to a combination of new loans and investments, having a lower than current portfolio rates due to the lower yield curve.
Repricing of existing variable rate loans and investments.
Higher percentage of lower yielding overnight cash balances and the PPP loans, which have a much lower yield than the rest of the loan portfolio part.
Partially offsetting the lower loan and investment yields was a decrease in the cost of deposits deposit cost decrease in all categories with a total cost of deposits decreasing 70 basis points in Q3.
Noninterest expense decreased $1 million in the prior quarter due primarily to a decrease in professional services.
Professional services decreased due to approximately $1.1 million in Q2 costs associated with the implementation of heritage direct our new online and mobile commercial banking platform.
Compensation expense decreased in Q3, due mostly to reduce DFT lower incentive compensation accruals and a decrease in kogan MPP related compensation costs.
Offset partially by a reduction in deferred compensation costs, resulting from higher PPP loan originations in Q2.
FDIC premium expense increased due to a combination of higher assessment rates and it being the first quarter over the past four quarters, where.
Where we did not have any small bank credit remaining to offset the assessment.
And finally, moving on to capital, we remain well capitalized for all regulatory capital ratios.
Although our TC ratio was 8.5% at September 30.
The ratio was 9.9, when you remove the impact of the PPP loans, which.
Which is unchanged from the prior quarter.
Yesterday, the board declared a 20 cents dividend, which is consistent with the prior quarter.
Based on our capital position and long term outlook, we believe the continuation of the regular dividend as appropriate.
Robert Donald will now have an update on loan production and ESB.
Thanks, Don I'm going to provide detail on our third quarter production results, starting with our commercial lending group for the.
For the quarter, our commercial teams closed $181 million in new loan commitments down from $200 million last quarter and down from 305 million closed in the third quarter of 2019.
The commercial loan pipeline ended the third quarter at 386 million down 8% from $421 million last quarter and down 12% from 440 million at the end of the third quarter of 2019, new.
New loan demand has been negatively impacted by COVID-19, with many customers putting capital projects expansion plans and bank transitions on hold.
Consumer production was $19 million for the third quarter up from $18 million last quarter and down from $59 million in the third quarter of 2019 the decline versus.
The decline versus 2019 was due to the discontinuation of our consumer indirect lending business during the first quarter of 2020.
20.
Moving on to interest rates, our average third quarter interest rate for new commercial loans, excluding PPP loans was 3.55% an increase of 10 basis points from 3.45% last quarter.
In addition, the average third quarter rate for all new loans, excluding PPP loans was 3.64% up six basis points from 3.58% last quarter.
The mortgage department closed $49 million of new loans in the third quarter of 2020 compared to 53 million close in the second quarter and $48 million in the third quarter of 2019.
The mortgage pipeline ended the quarter at $52 million versus $51 million in Q2 and $39 million in the third quarter of 2019. So.
The strong pipeline, that's due to a spike in refinance activity caused by the drop in long term rates refinance has made up 70, 77% of the pipeline at quarter end.
And finally moving on to PPP, we started taking forgiveness applications in waves from our 4600, plus SP a PPP customers in late September and as of this morning have 424 applications in some stage of the process. We have one loan that has progressed all the way through SP.
The approval, but have not yet received any payments of forgiveness proceeds we anticipate.
We anticipate inviting all customers to submit for forgiveness by the end of 2020 and the process to continue into late 2021, I will now turn the call back to Jeff.
Thank you Brian as I mentioned earlier, we are pleased with our performance to date.
Hey sales at a healthy 1.93% ex PPP and we are in a better position now with a clear view of our portfolios expected performance over the next several quarters.
Our conservative risk profile and our much discussed concentration management system have positioned us well for the impact of the pandemic.
Our primary concerns remain with the high risk categories of restaurants hotels Recreation Entertainment, which is not new news we are.
We are working closely with the business owners and these businesses make up the vast majority of the increases in non accrual and pp.
Potential problem loan categories Jeff.
Generally we are approaching around threed deferral requests by downgrading ratings, and moving loans to TDR and or non accrual status.
Of course, there are many better variables to consider in the near term, including the elections additional government stimulus and how long we remain in the current state of reopening the economy, but for now we are comfortable with where we sit and believe the damage to our loan portfolio, maybe much more subdued than we originally.
They did when they pandemics target.
As Don mentioned earlier, we believe our current capital levels are adequate and our robust liquidity provides us with a solid foundation to address challenges and to take advantage of opportunities.
That is the conclusion of our prepared comments. So Kevin we are ready to open up the call and now and welcome any questions from anybody on the call.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one than zero on your telephone keypad you may withdraw your question at any time by repeating the one than zero command. If you are using a speakerphone. Please pick up your handset before pressing the numbers once again, please press one than zero for questions.
Well go to the line of David Forster.
Raymond James Please go ahead.
Hi, good morning, everybody.
Good morning, David.
I just wanted to start on the branch rationalization you guys have done a great job on the expense front, but just can you talk a bit about the decision to close these branches. How you identified the ones that you are closing and then maybe just expectations.
For attrition.
I mean, just given the use of technology would you expect attrition to be lower and then just finally, just maybe the timing of some of the cost saves and where it comes out whatever its occupancy or salaries.
Yes, I'm happy to start and Don May want to chime in as well.
We started this process several months ago and went through a pretty rigorous analysis of each of the locations in our overall footprint.
Up till now you know we have closed I think 22 branches over the last seven to 10 years, we've done them in ones and twos and we have some experience with it so.
So when I get back when I go back to your comment about what we expect in form of attrition.
Historically, we have estimated between 20 and 50% depending on how extreme the distances from one of our branches.
In most cases all of the ones. We're talking about are are relatively close to another branch. So we would expect.
Relatively moderate runoff maybe.
Maybe in that 10% to 20% range I think historically, even when we.
Estimated 20% for example, we typically didnt get past 10%.
And I think that we'll probably see.
Maybe the same results or maybe better because people have more.
Digital access to us than maybe they did when we are closing branches in the past.
Don you want to add anything about the expenses and the timing.
Sure I think its service spread over the next two quarters depending on.
Some of the facilities are leased and so it depends on the timing of our.
Settlement with the with the lessors.
So and then also is this any severance packages so that will illness, we spread out over the next two quarters. It should all be done by again Q.
Q1 of next year.
Okay, and going to going back on jeffs about the run off historically, we have on average been around 15%.
Runoff and so with technology, we are hoping to keep it within.
10% to 15%.
And how much of that $2.3 million year, where do you think the break down between occupancy versus salaries and benefits.
I think its a.
Traffic right now I think it's mostly.
Occupancy.
Okay, and as opposed to salary benefits.
It's spread out so again, we didn't run our branches, where we've been running expenses branches as it was as you see it's about 250000 per.
Per.
Per branch, so they weren't expensive branches.
Yes.
That's helpful. And then just on the loan production once our loan production trended where are you seeing opportunities really demand whats the close to your clients and I guess just.
What's your your appetite for new loans.
Brian you want to take that one yeah.
Yeah sure. It's some you know our appetite is still there were obviously, we have a heightened emphasis on credit quality and we've asked our bankers to.
To pay additional attention to management of the portfolio for obvious reasons. So we've really been highlighting that math.
At the same time encouraged our bankers to remain active with the clients and looking for new opportunities and.
You know, we're still actively looking at both.
Refinances as well as you know as well as.
While as new opportunities as well as kind of a.
Kind of a separate group that that came to us through PPP. So.
If you look at the numbers.
You know the closings were down versus last year by about a third but the but the pipeline.
It was down about 12%, so I would consider that pretty good and we're still seeing new opportunities.
On a regular basis.
You know, Jeff talked about the kind of what's going on in the communities and.
And although the the Metro markets people are working remotely is held up pretty quiet. The businesses are still active in business is still being conducted so.
Now our customers are being a little bit more cautious switch, which we appreciate it thanks reasonable, but there is still there is still loan demand there and.
And you know, David we see it directly Brian and I.
Get involved in.
Exposure and approval hits, a certain level and we've seen pretty much the same flow of deals that we were seeing before it's not.
It's nice to see that there's activity out there.
Okay.
Okay. That's helpful. And then I mean deposit growth has been tremendous and maybe this is the wrong way to think about.
Maybe some interesting would be a good way to deploy some excess liquidity, but.
I guess, how do you just think about deploying excess liquidity going forward and maybe you know expectations, assuming the yield curve president Steven.
Our time, what do you think.
How do you think about the mid near term and where do you think we should where and when should we draw.
Okay.
Oh with regard to deposits David were still seeing the benefits of that 20% of the PPP loans, we did.
Were for new customers and we continue to work with those customers.
We've talked about that for.
Now two quarters now and it's taking time, because everyone's remote and the new the new perspective customers are slow to move partly because of their remote and we can't get together as easily as normal but we.
But we can see evidence of those deals closing and business coming across and that is embedded in the the growth on the deposit side. We also.
I will now have seen the phenomenon of.
Businesses that were operating who got Pvp money, let it sit.
I think now we're starting to see some of that PPP money get used.
And Brian you probably have some comments on deposits that you want to add.
But I think we would expect deposits to be flat or start trending down.
And Brian After you comment maybe Don you want to pick up on the NIM question.
Yes, Jeff said, we are still adding new accounts about it and then just generally third quarter tends to be our you know our highest growth month, historically and on top of that we've seen a lot of existing customers continued to build liquidity. So.
So Don I'll turn it to you on the NIM.
Okay.
Yes.
And just as or.
Remind our Q3 is our.
As our largest growth quarter, usually so.
On the on the NIM again, our cost of deposits was first we'll talk a cost to kind of have to break the NIM into many pieces here.
The cost.
Pauses, we expect acute dropdown, we may end up hitting bottom around.
15 basis points total cost were at 19 now so it's not a whole lot will have to go there, but we are looking to work it down further.
On the overall NIM.
We are still putting on loans and 364.
Last quarter.
And the kind of the core.
Great yield is 412, so there's still some room to come down although when you factor in loan.
Fees and stuff like that it doesn't always equate, but I think we are going to see a little bit of drop again next next quarter in both loan yields and NIM.
Not to the extent extent, we would have this this past quarter and less.
Our non accruals go up because that does start when you start getting in these cycles how.
How much you put on non accruals.
No impact.
The NIM.
Okay. That's helpful. Thanks, everybody.
Thanks, David.
Okay next we go to the line.
Please Jeff Lewis.
D.A. Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Dave.
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Hey.
Yes.
I guess the branch rationalization.
How does that alter your thoughts and we're probably not at the doorstep of this just yet, but if you think about future M&A does it alter kind of you.
The appetite or what you had traditionally sought after.
If we're sort of pivoted to a little more.
Efficient base I know that.
Well I guess, we'll take it from there just do you think it adjusts the M&A approach.
I would say probably not because the way we look at M&A is it's either additive taking us to new areas or its maybe.
Maybe it's a financial play where we we enter into an arrangement and.
We consolidate branches as a result of the undertaking weve done both of those in the past. They have contributed to that 22 closures that I talked about before so no I don't think it necessarily.
Would would have an impact on the go forward.
Okay.
Got it.
Okay, and maybe a quick.
A question for Brian you mentioned.
Certainly demand impacted by co bid.
Oh I see.
Fine Okay and.
And this is everything's covered related but utilization rate decline.
Taking that by pieces is you think thats somewhat stunted by the TPP usage as far as.
That could be better and I know that overall demand may be impacted by coakley, but that specifically is that something that you think is a factor.
Definitely the liquidity Jeff.
We saw we saw a big drop in utilization and Q2.
Something around 100 million on the alliance.
So that was that was a lot of excess liquidity at a portion of that was was PPP dollars that came and where maybe that the company had ended up having a relatively normal revenues. So.
Sell through and the higher look higher liquidity.
So I think its liquidity and then also.
Matt and by all the PPP money in both cases.
As we watch the financial statements come through how much of it is due to maybe a.
Decline in receivables or inventory more cash than that investment in and those assets. So.
So we're watching that but nothing.
Nothing notable I would say, yes, it's.
A lot of the businesses are performing or continue to perform reasonably well but.
But it is really low relative to anything we've seen in and many years.
Great.
Okay last one the non accruals added.
Yes. Thank you.
Have ring fenced.
The additions there I guess are there.
You know any kind of spread to other areas that you think are related to that.
Didn't or was it kind of a pretty aggressive effort to anything that looked at.
Felt like certain credits.
Those were added.
Yes, I I think that we've talked about this in prior quarters, Jeff that we may be slightly more conservative than maybe some of our counterparts, but in this case.
These are relationships that were large enough that we were receiving a good.
A good amount of information over.
Over the past several months and kind of running alongside these customers understanding what they were facing into and.
I think that.
When it comes to the third round of modifications.
We tend to view that as.
More of a TDR status than anything else.
And then the next step is if it's a TDR is that Uh huh.
It's typically a substandard and then we make a decision whether it's non accrual or not we do have circumstances, where we have maybe a.
TDR.
Substandard rating, but we can see support.
That maybe is outside of the contractual arrangement.
Around the payments and we might call that an.
An accruing loan whereas.
Whereas the ones that we called out are the ones that are.
You know TDR substandard and and we.
We we don't necessarily see a lot of support around the contractual payment stream.
That's beyond the entity that is the borrower.
So there.
There is there is room for interpretation at this point in time and.
I think we're all a little bit in a gray area. We have you know up through the end of the year or two.
Two.
To consider.
You know TD ours, but we don't.
We don't think that calling it hit that now is going to be vastly different at the end of the year. So we're approaching it as calling at that now and just moving forward.
We don't see.
Deterioration widespread that goes beyond the high risk categories that we mentioned and any additional activity in this area. We think will come from from that those industries.
You should it ill step back thanks.
Thanks, Jeff.
Next we'll go to the line of.
Matthew Clark of Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Matt.
Maybe we can start with the the margin outlook I know it was touched on a little bit earlier, but you take the.
The yield on new business of 364, you consider securities around one and a half per se.
Percent you've got.
Deposit cost basically bottoming out about 15 basis points. It suggest you're going toward a three or five kind of core margin.
Question is how quickly do you get there but are there.
Is there something about the mix in the production this quarter or last quarter is there anything you can do to kind of improve pricing I know, it's competitive but just wanted to get a sense for whether or not you agree or disagree on that trail side.
Well, maybe I'll start and maybe Brian you can talk to the margin on the loan.
I think we're probably headed based off our current portfolio into the low threes.
It could hit that could could it three or five.
I think it will bottom out next year.
I think that.
If we can get to again, some steepening of the yield curve, which.
Little bit this week.
That obviously helps us a lot on pricing both loans and investments we did put in actually new investments on this last quarter.
I went over to it's just that we didnt buy that many of them because they were were being pretty selective and do.
And you're right. There's a lot of the new of new investments are around the 151 for.
The 150 range, but.
Yes, we will we'll have no. Two is again is a PPP runs off and we'll have to redeploy that.
Well also be challenging for.
The use of those views with those funds, but I think I think next year will be the bottom and there will be will be.
We'll be increasing from there but.
As I said on the loan yields is just because we're putting them on 364 doesn't mean they yield through 64, when you factor in other things like that.
No.
Thanks, Brian you want to talk about it.
Sure. If you look at the change from last quarter. The 358 to 364 there was.
There was a couple of categories, where where we ended up with with a little higher rate than what we had last quarter.
Generally it's the overall mix that caused that six basis point increase.
The the the composition and the underlying categories the relative dollars.
We are raising the spreads and negotiating wherever we can but.
But at the same time, we're booking into the what I would call the top of our portfolio given the environment. So it's the higher quality.
Highest quality portions of our portfolio and so we always have.
Potential for competition and those in.
Those groups, but.
We are we are working both loan pricing on the deposit pricing hard.
At CES, we're also needed to meet the market.
About 15% of your branch network and I think.
25% of the branches are within two miles of one another so why not do more can you do more.
The cost saves being less than 2% of the.
In the last 12 months.
Operating expenses, just wondering if there isn't again an opportunity to do more there.
Okay.
Matt we're always looking at that as a and effort to.
An effort to in an effort to maintain or improve our efficiency.
I'm doing nine is pretty dramatic.
Pretty dramatic for our organization so.
Right now I think we'll be focused on that.
And if you add that nine to the 22, we've done over the last several years.
We havent been sitting on our hands, yes, there may be some that are close in proximity, but often times there.
There is a a play between the two branches that make it difficult to close one over the other but.
But I guess suffice it to say that we're always looking at our branch.
Our branch footprint and how we.
Can improve on it and still maintain our customer base as best we can.
Okay understood and then just on if you want to follow up on something I said earlier kind of a correction.
David asked about the projects.
The closures what I mean.
When I mentioned that most of it was.
It was occupancy cost most of the exit cost occupancy cost about spend about 60% of the ongoing saves.
Our.
Our actually salary and so it's about 60 40 salaries occupancy on the call. The go forward saves just wanted to clarify that.
Got it thank you and then on the PPP.
I guess, how how much of your.
Customers that you funded have started to seek forgiveness.
Maybe in three or four Q.
Yeah, So so right now.
We opened roughly three weeks ago, we've got 424 apps and process.
Only one of those has gone all the way through the SP and has SP approval, but we don't have we haven't been paid that forgiveness on that loan.
Matt.
Although we are likely to receive it shortly.
So we're we're.
Bringing the customers through and waves you know.
We've got a system set up internally and having the various individuals that are working with the customers on forgiveness doing groups at a time, when they're ready to to apply and and our goal is to get everybody invited by the end of this year, that's our goal looking.
Got the waves and obviously our teams on a learning curve.
Currently and so we are.
And so we're taking a little bit slow just to allow everybody to become.
Experts.
But yeah, we've got 424 of the 4600, plus total that have been invited in so far Matt.
Okay, Great and then.
Just on the tax rate I think going into the quarter.
We thought it would be 15% came up around 13 is 13 kind of the expectation or should we put it back to 15 going onto third quarter I think thirteens expectation.
I don't remember communicating 15, but.
13 is kind of what I'm expecting for the year and therefore for quarter.
Okay. Thank you.
Thank you Matt.
And next we'll go to the line.
Please Jackie Bohlen of KBW. Please go ahead.
Hi, everyone.
Good morning.
Just one quick follow up on the discussion surrounding deferrals am I interpreting your comments correctly that hey, there's no real round two re at that point, you're just moving it into a TDR.
Yes, you could look at it that way Jackie we were given you know.
The Cures Act has one set of rules and it and the regulators had given us a leeway to go out six months and if you think in terms of the fact that most of our model.
Modifications first and second round were generally 90 days in duration.
More we get to the third round and it it's time to maybe call. It what it is and.
Forward based on our analysis of them at the time and what the prospects are for them going forward.
Okay. So just does that way of thinking play into dons comments.
Related to the margin, where the kind of unknown factor is the impact of non accrual and what could play out there just as some of those second round of deferrals and impacted the industry completely understandably given the environment.
Are not ready to return to payments data yet so you'll have downgrades that may not necessarily result in losses, given the security you have but could be non accrual.
Apple margin.
I think.
Definitely that's that's a possibility and Don may want to jump in but.
Well, what we're seeing is a.
A lot of the or many of the relationships that we have that are that are requesting quote the third round.
Our in those high risk industry is seeking to understand why they're asking for it but.
What we can do is is obviously take the time to analyze the situation and many of them have.
Extenuating circumstances, where they have support from beyond the entity itself for the borrower itself. So I don't think just because they go to TDR. They have to automatically go on non accrual and I think many of them will not.
Okay.
Done anything you want to add on that no I just I would agree with you we didnt necessarily happen this last quarter, but.
But I think most of what we had.
We had those three big credits it kind of went directly to non accrual because they were.
Obviously struggling and we felt that was the best way to go but I would say of all of them like the modifications of the 117.
Million that we have.
From there.
I wouldn't say that just.
Just because we had a third modification doesn't mean, they're going to go on non accrual I could just again be strong enough to go on a TDR working to extend payments.
And Jackie from a timing standpoint, they came they came to the surface or.
Caused us to take action at the very end of the quarter and they very easily could have slid into fourth quarter, but we're just like let's just let's just take it and go.
Okay, No I understand and I am obviously very familiar with your credit profile. So I just wanted to make sure I was understanding the process.
And then one last topic for me I, just want to make sure that I'm looking at the expense base properly when I start layering in some of the the consolidation savings.
Anything unusual on the run rate in Threeq, you, Tony I know you've got some moving parts there with the new Treasury management system last quarter and it looks like at least optically other expense line was a little bit lower than that and in past quarters. So just want to make sure I'm starting with a good base rate.
Yes, I think if you don't.
Should you take out the exit costs.
I don't think its going to change significantly quarter over quarter I think.
Uh huh.
Toward that $36 million rate with the with some exit costs and maybe just some.
General increases.
I don't think so these increases will be offset by that I think we'll have lower FDIC premiums. So I think the the $36 36 million dollar run rate.
Without the extra costs are probably.
Fairly reasonable.
Okay.
And John how much did that linked quarter increase in the FDIC line item was related to the normalization versus the impact of the leverage ratio.
Uh huh.
So that more time.
The if that in the press release tax that there was some impact to that line item based on the leverage ratio and so I know that the credits were expiring that you had been getting the benefit from and so I couldn't tell what the trend of each of those items was I think the high it's I think our kind of baseline is in the high threes like maybe.
385, or something like that and then so.
I think in that like if I look forward to Q4, I think it's probably more in the $600000 range and then gradually work down as we.
Some of these assets.
Greece, but and so good luck with the leverage ratio improves and.
That will help the overall.
So I think it will be probably about two.
Maybe to 50 lower next quarter.
Okay.
Okay. Thank you.
Thank you Jackie.
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Well, thank you Kevin Theres not any more questions, we're ready to wrap up this quarter's earnings call and we thank you all for your time your support and your interest in our ongoing performance and we look forward to talking with many of you over the coming weeks, Thank you and goodbye.
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