Q3 2020 First Midwest Bancorp Inc Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the first Midwest Bancorp 2023rd quarter earnings Conference call.

Following the close of the market yesterday first Midwest released its earnings results for the third quarter 2020, and tissue presentation materials that will be referred to during the call today. During the course of the discussion today management comments and in the presentation materials may include forward looking statements and non-GAAP financial information.

The company refers you to the forward looking statements non-GAAP and other legends included in its earnings release and presentation materials, which should be considered a call today. It's.

This call is being recorded and all participants are in a whatsoever.

Following the close of patients by Mike Scudder, Chairman and Chief Executive Officer, Mark Sander, President and Chief Operating Officer, Pat Barrett Executive Vice President and Chief Financial Officer, the call will be open for questions and answers for analysts soundly.

I will now turn the call over to Mr. Scott.

Great. Thank you good morning, everyone. Thanks, Thanks to you all for joining US today, it's great to be with you and I Hope. This finds every one of your family is doing well and staying healthy.

Going on this quarter.

As we move through the Oh.

Dialogue today, obviously, we have the materials that are available to follow on with I'll start off with some of the highlights an as is typically our customers I'll turn it over to Mark and Pat to follow along with some further details. So obviously performance for the quarter. Once again reflects the enormity of the times and the inherent and.

Certainly in the environment Encouragingly this quarter business activity showed signs of recovery and that's obviously following the widespread shutdowns that we've seen earlier practically the resulting lag in the recovery of demand from those shutdowns and continued low interest rates.

Weighed on the quarter's production.

Net income for the quarter, a third quarter was 23.4 million or 21 cents per share that's up from 16 cents a share in the second quarter, and obviously down significantly from where we were a year ago.

Operating performance or what we refer to as pre tax pre provision Oh away from branch optimization activities improved 13% to 71 million as we benefited from stronger fee based revenues and lower expenses. All this as a as the we would expect to see is.

The economy recovers, we should see continued improvement there.

Again, mark and paddle expand recognizing the environment we did.

We did take a number of actions this quarter that we believe will hold us in good stead as we move forward, we did announce consolidation of 17 locations as well as certain optimization efforts relative to our retail distribution, an ATM networks that will cost about 12 cents a share but that will be recovered and roughly.

Two years were a little under that we did.

We did reposition a portion of our balance sheet unwinding swap and funding commitments and then liquidating about 160 million in securities all it effectively no cost, but importantly to the benefit of our future net interest income.

And that again without the loss of a fund.

Funding flexibility that still remains available to us.

We held our loss reserves at about 250 million or 1.8% if you exclude the P.P.P. from the the numbers.

Overall credit performance was solid notable for stable nonperforming assets in our legacy charge offs again were stable and delinquencies were lower we.

We did have about 7 million and charges related to closing out one of our acquired loans are largely due to one of our acquired loans.

Which aligned with our original marks so that's simply an accounting nuance relative to cease all the most important element of that is for what how we marked it did it was how we were able to liquidate it.

We have spent a significant amount of time working through our portfolio working with our clients through the deferral process and appropriately the rating migration are performing loans to both special mention and substandard categories increased and that was largely weighted to our elevated risk categories that we've been talking about for some time and.

Was aligned with what we felt were very encouraging reduction in the second quarter second round of deferrals.

Recognizing as I said earlier, the economic uncertainty, we simply maintained our reserves at 250 million near term, we're very comfortable with our reserves a the diversity of our book and where we're at but ultimately as we've said for a number of quarters now the the depth and duration of the pandemic how stem.

Neal this plays out well either drive a better or more challenged outcomes as we go forward with it with that as an overview, let me turn it over to Mark and Pat and they can offer some additional color and walk you through the remainder of the deck markwest pick it up thanks.

Thanks, Mike and good morning, everyone starting on slide three of our presentation.

Loans fell $300 million as another strong quarter and mortgage was not enough to offset lagging a commercial demand court.

Corporate borrowers I would say remain somewhat cautious and very liquid so not surprisingly, we again saw a line utilization fall significantly this quarter well.

While we remain active seeking new business, we have been a bit cautious as well focusing our efforts on taking care of existing clients and maintaining credit discipline.

We have recently gotten back to playing offense more and we're beginning to see a slight pickup in activity and that's we're optimistic for more stable commercial results going forward.

Mortgage had another strong quarter, driven by the favorable rate environment and the high performance of our team.

We elected to sell a greater percentage of our production in Q3, given favorable prices and thus held total consumer loan balances flat in the quarter.

We expect another good quarter in Q4, and mortgage but to close out what will be a record year for us in this business.

Our loan book is well diversified on slide four with very modest exposures to the highest risk areas, resulting from the pandemic.

Fact is restaurants hotels, and recreational or high risk areas in any environment in our view and thus have always been discouraged industries for us meaning they just have a very high bar for approval.

Of course, the virus has impacted the entire economy and we highlighted here other areas that we view is of particular concern.

I would note that we've talked about retail CRB and leveraged finance as being higher risk areas for the last several years and have managed our individual and total portfolio exposures accordingly.

It's important to note that we have seen very little evidence of deterioration in these two areas. These past six months, but given the inherent current risk levels. We are closely monitoring though.

The outlook for office theory is murkier in the current environment. How it plays out remains to be seen but we feel our total exposure in this area to is that a very manageable level and well diversified.

On slide five we provide detailed information by industry on our loan deferral programs as we go.

As we guided to last call deferrals decreased significantly in the second round.

We were pretty accommodative in the first round if a client requested a deferral, but subsequently worked with each of them on alternative solutions going forward.

The fact is requests were down sharply in Q3 as borrowers access other sources of liquidity and also as operating cash flow improved somewhat as the economy opened to varying degrees.

Well the three high risk sectors remained the largest users have blown deferrals utilization.

Utilization by these clients was also greatly reduced by 50%.

The outlook has improved overall see most notably I would say in franchises, while they're not unaffected they are performing better than they were after the freeze up in the early spring.

So to summarize round to deferrals were 3% of our total loan book or 20% of the first run level at the low end of our guidance.

Slide six displays our consumer loan book, which is dominated by one to four residential.

Deferral request here also dropped significantly and our highest risk sector unsecured installment represents less than 2% of total loans and is largely higher end FICO borrowers.

Looking deeper at credit starting on slide seven.

Our metrics were stable other than the risk rating migration we expected.

Nonperforming assets were unchanged and 30 day past due loans actually improved.

We did see a large increase in special mention and substandard loans as we projected due to the pandemic over.

Over half of the total increase in the quarter and these two adverse court categories was from the elevator with segments, we highlighted earlier.

Turning to slide eight.

Charge offs away from HPCD loans were flat at 26 basis points total.

Total charge offs were inflated in the quarter as Mike mentioned by the change in accounting relative to assets, we acquired it at a discount as we resolved a couple of large acquired credits at losses that closely matched our original mark.

We cut our provision in half relative to Q2, but maintained our total allowance levels by adding to our pandemic reserve given the continued uncertain environment, albeit at a much reduced level from the previous two quarters.

Try to give future guidance on credit is difficult given these unprecedented times, while we expect further deterioration our outlook has actually improved from 90 days ago.

We think criticized loans will increase but at a much reduced pace given our proactive looks across the portfolio thus far charge.

Charge offs look well contained in Q4 as well absent a material shift in the environment or one offs that might come as we resolve PCD credits, but again, we expect any P.C.D. losses to be very close to our original estimates.

The credit story will be more evident in 2021, and we'll have a better read next quarter influenced of course by anticipated further stimulus and the outlook for containment of the virus now I will turn it over to you Pat.

Thanks, Mark and good morning to everyone on the call or listening in turning to.

Turning to deposits on slide nine our $16 billion in granular and stable long term deposit base remains our primary source of liquidity combined with over $7 billion and additional funding sources that provide us with more than ample capacity support clients colleagues and communities.

That growth continues to be robust, reflecting both the normal seasonal municipal inflows as well as customers retaining higher liquidity stemming from government stimulus actions and just overall reduced spending.

Funding costs continue to outperform relative to industry benchmarks, although the size of disadvantages diminished in todays near zero interest rate environment.

Turning to net interest income and margin on slide 10, and I'll apologize for the length that my comments, but we had a lot of moving parts. This quarter and this area net interest income decreased 2% compared to the prior quarter and 5% compared to the prior year. These days.

These decreases compared to both prior periods, reflecting the impact of lower rates, partly offset by lower cost of funds combined with a $7 million positive impact from PPP loans outstanding in the quarter up from $5 billion in the prior quarter.

Compared to the prior quarter modestly lower loan and securities balances also contributed to the decline while compared to the prior year growth in loans and securities and the part bank acquisition, partially offset the impact of lower rates.

Acquired loan accretion contributed nearly $8 million for the quarter up a million compared to the prior quarter and down a million compared to the same period a year ago.

Creation was higher than scheduled due to favorable resolution of certain acquired loans.

Continuing on the same slide with net interest margin tax equivalent NIM for the quarter of 2.95% was down as we expected by 18 basis points linked quarter and 87 basis points from the same period, a year ago, excluding accretion margin was 2.79% for the quarter down 19 basis points linked and.

80 from the prior year compare.

Compared to both prior periods margin compression was primarily driven by the impact of lower rates on loan and securities yields.

Lower yielding PPP loans as well as higher liquid, earning asset balances from deposits selecting PPP loan fundings and stimulus actions. This was partially offset by lower cost of funds. So.

The seasonal increase in municipal deposits also contributed to the linked quarter compression as did the normalization of borrowed fund costs from the exceptionally low second quarter levels, we were able to opportunistically achieved.

Our outlook for the fourth quarter for at <unk>, excluding the impact of potential earning asset fluctuations is to see relative stability in revenue, while NIM is likely to see a reversal of the third quarter compare compression, reflecting run off of seasonal deposit outflows as well as potential PPP funding outflows.

Magnitude of this will be dependent upon PPP loan forgiveness, which is expected to occur primarily over the next two quarters. Some will go into the second quarter of next year likely.

Accretion is expected to be approximately $27 million for the full year down nearly 25% from the prior year with 5 million expected in the fourth quarter.

And then Finalization on this slide I'd also highlight the during the quarter in light of current market conditions, we executed a balance sheet optimization strategy to deploy excess liquidity and unrealized securities gains. This involve terminating $1.1 billion in longer term interest rates swaps, resulting in reductions in both current and expected future here.

So borrowings in both the third and fourth quarters of this year.

These actions are neutral to our third quarter net income.

With 14 million pre tax gains on sale of securities fully absorbing the cost of swap terminations, while future net interest income will benefit by approximately $5 million annually. This optimization also provides further flexibility to take advantage of lower cost funding hitting needed future borrowings.

Moving on to expenses on slide 12.

The current quarter includes $1 million of anticipated acquisition and integration related expenses, largely driven by costs associated with the park acquisition as well as $18 million in optimization costs associated with retail optimization strategies.

Away from these items total expenses were down 3% linked quarter and up 7% compared to the same quarter a year ago.

Fair to the prior quarter, lower professional services and occupancy as well as lower other expense, including the absence of a valuation adjustment on foreclosed asset that we had in the second quarter were.

Were partly offset by lower deferred loan origination costs and higher computer processing.

The pitch compared to the same quarter, a year ago, our larger operating base due to the park acquisition higher staff costs, including mortgage commissions combined with elevated pandemic related expenses and technology costs were partially offset by lower professional services and employee benefits.

We continue to be focused on our expense run rate, while our efficiency ratio has ticked up due to revenue declines overall annualized expenses as a percentage of average assets assets. Excluding TPP loans was approximately 2.2% down 6% from the prior quarter and down 7% from a year ago.

Our outlook for the fourth quarter is there our expense run rates, excluding acquisition and integration costs will likely tick up modestly from Q3 due to intentionally delayed Q3 expenses combined with cost associated with the reopening of branches that were previously closed due to the pandemic.

Last note on taxes before I leave this slide our effective tax rate for the quarter was approximately 24% modestly lower than our guidance reflective of lower taxable income.

We continue to expect that our effective tax rate, however will approximate 25%.

We've included a summary on slide 13 that reflects our optimization strategies.

Both retail and balance sheet.

Okay.

Including the upfront pre tax costs included in the third quarter results of 18 million from the retail optimization and the ongoing 8 million of annual run rate benefit that we'll see in 2021 inch.

Increasing to 9 million annually thereafter.

I would highlight that we continue to see a steady shift to more digital transaction volumes comprising both online and mobile banking. This is not a new trend for us, but clearly has accelerated during the pandemic and you should expect to see us continue to make technology investments to further enhance our digital platform capabilities.

Final note on this slide that's worth repeating the upfront impact of our balance sheet optimization is entirely neutral with a pretax benefit to eni of 5 million annually starting in the fourth quarter.

Moving to capital on Slide 14 capital levels continued to be strong with retained earnings and the volume and mix of risk weighted assets contributing third quarter growth. These last.

These level support our robust allowance for credit losses, and our third quarter dividend of 14 cents per common share consistent with the prior quarter.

Consistent with our usual practice, we've summarized our outlook for 2020 on slide 15 I would.

I would emphasize that our commentary this outlook. This quarter is very limited as future results are dependent on the persistence and impact of the pandemic customer behaviors and the impact of any further federal stimulus activities.

We've also included for convenience the summary of our financial results for the quarter on slide 16.

Now I'll turn it back over to Mike for final remarks.

Great. Thanks, Matt.

Before we open it up excuse me the.

Coupler, but kind of recap comments here if you what the actions we took this quarter in our judgment, we really feel improve our positioning certainly as we look to navigate the fall the winner.

Dr. 2021 performance.

Again, just to recap our balance sheet is very strong liquidity is there are reserves are robust our capital position has been growing.

Total capital to over 14% as Pat said tier one to over 11 and all of that even as we built reserves and held our dividends.

As we discussed on our last earnings call. We Opportunistically raised some $230 million of additional tier one capital through their preferred stock issuance.

Volumes are recovering.

In our core deposit base remains an undervalued strength in this environment the optum.

The optimization activities, we undertook most importantly are aligned with how our clients are using us and our distribution network remains robust and not.

Byproduct of this environment is our digital and online skill sets continued to be enhanced and our maturing all of which we think will help us become more efficient in our processes. As we go forward the balance sheet repositioning we undertook a will also help.

As our teams are working hard as we wait for demand to rebuild and our capital flexibility allows us to get ahead of cash cash flow needs.

As we look ahead, we will continue to invest in our business, we're going to continue to take on those enhancements of our technology, we're going to drive further efficiency and we certainly as I said have the flexibility to take advantage of opportunities to grow our business.

We talk about this all the time when we talk with our team times such as these are often present challenges, but they also provide opportunities to leverage the strength of our teams the strength of our company and to enhance their relationships with their clients all of which adds to the value of the franchise as a whole.

So with that is that some closing remarks or let let me ask the operator, if we can open it up for questions now.

Certainly thank you Sir.

A question and answer session will begin at this time, if you are using a speakerphone. Please pick up the handset equal pressing any numbers. If you have a question. Please press Star then one on your telephone.

I wish to withdraw your question. Please press Star then two.

The question will be taken in the quarter that events, we see.

Please standby for your first question Sir.

And the first question will come from Terry Mcevoy with Stephens, Inc.

Please go ahead state your question.

Thanks, Good morning, everyone.

Hi, Jerry.

Mark in your prepared remarks, you talked about line utilization I'm. Just wondering are they is it are we below pre cove. It in terms of utilization and then you had some one else. It's a positive comments on the pipeline, but you said you're starting to see some.

Pipeline building anything standout what's behind that comment.

Sure. So the first part of your question, Yes, our our line utilization is a little bit below where it was pre pandemic again that reflect I think the cautiousness, but also the liquidity that's out there.

The pipe what's behind mice my comment relative to activity building is we're starting to see our our pipelines increase a little bit I would say and fundamentally we just as we spent some.

As we spent so much over the last six months on portfolio reviews, and credit focused and tightening parameter is a little bit.

Yes that evolves as were everything's relative right Terry we're feeling better about credit than we did six months ago and yet obviously the story remains to be played out but getting our teams back into some sense of normalcy of not just servicing clients, but prospecting in a virtual world. So we're just starting to get back to playing offense a little bit.

I would say.

Thank you and then a follow up question for Pat the eight and a half million dollars of expected run rate impact from the retail optimization I just want to make sure I'm not kind of overstating. It in the model will some of that be utilized to reinvest in the digital platform and continue to invest in technology or is that.

But you'd expect the actual benefit to be next year.

Well I would say carry that the answered probably be yes to both sides of that question and let me explain why high say that we'll see a benefit that will come rolling through from retail that will be almost entirely driving through the staffing staff cost benefits.

An occupancy lines now.

Now some of that we would expect to see our technology related costs can.

Continue with the steady growth. So we're on a long term commitment that would probably have us.

Incrementally investing more in technology consistently than any other area probably not unlike others.

So that but but that will flow through on a different line item that you will see.

And I'll caveat that lets say that with with investment sometimes there's a cash investment that preceded it.

Hitting your income statement so for.

For example, upgrading a platform could take a year to do that and you won't really see the TNL impact to that until it's implemented new start depreciating, it and running it down.

Yes that makes sense. It does yeah understood. Thank you both.

And our next question will come from Nathan race with Piper Jaffray. Please go ahead with your question.

Yes, hi, guys good morning mortgage.

Morning, where night.

That was just hoping to start on the overall size of the.

Balance sheet look into Fourq, you, obviously got the swaps rolling off in some wholesale.

Funding pay downs as well and it also sounds like we should expect some public fund outflows as well in the fourth quarter. So just trying to size up the size of the securities portfolio, just the overall balance sheet in the fourth quarter as a starting point.

Yes, So I think the main change in the Securities book that we would envision at this point and that's notwithstanding any.

Any anything we do that we haven't announced would really just reflect the sale of the $160 million.

That we have so we've been trying to pretty consistently reinvest cash flows which are actually coming in at probably tripled the levels. They were at.

At the beginning of the year before rates dropped because of much higher prepayments on the mortgage backed portfolio.

From an overall balance sheet perspective, we'll definitely see earning assets come down.

As the cash that we have runs down part of that is seasonal municipal rundowns and power.

And part of that is that we just we continue to expect to see customer liquidity, whether it's from PPP stimulus or just reduced spending levels. We continue to think that that is going to come down because.

That does those are at kind of abnormally unusually high levels.

And then the last piece of that would probably be that material piece would just be net loan growth and as as mark and Mike.

And Mike, but I think said that loan growth is tough to come by within here.

Credit risk appetite without stretching credit risk and.

Payoffs continue at higher levels and so the results that we saw.

During this quarter.

Unless there's a material change in the environment.

Probably will.

We will continue for the for the near term.

Got it that's okay.

Well, you just changing gears on capital.

Those ratios continue to increase in the quarter and sounds like you guys are pretty comfortable comfortable from a credit perspective. Despite the increase in criticized loans. It seems like the reserve is sufficient so.

Matt is that increase that we saw this quarter. So just on buybacks what would you guys need assuming market or in the environment to resume those just given.

Good comfort level seemed to be a little higher than it was.

Earlier in the year.

Well that I can say and yes. That's the answer on buybacks is really a function of outlook and credit certain.

Certainly you're going to have to see economic conditions.

And the outlook stabilize as we go through that and then add functionally as we've managed our capital those elements certainly start to look to what are the different opportunities that are available relative to deployment of capital what provides the highest return for the shareholders but.

Certainly some stability in the operating environment.

It's going to be critical to look.

Looking at decisions relative to how you deploy the capital in this going forward.

Okay I appreciate the color thanks, guys.

And the next question will come from Chris Mcgratty with KBW. Please go ahead.

Hi, good morning.

Good morning.

Mr. Just want make sure I.

Fully understand that the Tac idea the expenses.

So the guidance for next quarter was slight increase from the core number of like 112 this quarter.

And then you're going to get a basically a million Bucks out next year is it as simple as.

Taking that call. It 113 number factoring in a slight inflation number and then backing out eight is up is that the right way to think about four.

Full year expenses.

For next year yeah.

You know I want to answer you and the worst possible way because it is pretty.

Straightforward, however, I'm, probably going to differ on that until we're ready to think about.

More a more fulsome discussion of our outlook for 2021, which I think is is really going to be 90 days from now.

Absent anything else.

That would be the right way to think about it but as I said to name a few minutes ago. Yeah, we are expecting certain areas to go up and particularly in technology spend.

As we go through the core.

The course of the year.

We're still in the process of figuring out what sort of inflationary increases will there be for staff for salary levels. I think we are going to remain extremely vigilant and focused on expenses across the board, but at the same time, we're not going to abandon.

A lot of the ongoing efforts, we have working on both our platform and our overall.

Ability to deliver very competitive products and services to customers. So what you will.

You will see a decline next year.

The magnitude of that I'm going to probably hold off and.

And revisit that in January.

Worth worth a shot yep.

Yep.

Maybe a question on credit so if I'm looking at.

The provision it was down about 50% sequentially.

You held the reserve dollars similar but.

But the the increase in the adverse.

Rated loans that you talked about can you just walk me through.

Yeah.

Kind of that dynamic where those loans.

Proactively put on.

Downgrade because you saw something out of Colgate or that youre seeing a little bit more weakness in the structure of these loans since since last month I'm just trying to get.

Just trying to square that concept up thanks.

Go ahead.

Yes, so I mean, obviously.

Obviously, Chris as you know we have regular rhythm of portfolio management practices and then in those times you you amped up several notches and Weve done deeper dives on our higher risk areas and not just those three but across the portfolio.

Three different times over the course of these last seven months.

So some element of that is migrations as expected some is getting in advance of it right.

You don't need financial statements to know that.

You don't need to the full financials to know that the hotel industry is suffering and you're going to see a risk migration. There. So you can be more proactive in a segment like that than some others, where you know.

Things are holding up and you want to see the financial statements come through before your downgrade I guess I'd say it this way Christa the migration that we saw in Q3 was as we expected. It was dominated by those high risk categories over half as I said were of the $250 million increase in special mention and substandard were in those three categories.

And Weve I thought.

I think are well ahead of all the risk ratings that we'll see.

Third largely.

We'll see in those areas. So it's like anywhere you try and get ahead of the portfolio as much as you can you don't.

You use both financials and your judgment in terms of what the sector outlook looks like.

And then there are other sectors like in.

Commercial real estate what were anticipating some.

So migration, but things are really holding up quite well at this point so.

Try my best to answer your question, it's a little bit of a of everything right. Its judgment its financials that outlook and.

As we said we held the reserves we kind of.

We set aside moneys for the PCD credits, we could have release reserves. We didn't think releasing reserves was the right thing to do in this kind of an environment even.

Even though as we think about.

The liquidity that our borrowers have accessed and back the cash flow has improved in a number of areas. That's that's what's behind our outlook improved comments and yet again in the face of this kind of credit deterioration in a quarter and the outlook for a little bit further we just didn't think releasing reserves was.

Appropriate at this time.

No that's good color thanks Mark.

Maybe just one last one a lot of attention on taxes given the.

Given the potential change administration is there anything different in your.

And your tax structure today.

That would that would make the math from the 16 election.

Not to the same proportional increase.

Short answer is no.

So you know whatever whatever changes in tax rates, we have probably equates to around 2 million Bucks.

A little under 2 million Bucks per percentage change we don't.

We don't have a complex tax structure, we do have some.

Some offshore.

Real estate some remix.

That really helped with our state tax burden more than federal but it's.

But aside from that we're not we're not heavily invested in into the credit universe or anything else.

That's great. Thank you.

<unk>.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one.

The next question will come from Michael Young with Truest Securities. Please go ahead.

Thanks for the question a quick follow up first on just the the reserve.

Given the kind of increase in special mention and substandard I guess was a little surprised that the Hcl actually went down from.

From 151 million to 147 million does that just imply that you guys are downgrading stuff proactively, but you don't necessarily see loss content there or.

Is there another message that should be taken from that.

Mark you want to take better.

Well when you say the allowance came down.

Your three we held the allow our allowance at $250 million. So when you say that Michael.

Yes, so the.

I guess, the pandemic portion, which I take to mean kind of the environmental factors went up but the actual allowance for credit losses kind of went down. So I was just trying to understand if that just imply that you guys are downgrading credits, but you don't actually see a lot of loss content, yet and we wouldn't expect the allowance I guess in the future to respond and less.

Yes, there was kind of a downgrade and expectations on realization.

Collateral levels on those credits yeah.

Let me help there mark the answer to that is just as you described it any shift in the <unk>.

The allowance is reflective of the shifts that we saw on the.

Risk migration and the contact at the risk migration in the level of exposure there didnt shipped our view relative to what the size of our reserves were needed to be so.

And the other element of Mark as we talk through that is as we look at.

Future.

Charges that may come through some portion of that certainly has been allocated to acquired loans. So those are simply liquid liquidation of assets that we saw from an.

An acquisition standpoint, but no I think you stated your answer to your question and answering.

Okay, Thanks, and you know what.

Was.

I was curious to dig a little deeper maybe into the loan deferrals obviously.

Obviously, good movement seeing those come down to just 3% could you maybe talk about some of the addition.

Additional strategies that used to move those off of deferrals did you have a lot of clients bring extra collateral or cash to the table or just just maybe if you could talk about how you kind of got those levels down.

Go ahead.

A couple of ways. The number one would say additional cash to the table.

That happened in a number of cases across virtually every industry I would say act.

Now sometimes the cash the table is personal liquidity, sometimes it is asset sales, sometimes it's leveraging assets either with us or somebody else to to put.

But that on an encumbered assets a little bit of all the above excess liquidity was the number one but as I also stated in my prepared remarks, the improved cash flows in certain of these industries franchise is the best example, but there are others, where they are.

They are operating a lot better now than they were in April and May So you know.

Those would be the two primary.

Waste the deferrals came down.

Okay that makes sense and maybe just as we look at timing of kind of resolution of some of the more troubled loans, maybe that you've gone through.

When when do you all kind of expect to.

Maybe try to seek some sort of resolution there when would that be possible that first quarter or 21 is it before that later just kind of trying to gauge timing.

Yes, I'll hop there to market.

Yes, the gauge specifics around timing because for the credits that that we see today. They continue to perform so that will really be a function of continued performance, which in some degree shape or form may be influenced by how.

How things evolve relative to the pandemic or how stimulus unfolds from there all things being equal we don't see that starting to manifest itself this year, which by definition pushes it into.

The.

2021, and whether Thats earlier in the year the middle part of the years, it's really hard to gauge, but we certainly don't see it sooner than that.

Okay last one for me Pat just on the Eni NIM Guide you said it includes potential impacts from PPP. So just wanted to make sure sorry, if I missed it earlier what is included in terms of your assumptions for for resolution and timing on PPP.

Sure well, we've just mark are you, Okay with me taken us sure yeah.

Yeah, So we have.

Just gotten is kind of our first big slug of loans into the Sps for forgiveness about a quarter.

Of the total outstandings and have seen virtually zero forgiveness actually occur so.

So and there is not a commitment from the government on turnaround time at all but I think just for sake of ease we would expect to see the majority of the portfolio forgive.

On an even basis from the time, when we probably start seeing forgiveness this quarter.

Through the second quarter next year, So 150 175 million a month on average.

It really hard to predict how lumpy that may be yeah.

And whether it will be sooner.

Sooner versus back ended.

Okay. Thanks.

Ladies and gentlemen, again as a reminder, if you would like to ask a question. Please press Star then one.

If there are no further questions I would like to turn the call back over to Mr., Scott or for any closing comments.

Right. Thank you.

Before we close it up.

I always like to take the opportunity. Thank all of our teams and colleagues.

Across the company, because I know they listen to our calls and acknowledge their response and what they're doing for our clients. During these times.

Their commitment to living what we're all about is what makes first Midwest and the first Midwest franchise. So special so we're very proud of them and their efforts to do the right thing everyday for our clients and our communities and for each other.

So once again I would thank all of you for your interest and attention to our story as we share our ongoing bleep that first Midwest is a great investment so have a great day.

Thank you Sir ladies and.

Ladies and gentlemen, this concludes the conference for today. Thank you all participating and have a nice day all parties may now disconnect.

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