Q3 2021 Berkshire Hills Bancorp Inc Earnings Call

Kevin Kahn, Investor Relations and corporate development Officer.

Our news release is available in the Investor Relations section of our website, Berkshire Bank Dot com and will be furnished to the SEC.

Momentum Investor information is provided in an information presentation at our website at IR Dot Berkshire Bank Dot com.

We will refer to this in our remarks.

Our remarks will include forward looking statements and actual results could differ materially from those statements for details. Please see our earnings release and most recent SEC reports on forms 10-K and 10-Q.

In addition, certain non-GAAP financial measures will be discussed in this.

This conference call references to non-GAAP measures are only provided to assist you in understanding our results and performance trends and should not be relied on as financial measures of actual results or future projections.

Comparison, and a reconciliation to GAAP measures is included in our news release.

On the call today, we have niche.

<unk>, President and Chief Executive Officer of Berkshire Hills, Bancorp, <unk>, Passu, our Chief Financial Officer.

Sean Gray, our Chief operating officer, and Greg Lindenmuth, our chief risk Officer.

At this time I'll turn the call over to our CEO mid market.

Thank you Kevin good morning, everyone.

And welcome once again to <unk> third quarter earnings call.

I'll begin my comments on slide three where you can see the highlights of the quarter.

It was another solid quarter with progress across full components highlighted here, including financials asset quality capital and strategy.

In terms of financial results, we posted GAAP EPS of $1.31 in the quarter, an increase of 89, and 88 cents year over year and quarter over quarter, including onetime gains through strategic exit from insurance business and mid Atlantic markets.

Adjust.

Adjusted EPS was <unk> 53.

Up 9% quarter over quarter and unchanged from a year ago.

To provide more color on the financial results and specifically about the balance sheet I would say that we're making tangible progress towards our high performance goes overall.

We're still in the getting better before getting.

Being bigger phase for the balance sheet.

This is consistent with what we'd highlighted during our best program launch call on May 18th this year.

Our deposits balance sheet is getting better in terms of its mix and corresponding cost of funds.

Loan balances are declining including runoff of non strategic.

Four years, but we're also seeing a reduction in the rate of decline in loan balances and should start seeing growth in those balances in the first half of 2022 as we reactivate the organic growth muscle through growth in productivity from existing bankers addition of topnotch bankers and.

And adding new partners to grow loan originations.

Expenses were essentially flat on both quarter over quarter and year over year basis sure.

<unk> will share more details on this in a few minutes.

And I would reiterate that we're committed 100% to self funding our best strategy.

We will.

We'll generate expense saves while reinvesting most of those saves to grow revenues and bottom line in coming years.

Adjusted return on tangible common equity our ROTC for the quarter was nine 5% and adjusted return on assets was 0.86% both of these matrix trending in the.

Right direction, consistent with our best program three year targets.

Switching to asset quality as you'll see from the charts in the deck in the appendix.

<unk> trends continued to improve rapidly across the board as a risk management actions over the past year or more have paid dividends.

Delinquency rates.

Around pre pandemic levels of 0.87% down 11 basis points year over year, and five basis points quarter over quarter.

Covid loan modifications were down 85% year over year to $65 million or less than 1% of loans portfolio.

You may recall that our COVID-19.

Covid deferrals had peaked in Q2 of 2020 at $1 6 billion when our bankers ran towards our customers at the start of the pandemic versus running away from them to give those borrowers the best chance to survive through the crisis.

Therefore also now down by 96% from their peak and we've been.

Able to help many of our customers weather the storm effectively.

Kudos to our lenders portfolio managers credit and workout teams for their customer focus and corresponding asset quality improvement.

Nonperforming loans were down 22% and net charge offs were down 66%.

And year over year, and 55% quarter over quarter marked improvement in asset quality supported provision benefit of $4 million in the quarter.

On capital, we returned over $54 million to our shareholders in the second quarter through share buybacks and dividends representing about 210%.

Adjusted net income in the quarter.

Our capital ratios remained quite strong relative to peers with CET, one at 15, 3% at quarter end, an increase of about 1% over previous quarters.

Our balance sheet.

<unk> gives us more than ample capital to both Opportunistically.

You're saying he purchased stock to improve shareholder value over the near term and to achieve expected loan growth targets and our best plan over the medium to long term.

On strategy front, we made great progress this past quarter on our best strategic plan.

We streamlined our business model by selling non.

The operations, including the sale of our insurance subsidiary and mid Atlantic franchise.

We announced our Berkshire community come back initiative that highlights how our lending investments and philanthropy initiatives in the community will help our customers across the footprint and specifically in the low.

To moderate income neighborhoods. This is consistent with our best plan as well as our vision to become the leading socially responsible community bank in new England and beyond.

As mentioned earlier part of our growth strategy includes partnerships.

These partnerships include Likeminded fintech.

One quarters that are delivering exceptional customer experience.

We just announced a strategic partnership with upstart.

<unk> started as a lending leading artificial intelligence or AI lending platform designed to improve access to credit digitally while reducing the risk and cost of lending.

Upstart will help us generate consumer loans and the footprint within our credit risk parameters.

We continue to build our firm with key hires which I'll describe in more detail later.

It's a great environment to hire bankers in our footprint as there is significant consolidation going on.

Our board of directors continues its refresh.

But he added Jeff Kip as a new director and <unk> Brunel was named as the chair of the board in the third quarter.

Just buyers attached in the appendix section.

Our heartfelt gratitude goes out to build a levy who retired after 10 years of service on our board, including the last two years as the chair.

During.

During which time Brooks show made meaningful changes in board governance executive leadership risk management and strategy.

Thank you Bill we appreciate your steady and prudent guidance during a challenging time.

With that I'll turn the call over to <unk> to discuss our financials in more detail shortly.

Thank you Nathan.

Hey, good morning to everyone I hope everybody has gotten over the back overtime launched at Celtic suffered yesterday with that let me get into the earnings a little bit more details.

If you could please turn to slide four it captures our income statement.

I would like to point out that our third quarter.

Cap numbers include $52 million in pretax gains from the sale of Berkshire insurance group, and maybe Atlantic businesses, and net $1 4 million in restructuring charges associated with FHA prepayments real estate and severance.

Please see the appendix for a reconciliation of GAAP and adjusted.

Again chose <unk>.

My comments will be on an adjusted basis and non-GAAP.

We've also included non-GAAP views, excluding insurance and mid Atlantic businesses to help with your analysis.

Revenues were down 5% quarter over quarter and year over year, driven by a decline in net interest.

It went up.

Excluding the sale of the insurance business quarter over quarter, adjusted revenues and expenses were down 4% and 1% respectively.

Net interest income decline was driven primarily by runoff of PPP and nonstrategic portfolios sale of mid Atlantic businesses.

And covered loan balances.

Expenses were essentially flat sequentially and year over year.

I'll touch on expenses in more detail in a few minutes.

We had a provision benefit of $4 million this quarter as the credit quality of loan portfolios continue to improve significantly.

Including.

Net charge offs of about $2 million, the ACL decreased by $6 million.

Our return on tangible common equity was nine 5% up 145 basis points versus the second quarter and a return on assets was 0.86% up 15 basis points from the second.

<unk> and <unk>.

The core effective tax rate was 12% for third quarter of 21 down from 24% in third quarter of 'twenty.

The lower tax rate was driven primarily by recognition of historic tax credits funded in the third quarter of 'twenty one.

Overall, our net income was down 3% year over year.

But it was up 16% quarter over quarter.

Net interest margin was down six basis points from 262 basis points to 256 basis points, primarily driven by a lower PPP income purchase accounting accretion, partially offset by a reduction in wholesale funding.

Quarter, turning to slide five let me address changes in our loan portfolios in earning assets.

Our total average loan portfolio was down year over year, primarily driven by runoff of TPP and non strategic portfolios like indirect auto and aircraft sale.

Sales of mid Atlantic businesses, and lower loan balances.

For our consumer and commercial portfolios.

Excluding those portfolios or loans were down 2% sequentially and down 14% year over year.

The bottom table shows average loans, excluding PPP mid Atlantic and nonstrategic runoff portfolios.

The mid Atlantic loans would be off the balance sheet as of end of third quarter of 'twenty one.

And we expect the indirect auto and aircraft portfolio to decline by 50% by the end of 2022.

The commercial real estate portfolio, which accounts for 51% of the total loan portfolio has been stable.

Similarly, three $6 billion over the last three quarters.

We expect the balance sheet to begin ramping up in the first half of 2022.

The investment portfolio is up 54% year over year, we are actively pursuing strategies to deploy cash into higher yielding securities.

At a product drive earnings growth.

While retaining asset sensitivity and credit quality.

We will share more details in subsequent quarters, starting with the fourth quarter of 2021.

Yeah.

If you could turn to slide six.

Slide six shows our average liabilities.

Our funding mix continues to meaningfully improve as lower cost of funding replaces higher cost funding.

Noninterest bearing deposits are up 13% year over year and as of third quarter 21 accounts for 29% of total deposits, which is up from 24% in third quarter.

20.

Year over year, our cost of funds have dropped 42 basis points from 73 basis points to 31 basis points.

Also year over year, our cost of deposits have dropped significantly down 39 basis points from 61 basis points to 22 basis points.

Tony if you could turn to slide seven.

Slide seven provides more detail on the unique improvement in our funding profile and future opportunities to further lower our cost of funds.

Year over year, our retail Cds have declined by about $600 million or 28% with costs going down.

By 81 basis points from 154 basis points to 73 basis points.

Furthermore, $1 2 billion of our high cost retail Cds will reprice over the next six quarters and continuing to lower overall deposit costs.

We have also significantly lowered.

Our reliance on wholesale funding.

Year over year brokered Cds are down, 61% and higher cost <unk> borrowings are down 67%.

As part of our strategy to lower funding costs, we have prepaid $94 million of FHL b borrowings in third quarter of 'twenty one.

Lord and reduced FHA borrowings to about $40 million at the end of third quarter.

We expect our brokered CD borrowings to decline by over 75% by the end of second quarter of 2022.

Our borrowings also include $97 million of expensive subordinated debt with a coupon.

$6, 875%.

We plan to redeem it no later than third quarter of 2022.

Overall, we believe that we are uniquely positioned to meaningfully lower the cost of funding and drive profitability as we grow our balance sheet over the course of the best plan.

Okay.

Slide eight turning to slide eight we show our fee revenues.

I would like to note that our fee revenues for the third quarter of 2021 include only two months of insurance fee revenues due to the timing of sale of the insurance business in third quarter of 'twenty one.

Excluding insurance our fee revenues.

We're up 11% year over year, and 1% quarter over quarter.

We are encouraged that fee revenues were up 4% year over year as the economy is recovering of pandemic lows.

Deposit related fees were up 8% year over year, and 2% quarter over quarter as consumer.

Consumer activity increased.

Loan fees and revenue were up 66% year over year, and 11% quarter over quarter, driven primarily by higher gain on sale from strong SBA lending and higher swap fees.

The SBA lending business continued to exhibit.

<unk> strong performance and achieved historically high revenues in the third quarter of 2021.

Wealth management fees were up 15% year over year, and 5% quarter over quarter, driven by market impact new products and new relationships.

Other noninterest revenue declined.

One $6 million and higher amortization expenses related to new tax credit investment project initiated in third quarter of 'twenty one.

However, this was more than offset by the $2 2 million increase in investment tax credit benefits that lowered the effective tax rate for third quarter of 'twenty one.

Due to moving on to slide nine on slide nine we show our expenses.

We continue to maintain expense discipline, while we execute on our best strategy to self fund that is reinvesting meaningful expense saves to drive growth, while maintaining overall expenses at or near current levels.

Adjusted expenses were essentially flat quarter over quarter and year over year.

Increases in compensation expenses year over year, but offset by declines in occupancy and equipment and other expenses.

We are already benefiting from the expense saves from the branch consolidations.

And that was done earlier in the year.

Starting with fourth quarter of 'twenty. One we will also benefit from the expense reductions from the sale of insurance business and mid Atlantic businesses.

On other focus areas like procurement and real estate, we continue to make good progress driven by our newly.

<unk> formed procurement organization.

Yeah.

Moving onto the next slide it provides a summary of our asset quality metrics.

Strong improvements in credit quality across the board for third quarter of 'twenty, one and importantly significant improvements for three quarters in.

<unk>.

Covid loan deferrals are down 85% year over year, and 34% quarter over quarter to $65 million or <unk>, 95% of loans.

Net charge offs are down 55% versus second quarter to $2 $1 million.

Allowance for credit losses to loans ex PPP, essentially remained flat driven driven by lower reserves, but compensated for by lower loan balances.

Our COVID-19 impacted portfolios, including hospitality restaurants, Firestone and nursing assisted living continues.

If it continues to improve with year over year deferrals declining between 60% to 100%.

We have moved more detailed credit data for Covid sensitive segments to the appendix and happy to discuss in more detail.

Moving onto the next slide.

Slide 11.

On capital and liquidity.

Slide 11 shows detail on our capital and liquidity positions.

Our capital levels remain uniquely strong our common equity tier one capital ratio ended the third quarter at an estimated 15, 3%.

As Nathan mentioned, we returned $54 $1 million of capital to shareholders this quarter via stock repurchases and dividends.

We also completed our last approved stock repo program for two 5 million shares.

We continue to stay focused on deploying capital to support balance sheet growth.

And returning capital to shareholders through opportunistic share buybacks and dividends.

We can assure you that capital return is a key part of our fear best strategy.

So in summary, we had growth in fee income.

A decline in net interest.

Principally driven by PPP and nonstrategic loan portfolio attrition.

We had flat expenses.

Meaningful improvements in credit quality, resulting in provision expense benefit of $4 million.

Significant improvements in funding costs.

And very strong levels of capital in <unk>.

Income T to support growth and capital return as our clients and the best plan.

We also divested our insurance business and sold the mid Atlantic businesses, both of which were not part of our core growth strategy.

And we executed on our share repurchase program of buying back two and a half.

<unk> 5 million shares.

We also grew our tangible book value per share from $23, five eight or 6% versus third quarter of 2020.

I would like to close with comments on our outlook for the fourth quarter.

Liquidity will be providing 2022 guidance in January 2022.

We are upbeat about the economic forecasts and are encouraged by loan growth that the industry has started to experience.

We expect our loan portfolio to decline modestly.

We expect our.

To be stable for the fourth quarter of 2021.

We expect our NII or net interest income to.

To be down due to the impact of PPP the sale of permitted mid Atlantic assets.

We expect our funding cost to further decline in the fourth quarter.

<unk>.

Yes.

We continue to be asset sensitive and expect to benefit from rising interest rates.

Adjusted for insurance, we expect fee revenues to be flat to modestly lower for fourth quarter of 2021.

We expect a meaningfully improved credit environment over time, and we expect to get to <unk> reserves to loans on the existing portfolio between second quarter of 2022 and third quarter of 2022.

I'd caution that our credits can be lumpy. So we don't expect a straight line on provision expense.

<unk> or charge offs.

We expect expenses for the best rest of the year to be stable at about $68 million run rate.

Tax rate for the fourth quarter is expected to be in the mid teens and end at 18% to 20%.

Our full year 2021.

With that I'll turn it back to Nathan for further comments Nathan Thanks for the deep on Slide 12, we have our best North Star chart, which shows five key performance metrics for our best strategic plan we have.

We're encouraged by our progress.

Across financial ESG and NPS front.

Recognize that the progress won't be linear every quarter or every matrix, but were confident that there actually will be making forward progress towards our north star objectives outlined and we're committed to sharing the progress on an ongoing basis.

Slide 13.

<unk> is a one page summary of Berkshire community come back initiative announced last month.

Over three years of best program, we plan to lend and invest over $5 billion into our local communities, which include specific ESG targets for low carbon financing projects and lending in low and moderate.

Income neighborhoods in our footprint.

As we invest in our communities, we will prove that a bank with a purpose can also deliver strong financial performance.

Turning to slide 14.

Over the last few months, we have experienced renewed investor interest in our stock and based on the discussions with.

With them Here's how we believe our story is being perceived from outside in.

Berkshares being looked at as a unique comeback story.

The key tenets of the comeback story are.

Strong capital position that will enable loan growth and capital deployment to shareholders.

Combination of.

Innovation productivity growth and partnerships that will drive growth in originations as we reignite our organic originations engine.

Outsized cost of funds reduction in coming quarters as we indicated on this call our cost of funds have reduced significantly faster than our peers and.

Did you give that this momentum will continue over coming quarters.

Best is a self help plan that is there is no rate hike benefit and the best client core targets.

We have unique ESG performance matrix and focus which is consistent with 175 years of purpose.

And we build orientation of Berkshire bank and our bankers.

We have renewed focus on customer experience and NPS, which is aligned with financial performance objectives.

And last but not the least we have a unique opportunity to hire talented values guided community dedicated bankers in our footprint.

From banks impacted by M&A and other such activities.

Since our last earnings call, we've hired many frontline bankers, including senior bankers and leaders. For example, we hired do see Belo media from Bank of America to run our retail banking business.

Hired Ellen Stein.

Steinfeld from TIAA to reinvigorate, our consumer and home lending business.

We hired Jeff clouds, and experienced commercial banker to build our loan book in the middle market in Connecticut.

We also added Steve Crowley and cabin testing to our wealth management team and MRSA aims and Lynn Singletary.

<unk>, who our SBA lending team at 44 business capital.

It will take some time for the new hires to build originations momentum, but we expect loan balances to stabilize and start growing in the first half of 2022.

In summary, a.

Solid quarter across many fronts improved financial results.

Else growing checking and deposit balances and stabilizing loan balances.

Moderate fee income momentum could.

Good expense control and improving credit.

With that I'll turn it over to the operator for questions.

Yeah.

And how can you open the line for questions. Please.

I it looks like we have some questions in the queue could you open the line for questions.

Question altogether.

Thank you ladies and gentlemen, if you have a question. Please press star followed by one on your telephone Keypad audio conference.

Our first question comes from Mark Fitzgibbon of Piper Sandler. Please go ahead. Your line is open.

Yes.

Hey, guys, good morning, and nice quarter.

Wanting the banks.

First question just can be cleared Nick I know you said that growth should resume in early 2022, but should we expect much more in the way of balance sheet shrinkage in <unk>.

I think in the guidance you believe did indicate that we will have a modest decline, but the rate of decline is declining as I mentioned in my comments Mark So it will be relatively flat to modestly down in the fourth quarter and we begin to start seeing growth in the first half. So I think we used consistent there.

Okay great.

Great and then secondly, cash balances have built up quite a bit at Berkshire as well as most banks I guess.

With sort of 18% of the balance sheet and cash I'm curious what you think the right level of liquidity for your balance sheet. At this point in time would be in and maybe how long it takes to get there.

Hey, Mark.

So really good to hear from you.

As I mentioned.

I mentioned in my prepared remarks.

We are looking at different deployment strategies for that cash, including obviously moving into sort of higher yielding securities you know and that's part of our overall best strategy as well coming to an optimal level I think you've got to remember.

That you know sort of the liquidity used for multiple purposes, you know as we grow our balance sheet to fund their balance sheet as well. So over time, you know we will come to end of optimal level and we'll share more details around what that would be.

And with more details in January of 2022, but overall, you're going to see a reduction in that cash.

Remember then going forward starting in fourth quarter.

Okay, Great and then also I wondered if you could share with us.

The loan pipeline with the mix of that looks like and and maybe your commercial line utilization rates. Please.

Yeah, Mike broadly speaking the pipeline is growing.

Cash balance compared to the end of second quarter as well as into the third quarter of roughly about $300 million in commercial line utilization about 47%.

Thank you.

Thank you next.

So today comes from David Bishop from Seaport Research Partners. Please go ahead, David Your line is now open.

Yeah. Thank you good morning, gentlemen.

Good morning, Dave curious about.

Hey, good morning curious about.

Next question should think about return of capital.

As we enter into 2022, obviously the.

The gain from the mid Atlantic branch system.

In the insurance subsidiary, obviously bolstered overall capital levels, along with the balance sheet attrition just curious.

Is there sort of a targeted level you're thinking about.

How are we doing buybacks.

The combination of buybacks and dividends paid.

Into 2022 to 2023.

Hi, Dave This is Ted.

No great question I think that's a one off the topic that you know there are a lot of discussions that we continue to have the debate in.

Management is village.

The board.

You know we are very very focused as you know about that and I mentioned on deploying the capital.

Driving strategies, obviously INO three fold help support the growth of the balance sheet over the course of the next two years.

Take our dividend yield where it should be.

With the increasing it from where we are as well as returning capital to shareholders via buybacks. So there are a lot of discussions happening and you know expect to provide more information relatively soon in terms of what are the strategies for capital return.

Got it and then you guys.

And I'll be pretty active obviously in terms of.

Adding a lending talent here over the over the past several.

The weeks and months here just curious maybe you know when these when this talent achieves critical mass where it would sort of.

Our growth rate or a volume of loans you think.

So that they can bring on balance sheet and into 2022 artifacts that from a dollar perspective or a growth perspective, just how we should think about the growth opportunity of these new ads.

Yes, no great question, Dave I think broadly speaking, what we have embedded within the best plan and you'll hear more details about it at the next quarter when we break.

Think they got a year.

As opposed to doing midyear, what we have baked into the plan is about 40% to 50% growth in our frontline bankers and that requires us to be hiring at a certain clip and we are at that run rate right now and the hires that we made in the second and third quarter.

We'll start building their pipeline in this quarter.

Order in the next quarter. So we start really seeing the originations up.

Kick in from the second quarter and that's when we also expect around that time the balance sheet to grow just roughly speaking the overall growth in the frontline bankers that we have in the plan that itself should be giving us about half a billion to a $1 billion of incremental.

Mental originations for your question.

I appreciate the color then one final question before I hop back into the queue.

Remind us of I think you noted a CBD there that.

We expect the allowance to trend out of the day, one six reserve just remind us what.

What that number is.

Yeah, So I think the.

A 100 basis points on our existing portfolio do you want to use the reserves.

Got it thank you.

Thank you our next question Scott.

Today comes from Steven Duong from RBC capital markets. Please go ahead. Your line is now open.

Hi, good morning, guys.

Morning, Steve.

The first question good morning.

First question just on.

Your rate sensitivity.

You mentioned that you're asset sensitive I guess, you really can you speak to just.

No.

How much sensitivity from a 50 basis points or 100 basis points.

You can expect on your NII and also just what assumptions are going into that in.

In terms of deposit beta.

So hi, Steve good to hear from you.

So as he said I mean, obviously looking at our balance sheet and our cash position as you know we are asset sensitive in terms of added data for you know sensitivity and where we stand to benefit from hundreds basis points 200 basis points lift.

We will add more color and details in our 10-Q.

Okay got it.

And then.

Just on the the partnership with upstart.

I guess can you guys just maybe give some more color on these loans are they kind of find out.

Peter types of loans.

How big are they that the credit profile of the customer.

And how much exposure you guys are willing to take on it.

Yes happy to.

Ill give you our overarching view, Steve and we could get into more details later, but broadly speaking up.

Paint program in part of our.

Program plan to partner up with Likeminded Fintech partners that provide easier access to credit for customers in our footprint, where we can build on to a larger relationship.

It is a AI based decisioning model with about 1500 factors that held maximum.

Started up the opportunity for customers to get access to that credit and the best available price.

It is are we going to stay in the prime <unk>.

Space, Oh, FICO was about well about 625 are in terms of the originations we expect that one partnership alone to be about $100 million of personal.

Personal loan originations a year, but we would have more partners over time.

Yeah.

Okay perfect.

Thank you for that.

And then just on your U.

SBA revenues have.

Have you guys disclosed.

How much in SBA.

Some items you had this quarter and what was it last quarter.

Hi, Steven I don't think it'd be separately disclosed SBA revenues is included in one of our fee revenue lines.

Yeah.

Okay.

And then just last one for me.

Youre Acos.

166 ex PPP.

And.

So if.

If we're assuming a loss rates continue on I don't know 20 basis points.

Somewhere around there.

And Youre looking to get a day one seasonal of around 100 101 one.

<unk>.

That if you triangulate that that would seem to me that.

You have a lot of.

A lot a lot of.

Reserves to get off in the next three three quarters or so is that fair to say.

Yeah.

Yeah.

Sorry, sorry, I was Oh I think so you know I think in terms.

Where do we get to our ACL reserves.

Based on sort of an evaluation of the portfolio and what are you looking at from a net charge off perspective and.

And you know as and when sort of has a modern is determined based on our policy and guidelines and our forecast for net charge off rate you know we made the determination to.

Really the reserves that you did this quarter I think it's fair to say that given the the charge off trend that we are looking at you know and if this continues like can you give me more reserves in the coming call. It leaves us in the coming quarters.

Hey, Steve to your question.

Yeah.

To add to what you believe just said.

100, 210 basis points that you outlined that's on the existing portfolio. We're also adding new portfolios along the way and we would have to take incremental cover for that as well so we.

We will get to that date.

Day, one seasonal for the existing portfolio by.

Around that third quarter time line that should be the bulk line.

Yeah.

Hey, sorry can I see yeah. It just seems like.

Yeah, I'm sorry go ahead.

Are you seeing one one quick correction on our.

The comment around the SBA lending revenues I think we don't have it, especially on our table, but anything on our.

On our overall press release, you will find that that the disclosure on our SBA lending revenue of $5 million.

Oh, great. So that's $5 million this quarter is that right correct.

Correct Yep.

Okay great.

Yeah.

And then just yes just on your.

You're back to the ACL I guess, you had the negative $4 million this quarter and the PCL.

And that didn't really.

Do much on your ACL. So it just seems that this would imply that you know eventually by sometime mid late next.

You're really going to have to.

You now have a lot of you know a sizeable negative PCL.

Assuming loss rates are continue on where they are and so is that a fair way to think about it.

I think Oh, Steve like as we reflected in our comments earlier.

Year, I think as as as you know sort of passed over the next quarters, depending on sort of our portfolio performance in credit trends.

You know you're going to see a you know.

How how that turns out in the next two to three quarters, but I think I'd like to reiterate the comment that I made earlier about sort of the direct correlation of improve.

There are quality and potential for more reserve releases.

Great I appreciate you taking my questions. Thank you.

So thank you Steve.

Our next question today comes from Laurie Hunsicker from Compass point. Please go ahead. Your line is now open.

Good morning, and they'll done living I, just want to I just wanted to say.

Oh Wow.

Mitten Timothy.

Kevin or Dave I'm, just wondering can you can you circle back a little bit on upstart and help US think about you know just to the earlier question can you help us think about how you see that.

Proving crime another word.

Here from now it's $100 million a year from now it's 200 million.

Can you just help us think a little bit about that.

Yes, it's a it's $100 million a year kind of momentum at this point of time based on the credit parameters that we've outlined for ourselves.

Okay, and then is it a $100 million and youre going to hold it flat.

How it performs he has a loss rate is going or it's 100 million continuing to garner a 100 million or so every year, how do you think about that.

We'll keep watching the performance the great thing about programs like this Laurie is this gives.

Atlanta D. One two partnered up with.

Through cutting edge T. I base lending platform that also looks at daily repayment of the customers and recalibrate Decisioning model. So there is tremendous amount of.

I based intelligence that goes behind us that helps us track the portfolio and we get.

And a bit of that and on the other side. It also gives us the ability to make sure that the portfolio is performing as we outlined it to be and I think to that extent, yes. We will continue to just keep watching the portfolio as we build it and then if it performs as it as we expect it to we will continue to operate the program going forward.

The benefit here and I, just I wanted to make sure I heard this right that's Tycho the average cycle.

25.

No. That's the minimum FICO I think what you would end up getting by and large based on some of the experiences that we've heard from other banks is about.

700, plus.

As an average FICA.

$700 clock, okay. So I mean, so in other words I'm just going to do one thing Pops here as an extrapolation and we just got off of an earnings call, where you know that's L. A whole entire you know page of the slide deck.

Yeah.

I mean, London public something that many many.

<unk> got them to realize the loss rate with.

It's more severe and then.

Subsequently got out at that time or for that matter.

And then completely got out of it all together I mean, when you when you think about what's you're adding here.

Is there I mean, you know theres, a theres a big difference in unsecured consumer of your 700, plus yourself, a 40 plus person youre going down.

Down to 625 can you just can you help us think a little bit about that that's going to be sub 700, but.

What youre going to yeah.

I'll be happy Gloria and we could also covered offline, but at a high level. There's a big difference in the program, where you purchased loans versus you originate loans based on your criteria.

Your credit box your Max APR and your Max DTI kind of scenario. So essentially you, creating a originations engine through partnering up with Fintech like AI, who have received real good kudos about how they built their decisioning model in fact, they have a three year of.

You know.

Kind of a CFPB clean sheet on how their decision model works. So I'm happy to say that in detail. Laurie. This is a different program than purchasing loans that the banks have done with flex with lending club.

Okay.

Sure.

Are you modeling in terms of the charge off rate.

It's a range between four and 5%.

Right, Okay, and then what's the coupons.

On an average its going to be about 11% to 12%.

That's helpful.

Okay, Great and then.

And one last thing is that the National Park or is that in the portfolio. That's the different slurry. This is in footprint relationship basis, the customer is ours and rebuild relationship deepening programs around these customers.

Okay.

Oh, great thanks for that color and.

And then I guess can you just give us what the P. P. P C where that forgiveness team this quarter and into your net interest income.

Hi, Larry good to hear from you and a.

Good question, we anticipate that any of it but the the last.

On page of the deck slide 21 outlines the PPP impact so for third quarter of 'twenty, one around $2 $1 million.

From that.

Which is down from second quarter.

One one.

Okay, sorry, I missed that.

And also I, probably missed this somewhere in your slide deck and I apologize the plantings, but can you just help us think or just give me an update on the accretion that was included in net interest income.

Yes, I think it's the accretion was I would say, 50% over our consumer book that includes both consumer.

And mortgages and.

Yes, 50% is or our commercial loan book.

And I think I'm sorry.

Yes.

With them.

Tom what was what was your your accretion income.

In other words last quarter, it was $2 2 million.

And I apologize.

Some of it in your press release and I, just haven't had a chance to find out.

Yeah, No I think it's on our earnings.

Earnings tables, as well so I think our the total dollar amount for E N.

So I mean, just because one point.

Yes.

It was one 7 million.

Okay.

Great. Thank you how does that I didn't find out okay. So I guess when I'm looking at those two line items or just even excluding the PPP fees, you're your core net interest margin was down to 248.

Yeah.

And it looks like the P. P is basically gone and so when we think about our forward looking margin.

Putting some of these components together.

And I guess, one more question around that that the 94 million and that needs to be borrowers that you prepaid when did that happened in the quarter.

That.

End of the quarter Laurie the last week.

So, let's say the benefits of that.

On a run rate basis, so you're going to see it in the fourth quarter onwards.

Right. Okay. That's helpful. Okay. So can you just can you help us how can you help us sort of forward think a little bit I mean, I realize you said the margin.

It happened in April.

You certainly had you know outside of the PPP fees that won't be there. So I guess, we aren't where are you making up for that.

Differential in other words, when you know P. P P fees won't be there until somewhere.

You know if margin is still trending at 256.

With me that there's still sort of almost a 10 basis point delta happening there.

Here's how I think roll down a little bit more.

Yeah go ahead sure sure and I think.

So if you first of all if you think about sort of the our core name right and where we ended up that was.

It seems that rightly pointed out on the negative side, there was an impact right.

Positive side, there were sort of.

Funding and Baxter, our non broker deposit mix, you know that declining that they shouldn't be boring, but you didn't you didn't really get the benefit of that.

Helping us in the fourth quarter, and then secondly, as you know roll on roll off portfolio.

And sort of the impact on that from that perspective. So I think overall, that's probably you know what's going to guide sort of a stable NIM that I.

[noise] offered up in my guidance.

Okay. Okay, and then just in terms of your your noncore.

Core portfolio can you just update us now on the balance of where the indirect auto is in the balance of where they've got crashes.

Yes, sure and if you don't have those don't forget your detached house go back.

No that's fine if it's on the first noticed table as well so for indirect auto and I'm quoting him coding interference.

You did read about in our third quarter 'twenty, one were about $120 million.

Hum and imbalances.

And then on the aircraft are you just I don't think we.

Disclose that separately a weekend.

Got it.

Information.

Yeah, I would say the low forties like mid to low Forty's 40, I thought it was like $45 million to $47 million.

The Super deep, it's kind of I guess, that's where our thirties and aircrafts.

Okay. Okay. That's helpful and then and then when do you.

But those are those portfolios to be zero.

So yeah.

Part of her I think in my prepared remarks, we said you know end of 2022 we expect that to decline by 50% I think the rest of the you know the attrition would happen over the course of 2023.

Okay.

If the normal sort of our forecasted rate of attrition hose and payment behavior that we're seeing.

Okay.

Okay.

Helpful. And then just more broadly on the restructuring charges when when do we see those go away whenever there are no more restructuring charges.

Are we are we go at it you know as we sit now that we're gonna have sort of a clean look in the fourth quarter, how should we think about that.

So I think Lori like you know our restructuring charges are based on sort of obviously in a circumstance of events and sort of how you envision sort of planning and managing.

The business. So we know at this point you know we have work do you have any restructuring charges. If there are future restructuring charges you know, we'll disclose that at par as part of our quarterly earnings.

Okay, but as we sit today looking forward.

Fourth quarter and beyond the largely clean.

Queens, sorry are you all making another announcement my thinking about that the right way.

I guess at this point Laurie I am unable to offer a comment on that.

Okay.

Okay.

And then I guess.

Just.

Managing just lastly that.

The games that you pre disclose I just didn't see an actual breakdown on the $51 85 million, what's insurance and once the branch sale gains. If you could if you could just bifurcate those I mean, I think insurance is around 35, but if you have an exact number and if you don't I can follow up with you offline.

Yeah. So I think you know I think overall for the combined in fact, I think it was 17 basis points.

On the on the impact of the two.

And of that you know I think insurance is about $37 million pretax.

Okay.

Okay, you know what I'll I'll talk with you offline I was just looking for exactly.

Yeah. We're we're chatting later into that okay. Thank you I'll leave it there I appreciate you taking my thanks Laurie.

We currently have no further questions. So I'll hand, the call back to Mr. Malhotra to close.

Thank you everybody and thank you for your interest and have a good day b well.

Yeah.

This concludes today's call you may now disconnect your lines.

Okay.

Yeah.