Q3 2022 Midland States Bancorp Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q3 2022.
State Bank Corp earnings Conference call at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone please.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Tony Rossi of financial profiles. Please go ahead.
Thank you Michele.
Good morning, everyone and thank you for joining us today for the Midland States Bancorp third quarter 2022 earnings call.
Joining us for mid ones management team are Jeff Ludwig President and Chief Executive Officer, and Eric Lemke, Chief Financial Officer.
We'll be using a slide presentation as part of our discussion. This morning, if you've not done so already please visit the webcasts and presentations page of Midlands Investor Relations website to download a copy of the presentation.
Before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of Midland States Bancorp that involve risks and uncertainties.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
These factors are discussed in the company's SEC filings, which are available on the company's website the.
The company disclaims any obligation to update any forward looking statements made during the call.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
That I'd like to turn the call over to Jeff Jeff.
Thanks, Tony Good morning, everyone and welcome to the Midland States earnings call I'm going to start on slide three with the highlights of the third quarter, we continued to execute well and capitalize on the loan demand that we continue to see in our markets, resulting in further improvement in our financial performance, we generated net income of two.
$3 $5 million or $1.04 per <unk> per share up from 97 cents in the prior quarter, while our pre tax pre provision earnings increased to $36 $4 million.
Most importantly, we generated profitable growth, which is positively impacting our level of returns is our return on assets and return on average tangible common equity both increased from the prior quarter.
Although we expected to see a lower level of loan growth in the third quarter as higher rates impacted loan demand the productivity of the commercial banking teams. We have built enabled us to still generate exceptionally strong loan growth with total loans, increasing at an annualized rate of 28% with the.
Hi, Lee productive commercial banking teams and diverse lending platform. We have built we are seeing strong contributions to our loan growth across asset classes industry's property types and geographic markets.
Particularly due to the disruption in the Illinois, and Illinois, resulting from merger activity, we are seeing excellent opportunities to add new relationships with strong borrowers.
We believe what will present us with additional opportunities in the future to expand these relationships as they grow their businesses or make additional investments.
We operate with a long term approach and we arent going to pass up the opportunity to add high quality relationships, even if we have to utilize higher cost sources of funds.
To fund the initial loans, we are making as we did to some extent during the third quarter we.
We believe it's in the company's best long term interests and the best long term interest of our shareholders to add these new relationships, even if it has an unfavorable impact on our net interest margin in the short term.
During the third quarter, we had growth in all of our portfolios with the largest increases coming in our commercial and commercial real estate portfolios. Our equipment finance business continues to be a significant driver of our commercial loan growth in this portfolio surpassed the $1 billion in total outstandings during the third quarter.
This represents a significant milestone and reflects the success we have had in growing this business at.
At the beginning of 2018, we made a significant investment to expand the business development team and re banner brand Thats group to what is now known as Midland equipment Finance.
At the time the portfolio was a little more than $200 million and then suing the four plus years, we've grown the outstanding balances by approximately $800 million and the business has become a consistent source of loans and leases that provide attractive risk adjusted yields outs.
Outside of the strong loan growth, we continue to see positive trends in many of our key metrics that are also contributing to our improved financial performance.
We are seeing a significant increase in average loan yields and our business development efforts continue to focus on new and expanded deposit relationships. Although this is having an impact on our cost of funds.
Have made a conscious effort to increase our deposit rates for certain customers and certain account types in order to increase market share and continuing to provide funding for our strong loan growth opportunities.
We're also seeing positive trends in asset quality.
With our nonperforming assets declining by 14% from the end of the prior quarter.
During the first half of the year, we indicated that we would be exploring options to strengthen our capital ratios and make decisions that are in the best long term interest of shareholders.
Given the strong loan growth, we continue to see in the third quarter. We made the decision to raise a $115 million through a preferred stock offering.
This has enabled us to continue capitalizing on the business development momentum, we have built with our commercial banking teams to continue adding new clients expanding existing relationships and driving the balance sheet growth that we believe will lead to further improvement in earnings and returns over the long term and create.
Additional value for our shareholders at this point I'm going to turn the call over to Eric to provide some additional details around our third quarter performance, Eric Thanks, Jeff and again good morning, everyone. Starting on slide four we'll take a look at our loan portfolio.
Our total loans increased $403 million from the end of the prior quarter, we had increases in all of our portfolios with the strongest growth coming in commercial loans, which increased at a 36% annualized rate and commercial real estate loans, which increased at an annualized rate of 22%.
As Jeff mentioned equipment finance contributed to the growth in the commercial loan portfolio during the quarter, but the largest contributor was conventional commercial loans generated within our community banking markets.
Led to our other commercial loan portfolio, increasing at an annualized rate of 44% in the third quarter.
The consumer portfolio increased by approximately $71 million, which is largely attributable to loans that we are now originating through our fintech partnerships, including Green Sky with an increase of $33 million and lending point with an increase of $25 million.
We increased our green sky portfolio slightly during the third quarter, which led to the consumer portfolio, increasing a bit more than we expected.
But going forward, we are reducing new originations in the green sky portfolio in the fourth quarter and are expecting the portfolio to runoff approximately $50 million over the next three months.
Now turning to slide five we'll look at our deposits total deposits increased $211 million from the prior quarter, we had an increase in non interest bearing deposits and all of our interest bearing deposits as Jeff mentioned, we are continuing to focus on deposit gathering and we've seen strong growth in balances over the.
Past two quarters.
Our commercial banking and Treasury management teams continue to do a good job of developing new commercial deposit relationships, which is driving improvement in our overall deposit mix at the end of the third quarter noninterest bearing deposits accounted for 31, 7% of our total deposits up from 29, 9% at the same point last year.
Now looking at slide six will walk through the trends in our net interest income and margin. Our net interest income increased four 4% from the prior quarter.
Primarily due to higher average loan balances our net interest margin decreased two basis points from the prior quarter as the increase in our cost of deposits exceeded the increase we saw in earning asset yields.
The increase in cost of deposits is largely due to servicing deposits are insured cash sweep accounts and.
And certain interest bearing checking and money market accounts that are pegged to the fed funds rate or a similar benchmark.
We've also increased rates with certain specials and promotions in order to attract new customers and increase our overall deposit balances those rate increases have resulted in an overall increase to our cost of deposits, but also had the desired effect of increasing our balances.
We've been able to generate our strong loan growth.
Without compromising on our underwriting criteria or loan pricing.
And as a result, we continue to see positive trends in our average rate on new originations and.
In the month of September the average rate on our new and renewed loans was 553%, which was an increase of 74 basis points from the month of June .
In particular, we are seeing higher rates on commercial loans, including equipment financing.
We also used a portion of the capital we raised in the preferred stock offering to redeemed $40 million of subordinated debt that has an interest rate of six 5% with the redemption, we have eliminated our higher cost source of funds.
Turning to slide seven we'll look at the trends in our wealth management business our assets under administration decreased by $153 million from the end of the prior quarter, primarily due to market performance. Despite the decrease in assets under administration were able to keep our wealth management revenue relatively consists.
With the prior quarter.
Now on slide eight we'll look at noninterest income.
We had $15 $8 million noninterest income in the third quarter, an increase of eight 3% from the prior quarter.
Most fee generating areas were relatively consistent with the prior quarter and the increase was attributable to the impairment on commercial mortgage servicing rights that negatively impacted non interest income in the second quarter.
We are currently in the process of selling the commercial mortgage servicing rights portfolio, which will eliminate our source of earnings volatility as well as provide a small benefit to our capital ratios.
The commercial MSR portfolio also includes approximately $200 million in low cost servicing deposits. These deposits will either reprice at market rates or could be moved to another institution as part of the sale of the portfolio.
We're expecting to complete the sale later this quarter, although it could push into the first quarter of 2023.
Turning now to slide nine we'll review our noninterest expense.
Our noninterest expense was up from the prior quarter, primarily due to three factors first we had higher salaries and benefits expense, primarily due to increased incentive compensation and commissions.
We had a general increase in expenses due to greater loan and deposit activity.
Third we had the full quarter impact of the branch acquisition that was completed in June for the near term. We now expect our operating expense to be in the range of 42, and a half to $43 $5 million per quarter.
Turning to slide 10, we'll look at our asset quality trends.
Our nonperforming loans decreased $10 million from the end of the prior quarter, which was due to a combination of payoffs I'd note sale and a charge off of a previously reserved relationship.
The decline in nonperforming loans is reflective of the positive trends, we're seeing in the broader portfolio with continued upgrades of watch list loans.
Within the consumer portfolio, the delinquency rate remains exceptionally low.
And as a reminder, should any deterioration begin to occur we have approximately $41 million in an escrow account that is available to cover any losses on the green Sky portfolio.
We had $3 2 million in net charge offs in the quarter or 21 basis points of average loans.
The charge offs. This quarter were largely driven by two credits we charged off approximately $1 million on a note that we sold during the quarter.
And we charged off $1 $1 million on a nonperforming loan that we had previously established a specific reserve for.
We recorded a provision for credit losses on loans of $7 million during the quarter, which was largely related to the growth in total loans and the impact of negative economic forecasts.
On slide 11.
We show the components of the change in our allowance for credit losses from the end of the prior quarter, our allowance for credit losses increased by approximately $3 7 million. The increase was driven by the growth in total loans changes in the mix of the portfolio and changes in forecast from weakening economic conditions.
And then on slide 12, we show our ACL broken out by portfolio, while our overall coverage ratio remained unchanged we had adjustments in the coverage ratio of most of the portfolios to reflect those same economic variables and forecasts.
And with that I'll turn the call back over to Jeff, Jeff Alright, Thanks, Eric.
I'll wrap up on slide 13, with some comments on our outlook with the stronger capital ratios. We now have we are better positioned to support continued balance sheet growth one area that we're continuing to invest in is the equipment finance business. Our equipment finance team continues to generate strong production with $147 million in new loan.
And leases in the third quarter, our equipment finance pipeline continues to be strong and we are expecting continued growth in the fourth quarter and beyond although not at the same level as in years past, but the continued growth of this business will increase our production of loans and leases that provide attractive risk adjusted yields.
Entering the fourth quarter, our overall pipeline remains strong.
But smaller than what it was earlier in the year and we've started to see some loans fall out of the pipeline as borrowers reconsider planed investments in light of the higher interest rates and uncertain economic outlook.
As a result, while we still expect to see loan growth in the fourth quarter that will likely moderate from the levels. We have generated earlier in the year.
But with continued loan growth.
Combined with higher net interest margin and improved efficiencies that we are now generating we believe we are well positioned to continue delivering strong financial performance for our shareholders. Even as it appears that the near term operating environment will become more challenging.
We also continue to make good progress on our banking as a service initiative that we believe will become an important contributor to enhance franchise value over the next several years. We recently added a director of banking as a service with experience managing similar initiatives at two other banks the director will be responsible for.
Valuation and securing new fintech partnerships and managing those relationships as they are added to our banking platform we.
We are building a good foundation for this initiative and expect it to start making a positive impact on our deposit gathering and fee income generation during 2023 and steadily grow in the years to come.
As we head into the final months of 2022, we believe we are.
We have never been better positioned to create value for our shareholders. Both in terms of improved financial performance. We are generating and the continued progress we are making on longer term initiatives like banking as a service that we believe will improve our ability to generate profitable growth and further enhance franchise value in the future.
With that we'll be happy to answer any questions you might have operator, please open the call.
As a reminder to ask a question. Please press star one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from Terry Mcevoy with Stephens. Your line is now open.
Good morning, guys.
Good morning.
Maybe first question Eric I was just trying to follow your comments on the.
Servicing sale and what that could mean to deposits what's the message on the $200 million of deposits is it are you.
Still uncertain about whether that stays with with your company.
Well right now with that mortgage servicing right portfolio. We are actively actively shopping it to a variety of buyers I think if we had.
If we could do it the way we'd like to do it we'd like to retain those deposits. However, there is a chance that whoever buys that portfolio could move those deposits to another institution.
So if we retain the deposits they are likely going to flip to some to market rates or we could lose them as they go to another institution and we're actively preparing if that for that possibility does that help.
Yeah, Okay. Thank you for that.
I just want to understand the message on the margin on the outlook slide it sounds like you see some improvement.
But earlier, Jeff kind of said if the loan growth from some new hires et cetera.
Occurs and you need to fund that with higher costing funds over the near term that could impact the margin in my kind of understanding how you're thinking about the puts and takes over the near term.
Yes, I think thats right.
The loan growth that we've seen we've and the deposit gathering we've done in the last couple of quarters has come in at probably a slightly lower spread than our current margin.
And that's sort of offsetting the sensitivity that's in the that was in the current balance sheet.
So depending on sort of how that moves forward margin could be up a little it could be flat it could be down a little as sort of how we're we're thinking of it.
Right now.
Maybe one last question I noticed a couple of weeks ago that the woman that will run bass for you and I think you added somebody to run wealth management recently, so I guess my question on the expenses.
Will you continue to find ways to absorb investments like those two individuals unlike the real estate side or.
Do you think kind of the cost cutting side is complete and new hires and new initiatives would translate into an increase in the expense growth rate.
Yes.
I think the way I think of it as a 3% increase in expenses is sort of how I think about it now.
<unk> might go up 5%, but we need to we're looking for the 2% cost saves to offset some of that cost increase.
But we're still working very diligently on our expense line.
Great. Thank you both.
Yes. Thank you.
Please standby for our next question.
Our next question comes from Nathan race with Piper Sandler Your line is now open.
Hi, guys. Good morning, appreciate you taking the questions everyone.
Thanks Bill.
Going back to Terry's question around the margin outlook going forward just curious with.
Some of the deposit relationships that you're adding are you finding that just the rate sensitivity with these two.
Clients is pretty similar to the legacy.
Base at Midland or.
I'm, just trying to kind of get a sense of how you guys are kind of thinking about the deposit beta expectations over the next few quarters.
Yes, I mean as we are.
As we're looking to win sort of larger commercial.
Clients.
That rate needs to be.
Closer to where the market's at.
Over the last six months, we've been running on the retail side.
Both CD and money market specials for sort of new money coming in but also working with existing clients.
Although as rates have increased 300 basis points in a very short period of time.
Thinking that we're going to sit here and not pay our depositors and keep deposits.
His problem is unrealistic I just heard a story this morning of.
One of our directors called US Bank and said Hey, when you guys start paying me I got.
Tens of millions of dollars with you and when you guys start giving me some rate and if you don't youre not getting the next loan either so.
I think what we're trying to balance is.
Giving our clients.
Interest on their deposits and.
And doing it slowly over time as sort of the idea, but the lags that maybe what we thought going into this where youre going to lag three or six months on rates, that's not realistic anymore.
With rates going up as fast as they are so.
Trying to balance.
Our cost of funds with <unk>.
Maintaining our deposit base.
As well as growing the deposit base.
<unk>.
The beginning.
From first quarter through now I think our beta is is in the high teens, which I think is not bad. Although we do think that that can continue to accelerate as you move forward as we get another 75 basis points next month get some more in December .
We're going to have to start giving clients.
And our more more more interest on their deposits or theyre going to take them take them somewhere else.
Okay.
Understood makes sense and I appreciate the commentary around kind of the margin outlook for <unk> being flat or maybe up slightly or down slightly but maybe as we get into the early part of next year and assuming the fed remains on its current path is it fair to assume that we're not.
Kind of a peak margin as we can maybe expect some additional expansion.
And the early parts of next year.
Going into the second quarter as well.
I think we're also beginning to move our sensitivity.
More of a neutral.
Because I think as we get into next year rates are going to be going the other way.
And so we're beginning to manage the balance sheet more to a neutral spot.
I think we could potentially see a little a little bit of margin increase but.
We could be getting towards our peak anyway.
As we think more long term around margin.
A $3 60 plus margin.
For us.
We had a 122 ROA with $7 million in provisioning this quarter, so as provisioning starts to hopefully.
Go away now who knows what will happen next year, but.
As provisioning in loan growth slows down provisioning slows down we'll be able to continue to grow sort of bottom line and continue to improve ROE ROA and frankly that Roe.
With our ROE this quarter was 20%.
Right yes.
Yes, yes no.
Definitely impressive.
Within the context of moving to a more neutral position from a rate sensitivity perspective is that a function of just some additional.
Floating to fixed swaps I believe you guys entered into some other ones earlier. This year you guys continuing to kind of take some of that floating rate sensitivity off the table to protect against downside.
Whenever the fed begins to become less hawkish.
Yes.
We haven't since the beginning of the second quarter, we havent done any more of those where we're still contemplating potentially doing more of that.
I'm trying to.
Do a little little more on the investment portfolio to.
Maybe take a little more duration as we as we take on.
Cash flow and put more in the investment portfolio.
And as we fund some of our are our good loan growth we're funding it with more variable rate funding, which in the down rate will will move down quickly.
Understood and then.
If I could just ask one last clarifying question it sounds like with.
Absent the potential for some of those servicing deposits to move off balance sheet in the fourth quarter is the expectation that.
Both loan and deposit growth is going to revert to kind of a mid to high single digit range that I believe we were discussing.
Last quarter.
Yes, I would.
I am not expecting another.
$200 million quarter in deposit growth.
Although our teams are actively working on deposits and but yes, I think it sort of I think retail deposits year to date are up like 6%.
So I think that upper.
Single digits.
We look.
On a yearly basis is probably the right the right zone.
Yeah.
Okay, Great I appreciate guys.
Taking all the questions have a great weekend.
Yeah. Thanks, Thanks, Dave.
Please standby for our next question.
Our next question comes from Damon Delmonte with <unk> W. Your line is now open.
Hey, Good morning, guys Hope you guys are doing well today.
Yes.
<unk> X.
Excellent good there.
Wanted to start off on the commentary on the consumer portfolio I think Eric you had said that you expect some of the green sky portfolio to be running off you guys expect the originations from the lending point relationship to kind of neutralize that impact or should we kind of be forecasting.
A modest decline in outstanding.
I think David Thanks for the question a modest decline in outstanding.
So we've I think we've kind of communicated that at some point wed like to have several fintech partners with roughly the same amount of that total portfolio and so we pulled back on green Sky's originations. So we think it will decline about $50 million over the course of the next quarter and lending point I'll make up a <unk>.
And of that say anywhere from $15 million to $20 million, so down like a net 30 on the consumer side.
Got it okay.
That's helpful and then with regards to your outlook on the economy.
And how that factors into your provision expectations.
I mean do you feel like given the strong growth this quarter and given the view on the economy. The $7 million kind of is the peak provision level for you guys considering loan growth would be slowing that you don't need to put as much OE for loan growth and then any offset in the economy would still kind of keep that.
Around $7 million or do you think that we could see a little bit higher levels of provisioning overall.
I got to tell you I hope that's the peak.
We had 7% loan growth in the quarter, which which drove a lot of that provision.
Our forecasting continues.
To.
Paul and some of the idea of a recession coming in 'twenty three 'twenty four so we're cautious there.
However, when you look at some of our other credit metrics. Our other credit metrics have been pretty good so with nonperforming loans were down our watch list are criticized list is going the right direction.
So as long as that continues and our loan growth slows I think that would that would be the peak, but the economy is always the wildcard out there.
Yes, I mean, our metrics don't show that that Thats. There today I mean, Eric just talked about are substandard of capital as low as it's been in a long time and so we're not we're not seeing cracks, but this rapid increase interest rates.
I just feel like it's going to have some some impact as we move into 'twenty three.
I don't think anybody can could tell.
It's actually going to look like next year.
Yes.
Building on that is are there any areas in the economy or in the different asset classes that you went through that you've kind of become a little bit more cautious on pulling back from.
Office office for sure is an area that or not.
Real real interested in.
Got resi development, probably than other area or not.
Real high on.
We're looking for.
Really good a rated credit.
With good borrowers.
Those would be the maybe the couple of areas that we're sort of staying away from.
And really sticking to our loan policy and our pricing metrics.
Sort of the guide that we're giving.
Given our Rins right now where we can so we can still lend out but we've got a across every every category to the policy to the pricing metrics no exceptions to that.
Got it Okay, and then just lastly on <unk>.
Eric any color on the tax rate this quarter it seemed to come in a little lower than what.
I had been in the last couple of quarters.
Yes, David Good question so.
We picked up basically some benefit in our state tax state tax rates over the course of the quarter as we kind of finalized our returns we got everything done and then with that sort of going forward in the next quarter, we're expecting the tax rate probably around 23 and a half.
So as we filed all the returns and looked at our allocations and looked at the stack. The taxes, we were able to get a little bit of a pick up and then we lowered our outlook going forward just slightly.
Got it okay I appreciate the color guys. Thanks a lot.
Okay. Thanks.
As a reminder to ask a question. Please press star one one on your telephone please.
Please standby for our next question.
Our next question comes from manual novice with D. A Davidson your line is now open.
Hey, good morning, a couple of my questions have been.
I answered.
But.
And talking about the NIM.
The increase in wholesale borrowings.
Happen at end of the quarter can you discuss kind of like the makeup and kind of the tenure of it in kind of the expected costs.
Any more detail that would be great.
Sure.
Couple of areas there.
Did do some additional <unk> borrowings.
So those are mostly short term at shorter term rates.
And then some of the some of the items.
About $100 million of our FHL b borrowings that are at variable rates, which which adjust frequently as well.
And then we've added a couple of.
Oh, I'd just call them institutional type relationships ones classified as a brokered money market and the other one is similar and what's not classified as brokered.
Which moves pretty much with fed fund rates so.
We elected to do both of those in order to continue to fund the loan growth and then as Jeff mentioned earlier earlier, where we're really thinking about protection in down rate environment, assuming that that that scenario comes to pass a year from now and those rates will adjust pretty quickly too.
But those are two examples.
What's the capacity for more of these type of home line.
To help you with funding.
Yes, a good question. So we've got a slide in our deck towards the end that kind of talks about our available liquidity.
And we still have a lot of available borrowing with the FHFA and we still kind of look at potentially $500 million of funding that we could we could do out there in the broker markets if need be.
So that's kind of the Max target of where I think we'd want to be with that type of funding, but it's a possibility, yes, maybe to add to that.
Not real interested in going over 100% loan to deposit ratio. So there is a balance and the governor there as well.
We're in the mid Ninety's now so we are actively looking at that ratio.
Potentially.
Ron over but that's not where we want to operate I would prefer to operate more.
Frankly below 90.
So we're a little ahead of where I would prefer to be.
But as I tell our teams here all the time deposits and loans never come in at the same rate at the same time, sometimes loans are covenant faster, sometimes deposits or covenant faster and we started to get to.
We have targets, but sometimes we'll be above it sometimes will be below it.
Okay, that's great I appreciate that.
Moving on to kind of the <unk>.
Loan growth and the mix of the pipeline I'm guessing a lot more equipment finance into the fourth quarter.
So CRE I guess, he had CRE has fallen off a bit but youre still having some strong.
Sure.
Other product contribution can you just kind of talk about what's in the pipeline, it's mixed versus what has happened year to date.
Yes, so on the equipment finance side are our pipeline and backlog is at record levels.
And therefore, our fourth quarter and that business is always the strongest quarter. So we expect to have a really good fourth quarter in that business.
And we've done a lot of CRE over the last sort of 12 to 18 months and we were.
Our our CRE to capital I think 12 months ago was under 200 were $2 60 today.
And we have no desire to go to 300, and so our sort of internal target. There is I don't want to be above 275, So we're sort of managing commercial real estate sort of to that level.
And so what that's doing on the commercial banking side is okay. We've got to look at other asset classes and sort of turning our attention to sort of non CRE.
Lending.
Now we've got a big CRE portfolio. So we've still got we're still going to make a lot of CRE loans, because there'll be payoffs and attrition and things like that.
But starting to point our teams to maybe some other asset classes other than commercial real estate.
Okay.
I appreciate that line in general our pipeline's, a little lighter than it was in the beginning of the year.
But.
There is.
A fair amount of business to home that pipeline.
I appreciate that.
With the.
Kind of moving to a different tact on the expense.
A little bit higher expense run rate.
Can we still could we see like returned to positive operating leverage near term.
A more steady state.
The goal here is to get operating leverage right.
I think expenses were.
While it was pretty broad based a lot of growth incentive comp.
We put a fair amount of marketing into the quarter and some of that could could come back. So yes, I mean.
Okay and were looking for operating leverage.
Okay. So it depends a little bit on the NIM.
Yep.
Okay.
Thank you guys.
Please standby for next question.
Our next question comes from Nathan race.
With <unk>.
Your line is open.
Thank you for taking the follow up just a question on the fee income outlook to.
For the fourth quarter and next year.
Imagine if we get some equity market rebounds minute, obviously help wealth management, which hopefully continues to wil.
Turning higher like we saw in <unk>.
But I guess, what other fees up a little bit versus the second quarter as well as the <unk>, Hey, guys kind of thinking about just the overall fee income run rate the fourth into the fourth quarter and kind of just overall fee income growth expectations into next year as well.
Yes, I mean looking at the third quarter.
I think a pretty good number.
And to.
To your point I mean, if we can get some rebound in the markets in our wealth management revenue.
A year ago was around $7 million and most of that decrease is market related.
There's definitely some lift there we're making.
We've hired a new leader there, we're going to make some investments there.
To grow that business.
Now.
That's going to take a little bit of time.
To do to get to hire advisors and get them on and get them producing and all that good stuff that's sort of back.
Back part of next year into 'twenty for sort of.
Probably impacted the real impact to the income statement.
And then.
The resi the resi line item. There is is really low I mean, thats not a big focal point for us but.
It would be we'd like to do more than we did in the current quite a bit more than we did in the current quarter.
Yes, $200000 in the quarter I mean.
Frankly.
Okay.
1 million $2 million, a quarter would be where we'd want to be but the marketplace is just not there right now.
I think there is some upside to that so where we're at about $16 million I think as we move forward. There is some upside to that.
Both in wealth management and residential mortgage.
Yes.
They're being combined has trended higher over the last few quarters.
That's kind of the figure that we saw here in the third quarter is that kind of run rate going forward or is there any kind of one off items that maybe elevated it here in the third quarter.
No I think thats run rate in order to earn our retail teams are doing a good job on the fee lines in the.
Sort of that service charge and interchange area, we're doing a lot of work to try to continue to build those revenue lines.
That's that's more of a <unk>.
A longer term gain.
Gain that that we're that we're working on it's not.
Transformative quarter to quarter, but year over year, we can see some good movement in those lines.
Yeah, No we're definitely seeing the success of those efforts and that line in particular.
I appreciate you guys, taking my follow up questions.
Thank you for all the color.
Yeah. Thanks, Thanks, Dave.
At this time I show no further questions in the queue I.
I would now like to turn the conference back to management for closing remarks.
Yes, thanks for everybody joining this morning and will.
<unk> talk next year.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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Yes.
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