Q3 2023 Heartland Financial USA Inc Earnings Call
Okay.
Okay.
Greetings and welcome to H E L F 'twenty 'twenty third third quarter.
'twenty 'twenty third third quarter conference call. This afternoon to Hcl up announced its third quarter financial results and hopefully you've had a chance to review the earnings release that is available on <unk> website at H T. L. S Dot com.
With us today from management are Bruce Lee, President and CEO, Bryan Mckeag, Chief Financial Officer, and Nathan Jones, Chief Credit Officer.
Management will provide a summary of the quarter and then we will open the call to your questions before we begin the presentation I would like to remind everyone that some of the information provided today falls under the guidelines of forward looking statements as defined by the Securities and Exchange Commission.
As part of these guidelines any statements made during this presentation concerning the company's hopes beliefs expectations and predictions of the future are forward looking statements and actual results could differ materially from those projected additional information on these factors is included from time to time in the company's 10-K and 10-Q.
Pilings, which may be obtained on the companys or the Sec's website.
I'd now like to turn the call over to Mr. Bruce Lee H T. L S President and CEO. Please go ahead Mr. Li.
Thank you Latif and good afternoon, everyone.
This is Bruce Lee President and CEO.
Welcome to <unk> two.
2023 third quarter earnings Conference call I appreciate you joining us today as we discuss our ongoing solid performance.
For the next few minutes I'll discuss.
Highlights for the quarter and turn the call over to Bryan Mckeag, Chief Financial Officer for more details on our performance and financials.
Also joining us today is Nathan Jones, Chief Credit Officer, who can answer questions regarding the stable credit.
Across our portfolios.
<unk> Board of directors approved a quarterly cash dividend of 30 cents per share on the company's common stock payable on November 29th 2023.
The board also approved a dividend of $175 for series E preferred stock, which results in a dividend of $43 75 per depository share payable on January 16th 2024.
For more than 40 years, <unk> App has increased or maintained our common stock dividend each quarter.
This is a direct result of the strength insight and grows we consistently provide to our customers and shareholders.
In the third quarter, <unk> delivered solid loan and deposit growth our credit quality remained stable and in October we successfully completed the final conversion of charter consolidation.
For the quarter net income available to common stockholders was $46 1 million and earnings per share of $1 eight sacks.
Charter consolidation expenses reduced EPS by <unk> <unk>.
We delivered on our balance sheet guidance from last quarter's earnings call.
Pleased with the results.
At the end of last quarter, we said, we were going to grow loans.
Grow customer deposits and pay down wholesale funding.
We accomplished all three of those things from.
From the linked quarter consumer deposit growth was $152 million or 1%.
Total loan growth was $154 million or 1%.
And was almost fully funded by our customer deposit growth and we pay down wholesale deposits and borrowings by $367 million.
While we did that we also lowered expenses with core expenses, decreasing $3 3 million or 3% from the linked quarter.
Let's start with deposits our deposit base is diverse and granular cut.
Customer deposits are diversified by both geography and industry with no industry concentration higher than 10% across our portfolios.
In the third quarter customer deposits increased $152 million.
90% of the growth came from commercial and small business and 10% from consumer.
While we maintain a favorable deposit mix customer demand accounts increased slight decreased slightly to 33% of customer balances, which reflects the ongoing but slowing transition to interest bearing accounts.
<unk> deposits and borrowings were reduced by $367 million from the linked quarter.
Which was made up of.
$715 million decrease in wholesale deposits and a $348 million increase in borrowings.
Overall total deposits for the quarter decreased to $17 1 billion, 64% of total balances are insured for collateralized.
Turning to loans in the third quarter, we saw continued strength across our commercial loan portfolios with increases in each from.
From the linked quarter.
Non owner occupied real estate increased $126 million or 5%.
Construction increased $16 million or 2%.
Commercial and industrial increased slightly.
While owner occupied real estate increased $31 million or 1%.
AG portfolio also increased slightly.
In total commercial and AG loans grew $176 million or 2% from the linked quarter in line with our guidance.
In the third quarter, we added 269, new commercial relationships, representing $253 million in funded loans and $95 million of new deposits.
81% of new commercial loan originations have variable rate structures flat.
<unk> from the linked quarter and a 12% increase from the prior year.
Yield on these new originations increased 27 basis points from the second quarter.
Our commercial pipeline remains strong at over $1 billion, it's distributed across our regions with strength in the mountain West and southwest.
While we added more than.
2800 consumer relationships in the quarter, our consumer loan portfolio decreased $7 million or 1% from the linked quarter, while residential mortgage decreased $15 million or 2%.
We expect total loan growth of $150 million to $200 million.
Of core loan growth in the fourth quarter.
Which we again expect to substantially fund through customer deposit growth.
In addition, we expect seasonal AG line utilization up $100 million that would be paid down in the first half of 2024.
Unknown Executive: This afternoon, HCLF announced this third quarter financial results and hopefully you've had a chance to review the earnings relief that is available on HCLF's website at hclf.com.
Turning to key credit metrics, our disciplined credit approach is delivering stable credit quality across our portfolios.
Unknown Executive: With us today from management are Bruce Lee, President and CEO, Bryan McKeag, Chief Financial Officer, and Nathan Jones, Chief Credit Officer. Management will provide a summary of the quarter and then we will open the call to your questions. Before we begin the presentation, I would like to remind everyone that some of the information provided today falls under the guidelines for looking statements as defined by the Securities and Exchange Commission.
Quincy ratio remained low at 12 basis points.
Nonperforming loans declined $11 6 million to 44 basis points of total loans.
Nonperforming assets as a percentage of total assets remained flat at 33 basis points.
Unknown Executive: As part of these guidelines, any statements made during this presentation concerning the company's hopes, the least expectations and predictions of the future are for looking statements and actual results could differ materially from those projected. Additional information on these factors is included from time to time in the company's 10K and 10K filings, which may be obtained on the company's or the SEC's websites.
Non pass rated loans decreased $32 6 million and net charge offs declined to $3 7 million.
Some of which had previously been reserved in prior quarters. This included $1 3 million from the sale of our $10 million consumer credit card portfolio.
Market conditions have been applying additional pressure on the commercial real estate office market across the country.
Bruce Lee: I would now like to turn the call over to Mr. Bruce Lee, HCLF, President and CEO, please go ahead, Mr. Lee. Thank you, Lateef. Good afternoon, everyone. This is Bruce Lee, President and CEO. Welcome to HCLF's 2023 third quarter earnings conference call. I appreciate you joining us today as we discuss our ongoing solid performance. For the next few minutes, I'll discuss HCLF's highlights for the quarter, then turn the call over to Brian McAgg, Chief Financial Officer for more details on our performance and financials.
We feel good that our office exposure is low at three 6% of our total loan portfolio.
We continue to place emphasis on targeted reviews of our portfolios and recently conducted an in depth review of each office credit over $1 million, we believe our portfolio is well constructed.
Granular and generally situated outside of central business districts.
We continue to enhance our ongoing portfolio management.
Valence and refine how we screen new opportunities for underwriting.
Bruce Lee: Also joining us today is Nathan Jones, Chief Credit Officer who can answer questions regarding the stable credit quality across our portfolios. The HCLF Board of Directors approved a quarterly cash dividend of 30 cents per share on the company's common stock, payable on November 29th, 2023. The Board also approved a dividend of $175 for Series E preferred stock, which results in a dividend of 43.75 cents per depository share, payable on January 16th, 2024.
For more on our CRE office exposure, please see page 16 in.
In the Investor deck.
As I mentioned at the top earlier this month, we completed the final conversion of charter consolidation.
All our local bank brands are now divisions of <unk> Bank, and we're now able to serve all our customers anywhere in our footprint.
The nearly two year project was completed on schedule and on budget.
Driving greater internal efficiency, while we continue to deliver external growth.
We are now strategically and structurally positioned for our next phase.
Bruce Lee: For more than 40 years, HCLF has increased or maintained our common stock dividend each quarter. This is a direct result of the strength, insight and growth we consistently provide to our customers and shareholders. In the third quarter, HCLF delivered solid loan and deposit growth. Our credit quality remains stable and in October, we successfully completed the final conversion of charter consolidation. For the quarter, net income available to common stockholders was $46.1 million in earnings per share of a dollar and eight cents.
<unk> three.
Three point out too.
To execute on new initiatives that leverage our brand.
Products technologies and capabilities.
While we remain focused on continuing to achieve organic growth. We're also focused on reducing expenses, increasing EPS and growing TCE over the next few quarters.
We continue to evaluate our balance sheet and capital structure to maximize efficiency and flexibility.
And we're analyzing our expense structure, including geographies.
<unk> footprint.
Management layers and spans of control.
Bruce Lee: Charter consolidation expenses reduced EPS by four cents. We delivered on our balance sheet guidance from last quarter's earnings call and are pleased with the results. At the end of last quarter, we said we were going to grow loans, grow customer deposits and pay down wholesale funding. We accomplished all three of those things. From the linked quarter, consumer deposit growth was $152 million or 1%. Total loan growth was 154 million or 1% and was almost fully funded by our customer deposit growth. And we paid down wholesale deposits and borrowings by $367 million. While we did that, we also lowered expenses with core expenses decreasing $3.3 million or 3% from the linked quarter.
We expect some one time expenses associated with these initiatives and Brian will have more details in his comments, we will provide more on <unk> F. Three pointed out during our fourth quarter earnings call in January.
We're investing further in our strategy and innovation and have added to our executive leadership team.
Robert Com as our new Chief strategy Officer, and Zach Hamilton, our new Chief innovation and digital officer.
Robert and Zach will help drive <unk> continued growth and evolution and help us further differentiate ourselves in the products and services, we bring to our customers.
<unk> is delivering.
And executing on our strategies custom.
Customer deposit growth.
Quality loan growth.
Stable credit quality, and we are driving long term efficiency.
Bruce Lee: Let's start with deposits. Our deposit base is diverse and granular. Customer deposits are diversified by both geography and industry with no industry concentration higher than 10% across our portfolios. In the third quarter, customer deposits increased $152 million. 90% of the growth came from commercial and small business and 10% from consumer. While we maintain a favorable deposit mix, customer demand accounts increased slightly to 33% of customer balances, which reflects the ongoing but slowing transition to interest-faring accounts.
This is all made possible by the hard work and dedication of <unk> employees, we are committed to delivering strength insight and growth to our customers communities shareholders and each other.
Together, we are <unk>.
I'll now turn the call over to Brian for more details on our performance and financials.
Thanks, Bruce and good afternoon.
As Bruce just described <unk> performed well in a challenging environment this quarter reporting earnings per share of $1 <unk>.
With loan growth of $154 million, which was fully funded by the increase of $152 million in customer deposits.
Reported quarterly results included charter consolidation restructuring costs of $2 4 million, which reduced EPS by <unk> <unk> and.
Bruce Lee: Hoseil deposits and borrowings were reduced by $367 million from the linked quarter, which was made up of a $715 million decrease in wholesale deposits and a $348 million increase in borrowings. Overall, total deposits for the quarter decreased to $17.1 billion, 64% of total balances are ensured or collateralized.
In addition, net gains and losses on investments and other asset sales and write downs were low at a net loss of just over $200000.
Before I go into more detail I want to remind everyone that our third quarter earnings release and Investor presentation are both available in the Investor Relations section of <unk> website.
So I'll start my comments with the provision for credit losses, which was $1 5 million.
Bruce Lee: Turning to loans, in the third quarter, we saw continued strength across our commercial loan portfolios with increases in each. From the linked quarter, non-owner occupied real estate increased $126 million or 5%. Construction increased $16 million or 2%, commercial and industrial increased slightly, while owner occupied real estate increased $31 million or 1%. Interact portfolio also increased slightly. In total, commercial and ag loans grew $176 million or 2% from the linked quarter in line with our guide.
The provision reflects our stable credit quality, including a reduction of nearly $12 million in nonperforming loans.
Lower charge offs at 12 basis points of total loans and a continued low delinquency rate of 12 basis points.
Total loans.
At quarter end, the total allowance for lending related credit losses, which includes both the allowance on loans and unfunded commitments decreased $2 1 million to $127 7 million or one point or 8% of total loans.
Moving to the rest of the balance sheet.
<unk> has already covered loans and deposits so I'll start with investments.
Bruce Lee: In the third quarter, we added 269 new commercial relationships, representing $253 million in funded loans and 95 million of new deposits. 81% of new commercial loan originations have variable rate structures, flat from the linked quarter and a 12% increase from the prior year. Yield on these new originations increased 27 basis points from the second quarter. Our commercial pipeline remains strong and over $1 billion. It's distributed across our regions with strength in the Mountain West and Southwest.
Investments declined almost $300 million during the quarter to $6 4 billion, representing 32% of assets with a tax equivalent yield of 379%.
Due to the increase in mid to long term interest rates near quarter end, the unrealized loss on our available for sale portfolio increased $129 million to $747 million.
The relatively small held to maturity portfolio of $835 million or 13% of investments has an unrecorded negative fair value mark of $77 million.
The available for sale portfolio has a modified duration of just under five four years. However, the hedges we have placed on $840 million of our longer dated municipals and agency backed secured mortgage backed securities reduces the effective duration to just over four.
Bruce Lee: While we added more than 2800 consumer relationships in the quarter, our consumer loan portfolio decreased $7 million or 1% from the linked quarter. While residential mortgage decreased $15 million or 2%. We expect total loan growth of $150 to $200 million of core loan growth in the fourth quarter, which we again expect to substantially fund through customer deposit growth. In addition, we expect seasonal ag line utilization of $100 million that would be paid down in the first half of 2024.
Six years.
Moving to liquidity <unk> liquidity profile at quarter end is strong and stable.
With $1 $2 billion of principal cash flow coming off of our securities portfolio over the next 12 months with $240 million expected next quarter.
A low level.
Level of outstanding borrowings and $3 1 billion of available capacity with the fed and <unk>.
Third we have several fed fund borrowing lines and broker deposit sources that remain open and available.
Bruce Lee: Turning to key credit metrics, our discipline credit approach is delivering stable credit quality across our portfolios. Delinquency ratio remained low at 12 basis points. Non-performing loans declined $11.6 million to $44 basis points of total loans. Non-performing assets as a percentage of total assets remained flat at 33 basis points. Non-pass rated loans decreased $32.6 million and net charge costs declined to $3.7 million, some of which had previously been reserved in prior quarters.
Fourth are our customer deposit base is granular and well diversified with over 64% of total deposits either insured are collateralized.
Fifth our loan to deposit ratio of 69% and when removing all wholesale deposits it remains low at 80%.
Cash and Unpledged available for sale Securities total totals $33 9 billion.
And lastly, the holding company cash position stands at over 300 million.
Which is over three five times, our current annualized interest and dividend payments. In addition, our dividend payout is relatively low at 28% current EPS.
With regards to capital regulatory capital ratios remain strong with common equity tier one at just over 11, 4% and total risk based capital ratio of nearly 15%.
Bruce Lee: This included $1.3 million from the sale of our $10 million consumer credit card portfolio. Market conditions have been applying additional pressure on the commercial real estate office market across the country. We feel good that our office exposure is low at 3.6% of our total loan portfolio. We continue to place emphasis on targeted reviews of our portfolios and recently conducted an in-depth review of each office credit over $1 million. We believe our portfolio is well constructed, granular and generally situated outside of central business districts.
Adjusted for unrealized losses on our investments these ratios remain well above capitalized levels at approximately seven 5% and 10, 75% respectively.
The tangible common equity ratio decreased 13 basis points to 573% at quarter end.
The decline in market value of investments was partially offset by an increase in fair value of swaps this quarter, resulting in a net decrease of 35 basis points that is attributable to the.
Accumulated other comprehensive income for LCI.
Bruce Lee: Strix. We continue to enhance our ongoing portfolio management, surveillance, and refine how we screen new opportunities for underwriting. For more on our CRE office exposure, please see page 16 in the investor deck. As I mentioned at the top, earlier this month, we completed the final conversion of charter consolidation. All our local bank brands are now divisions of HTLF bank, and we're now able to serve all our customers anywhere in our footprint.
Moving to the income statement starting with revenue.
Net interest income totaled $145 8 million this quarter, which was $1 4 million lower than the prior quarter.
The net interest margin on a tax equivalent basis held up well falling five basis points. This quarter to three 8%, which was close to our expected range of NIM in the low to mid 300 <unk>.
Bruce Lee: The nearly two-year project was completed on schedule and on budget, driving greater internal efficiency while we continue to deliver external growth. We are now strategically and structurally positioned for our next phase, HTLF 3.0 to execute on new initiatives that leverage our brand, products, technologies, and capabilities. While we remain focused on continuing to achieve organic growth, we are also focused on reducing expenses, increasing EPS and growing TCE over the next few quarters.
The decrease this quarter included a two basis point decline in purchase accounting accretion.
Noninterest income of $28 4 million this quarter was down $4 1 million from the prior quarter.
Excluding security losses core noninterest income was down $4 4 million to $28 5 million falling short of our expectation of 30% to $31 million.
Primary driver of the Miss was capital markets fees, which were $2 $2 million lower than last quarter.
Shifting to expenses noninterest expenses totaled $111 million this quarter, that's up $1 6 million from last quarter.
However, excluding restructuring tax credit costs and asset gains and losses. The run rate of recurring operating expenses decreased $3 4 million to $107 $4 million coming in better than our forecast of $190 million to $110 million.
Bruce Lee: We continue to evaluate our balance sheet and capital structure to maximize efficiency and flexibility. And we're analyzing our expense structure, including geographies, branch footprint, management layers, and span of control. We expect some one-time expenses associated with these initiatives, and Brian will have more details in his comments.
The decrease was driven by $1 $4 million lower advertising costs and $1 $6 million decrease in professional fees.
As we close out 2023 next quarter <unk> expects loan growth of 150 to 200 million to be primarily funded by deposit customer deposit growth of $125 million to $175 million.
Bruce Lee: We will provide more on HTLF 3.0 during our fourth quarter earnings call in January.
In addition, we expect an additional $100 million of seasonal draws on AG lines of credit that we anticipate will be repaid in the first quarter of 2024.
Bruce Lee: We're investing further in our strategy and innovation and have added to our executive leadership team. Robert Khan is our new chief strategy officer, and Zach Hamilton, our new chief innovation and digital officer. Both Robert and Zach will help drive HTLF's continued growth and evolution and help us further differentiate ourselves in the products and services we bring to our customers.
Achieving these loan and deposit growth expectations enables the bulk of investment cash flows to be utilized to decrease wholesale deposits and short term borrowings.
The net interest margin on a tax equivalent basis is expected to stabilize in the 320% range, excluding fed any fed moves prior to year end.
Bruce Lee: HTLF is delivering and executing on our strategies, customer deposit growth, quality loan growth, stable credit quality, and we're driving long-term efficiency. This is all made possible by the hard work and dedication of HTLF's employees. We're committed to delivering strength, insight, and growth to our customers, communities, shareholders, and each other.
Provision for credit losses is projected to remain in the $3 million to $5 million range.
This assumes relatively stable credit performance and a manageable level of economic contraction over the next 12 months.
Core noninterest income excluding investment gains or losses is expected to be flat at 20% to $29 million.
We expect a reduction in consumer NSF and <unk> fees as we institute new policies across are now single charter customer base and we see a continued decline in mortgage related revenue.
Bruce Lee: Together, we are HTLF.
Bryan McKeag: I'll now turn the call over to Brian for more details on our performance and financials. Thanks Bruce and good afternoon. As Bruce just described, HTLF performed well in a challenging environment this quarter, reporting earnings per share of a dollar and eight cents with long growth of $154 million, which was fully funded by the increase of $152 million in customer deposits.
Both of these will be offset by higher capital markets fees.
Recurring operating expenses are expected to be $190 million to $110 million.
This excludes any new FDIC assessments that may be next quarter.
Charter consolidation restructuring costs are forecasted to be two to 3 million next quarter, which includes both the final consolidation implementation expenses as well as expenses to complete several span of control improvements next quarter as we achieved the remaining benefits of the charter consolidation project.
Bryan McKeag: Reported quarterly results included charter consolidation, restructuring costs of $2.4 million, which reduced EPS by 4 cents. In addition, net gains and losses on investments in other asset sales and write downs were low at a net loss of just over $200,000.
We also expect to have some additional restructuring costs and real estate write downs that will be booked over the next couple of quarters as we began to execute the next phase of facilities optimization and other <unk> 3.0 initiatives.
Bryan McKeag: Before I go into more detail, I want to remind everyone that our third quarter earnings release and investor presentation are both available in the investor relations section of HTLF's website. So I'll start my comments with the provision for credit losses, which was $1.5 million. The provision reflects our stable credit quality, including a reduction of nearly $12 million in non-performing loans, lower charge offs at 12 basis points of total loans, and a continued low delinquency rate of 12 basis points of total loans. At quarter end, the total allowance for lending related credit losses, which includes both the allowance on loans and on funded commitments, decreased $2.1 million to $127.7 million or $1.08% of total loans.
We will have more details to share next quarter regarding our views of the 2000 22020 for performance, including the impact of these new <unk> three <unk> initiatives.
And finally, we believe a tax rate of 23% excluding tax credits as a reasonable run rate.
And with that I'll turn the call back over to Bruce for questions.
Thanks, Brian.
If we can open up the line.
For questions.
Thank you Sir as a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the question queue. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question.
Bryan McKeag: Moving to the rest of the balance sheet, Bruce has already covered loans and deposits, so I'll start with investments. Investments declined almost to $300 million during the quarter to $6.4 billion, representing 32% of assets, with a tax equivalent yield of 3.79%. Due to the increase in mid to long-term interest rates near quarter end, the unrealized loss on our available for sale portfolio increased $129 million to $747 million. The relatively small, health maturity portfolio of 835 million, or 13% of investments, has an unrecorded negative fair value mark of $77 million.
It comes from the line of Andrew Liesch of Piper Sandler.
Hey, guys. Thanks for taking the question. Good afternoon, just on the margin guide of around $3 20.
Okay.
Okay.
300, <unk> two do you think it could even rise beyond that irrespective of what that does.
Okay.
I'm always cautious to go too far on the on the margin, but the reason we think it's going to go up from where we were as last quarter right. At the end is when we saw the paydown of the wholesale borrowings and funding deposits. So that's a carryover and come down a little bit this key.
As we hopefully get the deposit growth that we're looking for.
Bryan McKeag: The available for sale portfolio has a modified duration of just under 5.4 years. However, the hedges we have placed on 840 million of our longer-dated municipal and agency-backed mortgage-backed securities reduces the effective duration to just over 4.6 years.
And we also saw a slowing in the mix shift that was going from noninterest bearing to interest bearing accounts. So as those two things waned at the end of the third quarter and go into the fourth quarter. We think we can see the margin go up a tick or two <unk>.
And that Theres. So many variables in there Andrew I hate to go too far and get ahead of ourselves.
Bryan McKeag: Moving to liquidity, HTLF's liquidity profile at quarter end is strong and stable, with $1.2 billion of principal cash flow coming off our securities portfolio over the next 12 months with 240 million expected next quarter. Second, a low and level of outstanding borrowings, and $3.1 billion of the available capacity with the Fed and FHLB. Third, we have several Fed fund borrowing lines and broker-deposit sources that remain open and available.
Got it.
At this point do you think of another 25 basis point would matter that much.
Not at the current betas that are out there on the on the deposit side, if we got back to normal betas, which for US are about 30 beta.
This quarter for example, our betas were over 100% because of the catch up and everything so if we get back to normal betas, there would be a little bit from a fed move but not a lot at this point, we're kind of topping out on the benefit.
Got it got it.
Bryan McKeag: Global. Our customer deposit base is granular and well diversified, with over 64% of total deposits either insured or collateralized. Fifth, our loan to deposit ratio is 69%, and when removing all wholesale deposits, it remains low with 80%. Cash and unpleached, available for sale securities total, total $3.9 billion. And lastly, the holding company cash position spans at over 300 million, which is over three and a half times our current annualized interest in dividend payments. In addition, our dividend payout is relatively low at 28% of current ETS.
And then just on your commentary on the tax rate, 23% this quarter closer to 22.
The 1% benefit to the tax rate from the tax credit amortization that you mentioned earlier in operating expenses.
Yes for this quarter yet for this last past quarter, yet Spuddle got it okay.
Got you I will factor that in my modeling alright, thanks for taking the questions here I will step back.
Thank you.
Our next question.
Comes from the line of Damon Delmonte of K B W.
Hey, good evening, guys hope everybody's doing well today.
Bryan McKeag: With regards to capital, regulatory capital ratios remain strong, with common equity tier 1 at just over 11.4% and total risk-based capital ratio of nearly 15%. Adjusted for unrealized losses on our investments, these ratios remain well above capitalized levels at approximately 7.25% and 10.75% respectively. The tangible common equity ratio decreased 13 basis points to 5.73% at quarter end. The decline in market value of investments was partially offset by an increase in fair value of swaps this quarter, resulting in a net decrease of 35 basis points that is attributable to the accumulated other comprehensive income or ALCI.
Just wanted to.
<unk> on the on the credit front.
Nice to see Npls.
Not really move at all.
And that really move at all.
Looks like within their yet npls coming down.
Well there are a tick up here in Oreo.
Is that just.
A loan that moved into Oreo status or were there some other moving parts there.
Dan This is Matt.
Thank you Joe.
And if we had not passed.
Multifamily credit we felt after looking at it there was some disagreement between sponsors it was the best move quickly I just wanted to just drive a fast conclusion for the best of all resolution assess what we did but we don't think it's systemic or any other issues that go with that.
Got it okay.
That's good and then with regards to the outlook for loan growth.
You guys seem to be continuing to fire on all cylinders here.
Bryan McKeag: Moving to the income statement, starting with revenue, net interest income totaled 145.8 million this quarter, which is 1.4 million lower than the prior quarter. The debt interest margin on a tax equivalent basis held up well, following five basis points this quarter to 3.18%, which was close to our expected range of NIM in the low to mid-320s. The decrease this quarter included a two basis point decline in purchase accounting accretion. Non-interest income of 28.4 million this quarter was down 4.1 million from the prior quarter.
Areas of your footprint are you seeing like the best opportunities and has that changed at all in the last couple of quarters or is it.
Still kind of the western side of the footprint.
Damon This is Bruce it's still really the the mountain west to the west and the southwest.
It's a little lighter than that.
In the Midwest right now, but I would I would call it steady.
It's all of the calling efforts that that we've been putting in actually for probably the last 24 months are really starting to pay dividends.
And because we are open for business, we've been recruiting we've been calling on new customers and Thats really helped with some of the banks and some of the markets that we operate in <unk> been sputtering, a little bit trying to decide whether they're going to be in business or not.
Bryan McKeag: Excluding security losses, core non-interest income was down 4.4 million to 28.5 million, following short of our expectation of 30 to 31 million dollars. The primary driver of the mess was capital markets fees which were 2.2 million dollars lower than last quarter.
Yes.
Got it okay.
That's all that I had for now I'll step back. Thank you.
Thanks Damon.
Bryan McKeag: Shifting to expenses, non-interest expenses totaled 111 million this quarter. That's up 1.6 million from last quarter. However, excluding restructuring tax credit costs and asset gains and losses, the run rate of recurring operating expenses decreased 3.4 million to 107.4 million dollars, coming in better than our forecast of 109 to 110 million. The decrease was driven by 1.4 million dollar lower advertising costs and 1.6 million dollar decrease in professional fees.
Thank you our next question.
Comes from the line of.
Terry Mcevoy Stephens, Inc.
Hi, good afternoon everybody.
Hi.
With the charter consolidation complete can you just remind me of the $20 million of savings how much of that do you think falls to the bottom line, let's say in 2024.
Versus how much of that is will be reinvested into growth and really how could that or how does that play into the hdls three now in terms of accelerating organic growth across the bank.
Bryan McKeag: As we close out 2023 next quarter, HTLF expects long growth of 150 to 200 million to be primarily funded by the customer deposit growth of 125 to 175 million dollars, million. In addition, we expect an additional 100 million seasonal draws on egg lines of credit that we anticipate will be repaid in the first quarter of 2024. Achieving these loan and deposit growth expectations enables the bulk of investment cash flows to be utilized to decrease wholesale deposits in short-term borrowings. And that interest margin on tax equivalent basis is expected to stabilize in the 3.20 percent range, excluding any fed moves prior to your end.
So I think we'll double team. This one I'll take the first part.
In terms of what has fallen to the bottom line.
We have a slide in our deck I think it's just.
Just to find that real quick.
Slide 10.
Where we show what our core operating expenses to assets is done overtime and so we started this back in 2021, we were running at about 222% of cost to assets.
We're now down this quarter down to 2.8% if you do the math on about <unk>, we have been about $20 billion that whole time give or take that's about $28 million of run rate reduction in our expenses, so the $20 million in there.
Bryan McKeag: Provision for credit losses is projected to remain in the $3 to $5 million range. This assumes relatively stable credit performance in a manageable level of economic contraction over the next 12 months. Coronadinterest income excluding investment gains or losses is expected to be flat at $28 to $29 million. We expect a reduction in consumer NSF and OD fees as we institute new policies across our now single charter customer base. And we see a continued decline in mortgage-related revenue. Both of these will be offset by higher capital markets fees.
We do have a little bit.
So it's more than that there is some other things in there, but I think we've gotten a $20 million plus.
Plus I think we'll get just a little bit more here as we do the span of control changes here in the fourth quarter. So.
So we've got steaming into next year.
I'll, let Bruce talk about what we're planning to reinvest in a little bit more about three point out yes.
Yes, so Terry you'll you'll hear us talk.
At the end of the year in the next quarter kind of more about H COF III pointed out, but I guess the way I think about it we're everything that Brian just described is really going to fall to the bottom line, we're going to be reinvesting the span of control as well as looking at management layers looking at our <unk>.
Bryan McKeag: Recurring operating expenses are expected to be 109 to 110 million. This excludes any new FDIC assessments that may be levied next quarter.
Ranch footprint looking at.
The size of our branch locations, that's where we're really going to get the investment.
Bryan McKeag: Charter consolidation, restructuring costs are forecast to be 2 to 3 million next quarter, which includes both the final consolidation implementation expenses as well as expenses to complete several span of control improvements next quarter as we achieve the remaining benefits of the charter consolidation project. We also expect to have some additional restructuring costs and real estate write downs that will be booked over the next couple of quarters as we begin to execute the next phase of facilities optimization and other HTLF 3.0 initiatives.
Dollars for next year in 2024.
Understood.
Brian I appreciate all the forward looking commentary for the fourth quarter.
Specifically the service charges, which were $18 6 million in the third quarter, how much of a decline do you expect because of the new policies that you that you mentioned and I guess, what gives you confidence that the capital markets line will return.
Yes, a couple of things.
Think it's around 600000 will be implementing this in December.
The NSF reduction for Q4 is about 600000.
Bryan McKeag: We will have more details to share next quarter regarding our views of the 2022 2024 performance, including the impact of these new HTLF 3.0 initiatives. And finally, we believe a tax rate of 23% excluding tax credits is a reasonable run rate.
And then as I said mortgage banking for US has been coming down I think it's going to continue to kind of fall off just not seeing a lot of good activity there.
<unk>.
The capital markets piece, I think third quarter was just soft for US I think there is some things that we now see coming into the fourth quarter.
Bruce Lee: And with that, I'll turn the call back over to Bruce for questions. Thanks, Brian.
Sure.
I think Bruce May I have a couple of comments here, but.
Unknown Executive: Lateef, we can open up the line for questions. Thank you, sir. As a reminder to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the question queue, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Feel pretty confident we can make that up.
Sure, Yes, so Terry one of the things on the capital markets front we.
We've taken a really hard look at our at our pipeline and we've really spent the last probably two weeks, maybe even three weeks out there talking to a lot of our customers, who currently have floating rate debt sort of adding value showing them the inverted yield curve and looking at.
Andrew Liesch: Our first question comes from the line of Andrew Leish, a Piper Sandler. Hey, guys. Thanks for taking the questions. Good afternoon. Just on the margin guide of around 320, just a little bit up and 318. Do you think it can even rise beyond that, be a respect of what the Fed does? You know, I'm always cautious to go too far on the margin. But the reason we think it's going to go up from where we were is, you know, last quarter, right at the end is when we saw the paydown of the wholesale, borrowings, and funding deposits.
Three year or four the out they can actually reduce by doing a swap that can reduce our interest costs. So we've seen our pipelines really begin to grow as we've been out there talking to customers and helping them look at how to create some fixed rate debt from floating on their on their own balance sheets.
Which helps them manage their own interest rate risk.
Great. Thanks for taking my questions.
Thanks, Eric.
Sure.
Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one on your telephone to ask a question.
Andrew Liesch: So that should carry over and come down a little bit this quarter as we, you know, hopefully get the deposit growth that we're looking for, and we also saw a slowing in the mix shift that was going from non-intersparing to intersparing accounts. So as those two things wamed at the end of the third quarter and go into the fourth quarter, we think we can see the margin go up a ticker to.
We have a follow up question from the line of Andrew Liesch of Piper Sandler.
Alright. Thank you guys do you have handy the balance of shared national credits.
Andrew Liesch: Beyond that, there's so many variables in there. Andrew, I hate to go too far and get ahead of ourselves. Got it. So I mean, at this point, do you think another 25 basis points would matter that much? Not at the current betas that are out there on the, on the deposit side. If we got back to normal betas, which for us are about a 30 beta, you know, this quarter, for example, our betas were over 100% because of the catch up and everything.
Balance sheet.
Yeah first of all shared national credits for Us that really are focused our strategy is really big.
When we return to do participations, where FERC has really gained exposure with some of the companies in our markets, we really want kind of a deeper relationship with an exposure in those markets, but overall.
Andrew Liesch: So if we get back to normal betas, there would be a little bit from a fed move, but not a lot at this point, kind of topping out on the benefit. Got it. And then just on your, your commentary on the tax rate, like 23%, this quarter is closer to 22. So was there 1% benefit to the tax rate from that tax credit, amortization that you mentioned earlier and operating expenses. Yeah. For this quarter, yeah. For this last pass quarter, yeah. Got it. Okay. Got you. I will factor that is my modeling. All right. Thanks for taking the questions here. I will spend that. Thank you.
If you take all participations, we have repurchased of where we are.
Not the lead bank, it's actually it's only about 9% of our book, it's mostly C&I.
And really we've maintained the discipline, we've maintained our portfolio theyre very disciplined but geographic diversification as well as industry diversification I think our largest concentration.
Factually so we feel good about that book and where we're at Bruce anything you like that.
Hi.
Andrew we really view this as.
Asset play here, but it's a relationship play in all of our.
Transactions, whether we're a buyer or seller, we have a non credit.
Relationships and I think and correct me, if I'm wrong, Nathan, but I think that we have purchased about 9%, but we've also sold about four five or 5% bucket for us. It's about a net of the total book is a net of about four 5% of our total portfolio.
Damon Delmonte: Our next question comes from the line of Damon Demont of KBW. Good evening, guys. Hope everybody's doing well today. I just wanted to ask a little bit on the credit front in Nice to see NPLs not really move at all. Sorry, NPAs not really move at all. It looks like within there, you had NPLs coming down in a little bit of a tick up here in Oreo.
Got it.
Very helpful. Thank you so much.
Thank you.
Our next question.
Comes from the line.
Jeff <unk> of D. A davidson.
Nathan Jones: Is that just a loan that moved into Oreo status or were there some other moving parts there?
Okay. Thanks, good afternoon.
A question on the <unk>.
As you have wind down that charter consolidation more specific to the maybe.
Nathan Jones: Correct, Damon. This is Nathan Jones. That's a credit that we had in our non pass. It's a multi-family credit. We felt that for looking at it, there were some disagree between sponsors.
The folks that were sort of.
Really assigned to that.
That process.
Bruce Lee: It was the best move quickly on this one and just drive a fast conclusion for the best of all resolution. That's what we did, but we don't think it's systemic or any other issues or go with that. Got it. Okay. That's good. And then with regards to the outlook for long growth, you know, you guys seem to be continuing to fire on all cylinders here. What areas of your footprint are you seeing like the best opportunities? You know, has that changed at all in the last couple quarters or is it, you know, still kind of the western side of the footprint?
Just wanted to see it.
There's a rotation or theres, a reassignment of those and maybe that comes as part of three point or just wanted to get a sense for.
If there was that our head count that was sort of assigned to oversee that and do they pivoted and are there any expected.
Positive impact as they got it re look at other projects.
Yes so.
If you think about I guess I'll answer it this way we had very few 100% dedicated folks too.
Bruce Lee: Damon, this is Bruce. It's still really the mountain west, the west, in the southwest. It's a little lighter in the Midwest right now, but I would call it daddy. You know, it's all of the calling efforts that that we've been putting in actually for probably the last 24 months are really starting to pay dividends. And because we are open for business, we've been recruiting, we've been calling on new customers. And that's really helped when some of the banks and some of the markets that we operate in have been sputtering a little bit trying to decide whether they're going to be in business or not. Got it. Okay.
The project that were on our payroll.
And so within those restructuring charges were very little.
Salaries for folks so for OXXO RP internal people will get reassigned to the projects and other things that we're looking at for three Plano.
And again, they were doing their day job as well as doing the consolidation we thought we might have to do more but the consolidations quite frankly went very smooth and congratulations to all the folks at <unk>, because I think they.
They did a great job of getting the projects done and doing their day jobs and all the other things that we needed to do so it was that it was very good most of that cost that we use people four was external.
Damon Delmonte: That's all that I had for now. I'll step back. Thank you. Thanks, Damon.
Unknown Executive: Thank you.
That came in and helped US Okay. That's helpful. Thanks.
Terence McEvoy: Our next question comes from the line of Terry McEvoy of Steven Zink. Hi, good afternoon, everybody. Hi, so with the charter consolidation complete, can you just remind me of the $20 million of savings, how much of that do you think falls to the bottom line? Let's say in 2024 versus how much of that is will be reinvested into growth and really how could that or how does that play into the HDLF 3.0 in terms of accelerating or organic growth across the bank?
Just to circle back maybe for Nathan on that then.
Nonperforming loans, some reductions there, but looks like there was even a balance that kind of came in thats, new net down but.
Just.
In general credit comments does it sound like you're too concerned about systemic changes, but maybe if you could touch on what was added in areas that.
Kind of you looking at that.
<unk> at all.
Yes, no nonperforming was down about $11 6 million, but what there was a slight increase that's really an AG credit.
Terence McEvoy: I think we'll double team this one. I'll take the first part. You know, in terms of what has fallen to the bottom line, you know, there's a we have a slide in our deck. I think it's fine that real quick. It's slide 10 where we show what our core operating expenses to assets has done over time. And so we started this back in 2021. We were running at about 2.22% of cost to assets.
Majority of that is actually USDA guarantee so we don't have large concerns there about the increase we continue to monitor and we're watching the economy as well.
Follow up with <unk>.
Economists across trying to understand I talk to my peers, where were seeing weak spots. We just don't see anything at this point, that's the stomach to be concerned about although we continue to monitor it very diligently.
And I think Jeff if you're if you're referring to the table that we have in the back or we show the ins and outs of non non performers.
Terence McEvoy: We're now down this quarter down to 2.08%. If you do the math on about 20, we've been about 20 billion that whole time, give or take. That's about $28 million of run rate reduction in our expenses. So the 20 millions in there. We do have a little bit, you know, so it's more than that. There's some other things in there, but I think we've gotten a 20 million. Plus, I think we'll get just a little bit more here as we do these panic control changes here in the fourth quarter.
$11 million.
Item that ended up in Oreo that went through select grossed up the end in the out of non performers. It was in performing loans at the end of last quarter became a problem we jumped on it right away. So in our tables, we kind of flow that is a plus and a minus through npls to get to Oreo.
Okay.
In the new maybe.
Those new non performers, but it was like a temporary new because it came in at what route.
Terence McEvoy: So that's what we've got steaming into next year. However, I'll let Bruce talk about what we're planning to reinvest in a little bit more about 3.0. Yes, so Terry, you'll hear us talk, you know, at the end of the year in the next quarter, kind of more about HTML 3.0. But I guess the way I think about it, we're everything that Brian just described is really going to follow the bottom line.
Got it okay.
Yes, the new and the reduction both down by $11 million.
Then I think you'd see what really was the net other ins and outs of the nonperformance appreciate are performed.
Yeah, Okay, Thanks, and Bruce it sounds like kind of give you some time on the three point out but.
Terence McEvoy: We're going to be reinvesting the span of control as well as looking at management layers, looking at our branch footprint, looking at the size of our branch locations. That's where we're really going to get the investment dollars for next year in 2024. Understood and Brian appreciate all the forward looking commentary for the fourth quarter, specifically the service charges, which were 18.6 million in the third quarter. How much of a decline do you expect because of the new policies that you that you mentioned and I guess what gives you confidence that the capital market's line will will return.
Did touch on geographies.
Kind of taking a look at what would be the metrics.
Demographics and not to oversimplify, it, but where do you think.
The answer is efficiency, but.
Anything that.
Lead us into before we get that reveal kind of geographies that that makes sense some that don't.
And in that discussion.
Yes, so we will get in a lot more detail.
The next time, we all talk but look when you look at our footprint.
It's clear that we don't have scale in a fair amount of our markets.
Our long term goal is both efficiency and growth potential for us.
Terence McEvoy: Yeah, a couple of things that I think it's around 600,000 will be implementing this in December. Okay, so the NSF reduction for Q4 is about 600,000. And then as I said mortgage banking for us has been coming down, I think it's going to continue to kind of follow off just not seeing a lot of good activity there. The capital markets piece, I think third quarter was just soft for us. I think there's some things that we now see coming into the fourth quarter.
And so we are looking very heavily not only at the branch network with the actual geography.
To make decisions on whether we should.
Expand or we should contract in those geographies.
Okay, we'll look forward to that update thank you.
But I would say the keys for us.
All about.
PPS.
All about expense control and what does it do to our TCE.
Terence McEvoy: And, you know, I think Bruce may have a couple comments here, but I feel pretty confident we can make that up there. It's out there, talking to a lot of our customers who currently have floating rate debt, sort of adding value, showing them the inverted yield curve and looking at, you know, a three year or four hours they can actually reduce by doing a swap they can reduce their interest cost. So we've seen our pipelines really begin to grow as we've been out there talking to customers and helping them look at how to create some fixed rate debt from floating on their on their own balance sheets, which helps them manage their own interest rate risk. All right. Thanks for taking my questions. Thanks. Thank you. Once again, to ask a question, please press star 11 on your telephone. Again, it's star 11 on your telephone to ask a question.
<unk> sort of the three things that are always in the forefront of our minds as we're making decisions about geographies the branch.
Play that we've been talking about.
As well as span of control and layers of management.
Now that we have.
The charter consolidation done we can actually execute some of these things, but we had to get the consolidations done. So that we could then move to the next phase.
Thank you.
Okay.
Thank you as there are no further questions at this time I would like to turn the call back over to Mr. Li for closing comments.
Thank you Latif.
In closing <unk> had a solid third quarter, we continue to add relationships.
Grow customer deposits.
Grow quality loans.
<unk> maintained stable credit quality and drive efficiency.
While we remain focused on continuing to achieve organic growth.
We're also focused on reducing expenses.
Increasing EPS and growing TCE over the next few quarters.
Andrew Liesch: We have a follow up question from the line of Andrew leach, a piper sendler. Hey, thank you guys. Do you have handy the balance of share national credits that you have on balance sheet?
We continue to evaluate our balance sheet and capital structure to maximize efficiency and flexibility.
And we're analyzing our expense structure, including geographies branch footprint.
Nathan Jones: Yeah, first of all, share national press for us, not really focused. Our strategy is really the kind of when we reach into a part of spaces where we purchased some zero gain exposure with some of the companies in the markets, we really want kind of a deeper relationship with an exposure in those markets. But overall, if you take all participation that we have, we purchased them, or we're not the lead bank, it's actually only about 9% of our book, it's mostly CNI.
Management layers and spans of control.
We'll provide more guidance in the fourth quarter.
Thank you for joining us Tonight.
Our next quarterly earnings call will be in late January have a good evening everyone.
Okay.
Yes.
This concludes today's conference call. Thank you for participating and you may now disconnect.
Nathan Jones: And really, we've maintained the discipline we maintained over a quarter of a year. They're very disciplined, but geographic diversification as well as industry diversification. I think our largest concentration is in manufacturing. So we feel good about that book and we're at. We're thinking like that. Yeah, you know, we've, Andrew, we've really viewed this as not an asset play here, but it's a relationship play in all of our transactions, whether we're a buyer or a seller, you know, we have a non credit relationships.
Okay.
[music] okay.
Great.
Yes.
[music].
Nathan Jones: And I think it correct me if I'm wrong, Nathan, but I think that we have purchased about 9%, but we've also sold about 4.5% or 5%. So it's about a net of the total book is a net of about 4% or 5% of our total portfolio. Got it. Very helpful.
Unknown Executive: Thank you so much.
Jeffrey Rulis: Thank you. Our next question comes on the line of just realists of the a baby. Thanks.
Nathan Jones: Good afternoon. Just a question as you've won down the chart of consolidation. More specific to the maybe the folks that were really assigned to that process. Just wanted to see if there's a rotation or there's a reassignment of those. And maybe that comes as part of 3.0 or just want to get the fence for, you know, if there was a head count that was sort of assigned to oversee that and and do they pivot and are there any expected, you know, positive impact as they kind of relook at other projects.
Yes.
[music].
Yes.
Yes.
Okay.
[music] okay.
Nathan Jones: Yeah, so if you think about I guess I'll answer it this way, we we had very few hundred percent dedicated folks to the project that were on our payroll. And so within those restructuring charges, we're very little salaries for folks. So the for our internal people will get reassigned to the projects and other things that we're looking at for 3.0. And again, they were doing their day job as well as, you know, doing the consolidation.
Okay.
Great.
[music].
Okay.
Nathan Jones: We thought we might have to do more, but the consolidations quite frankly went very smooth and, you know, congratulations to all the folks at HTML because I think they did a great job of getting the projects done and doing their day jobs and all the other things that we needed to do. So it was it was very good. But most of that cost that we use people for was external consultants that came in and helped us.
Nathan Jones: Okay, that's helpful. Thanks. And just to circle back maybe for Nathan on the non performing was in a some reductions there, but look like there was even a balance that kind of came in that's new on that down. But just in general credit comments does it sound like you two concerned about systemic changes, but maybe if you could touch on what was added and areas that kind of you're looking at that that are softening at all.
Nathan Jones: Yeah, not performing was down about 11.6 million, but what there was a slight increase. That's really an act credit and the majority of that is actually USDA guarantee. So we don't have large concerns there about the increase. We continue to monitor it. We're watching the economy as well. We follow up with different economists across trying to understand and talk to my peers where we're seeing weak spots. We just don't see anything anything at this point that systemic be concerned about.
Nathan Jones: But we continue to monitor it very diligently. And I think Jeff, if you're referring to the table that we have in the back where we show the ins and outs of non performers. Yeah, 11 million dollar item that ended up in OREO that went through so it grossed up the in and the out of non performers. It was in performing loans at the end of last quarter. It came a problem. We jumped on it right away.
Nathan Jones: So in our tables, we kind of flow that as a plus and a minus through NPLs to get to OREO. Okay, so in the new maybe it kind of shows new non performers, but it was like a temporary new because it came in and then went out. Got it. Okay, you took the new in the reduction, both down by 11 million, and then I think you'd see what really was the net other ins and outs of the non-performance. Appreciate it. Okay, thanks.
Bruce Lee: And Bruce, it sounds like we'll kind of give you some time on the 3.0, but it did touch on geographies and kind of take on a look at what would be the metrics or the demographics and not that oversimplifying. But where do you mean I think the answer is efficiency, but you know anything that you'd lead us into before we get that reveal of kind of geographies that that makes sense on the don't in that discussion.
Bruce Lee: Yeah, so, you know, we'll get in a lot more detail the next time we all talk, but look, when you look at our footprint, you know, it's clear that we don't have scale in a fair amount of our markets. And our long term goal is both efficiency and rose potential for us. And so we are looking very heavily not only at the branch network, but the actual geography to make decisions on whether we should expand or we should contract those geographies.
Bruce Lee: Okay, we'll look forward to the updates. Thank you. But I would say the keys for us, it's all about EPS, it's all about expense control and what does it do to our TCE. I mean, those are sort of the three things that are always in the forefront of our minds as we're making decisions about geographies, the branch play that we've been talking about as well as span of control in layers of management. Now that we have the charter consolidation done, we can actually execute some of these things, but we had to get the consolidations done so that we could then move to the next phase.
Bruce Lee: Thank you. As there are no further questions at this time, I'd like to turn the call back over to Mr Lee for closing comments. Thank you. In closing, HTLF had a solid third quarter. We continue to add relationships, grow customer deposits, grow quality loans, maintain stable credit quality and drive efficiency. While we remain focused on continuing to achieve organic growth, we're also focused on reducing expenses, increasing EPS and growing TCE over the next few quarters.
Bruce Lee: We continue to evaluate our balance sheet and capital structure, to maximize efficiency and flexibility. And we're analyzing our expense structure, including geographies, branch footprint, management layers and span of control. We'll provide more guidance in the fourth quarter. Thank you for joining us tonight. Our next quarterly earnings call will be in late January. January. Have a good evening everyone. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.