Q3 2024 Trustmark Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Trustmark corporations third quarter earnings Conference call.
At this time all participants are in a listen only mode. Following the presentation. There will be there will be a question and answer session.
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And to withdraw your question. Please press Star then two.
Speaker Change: As a reminder, this call is being recorded it is now my pleasure to introduce Mr. Joey Rein director of corporate strategy at Trustmark. Please go ahead Sir.
Joey Rein: Thank you good morning.
Speaker Change: Just to remind everyone that our third quarter earnings release, and the slide presentation that will be discussed on our call. This morning are available on the Investor Relations section of our website at Trustmark Dot com during our call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 90.
Speaker Change: 95, and we'd like to caution you that these forward looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release as well as our other filings with the Securities and Exchange Commission at this time I'll turn the call over to Duane Dewey President and CEO.
Speaker Change: Oh of Trustmark.
Duane Dewey: Thank you Joey and good morning, everyone.
Duane Dewey: Thank you for joining us. This morning with me are Tom <unk>, Our Chief Financial Officer, Barry Harvey, Our Chief credit and operations Officer, and Tom Chambers, Our Chief Accounting Officer.
Duane Dewey: The third quarter was a very active and productive quarter for trust marks our third quarter results reflect significant progress across the organization.
Duane Dewey: Net income.
Duane Dewey: $1.3 million representing earnings per share up 84 cents.
Duane Dewey: Profitability increased as evidenced by 26.7% growth in net income from our casting continuing operations and 282 basis point improvement in the efficiency ratio.
Duane Dewey: The restructuring of the investment Securities portfolio was a major contributor to that nine 5% increase in net interest income in the third quarter.
Duane Dewey: These accomplishments are the result of focused efforts to enhance trustmark long term performance.
Duane Dewey: Now, let's turn to slide three for a recap of our strong fundamental accomplishments during the quarter.
Duane Dewey: Loans held for investment were relatively flat decreasing 55 million linked quarter, and increasing $290 million year over here.
Duane Dewey: Deposits declined 222 million linked quarter.
Duane Dewey: Excluding targeted reductions in public and broker deposits up approximately 530 million.
Duane Dewey: <unk> increased over 300 million linked quarter.
Duane Dewey: A significant contributor to our performance in the quarter what is the growth in net interest income, which increased $13 $7 million or 995% linked quarter to 158 million.
Duane Dewey: The net interest margin expanded 31 basis points during the quarter to $3 six 9% Tom.
Speaker Change: Tom I'll ones won't provide some additional color on his in his remarks here in a minute.
Speaker Change: Non interest income from adjusted continuing operations in the third quarter totaled $37 6 million a decrease of <unk> 7 million linked quarter and an increase of <unk> 6 million year over year.
Speaker Change: From an expense perspective, noninterest expense increased $4 9 million during the quarter.
Speaker Change: There are three primary drivers of this increase first our annual salary Merit increases were effective July one.
Speaker Change: Second annual incentive accruals and commissions increased due to strong operating performance.
Speaker Change: And third we had an increase in Oreo expense related to the establishment of a reserve for a single property that is under contract with shell and scheduled to close in the fourth quarter.
Speaker Change: Year over year expenses from adjusted continuing operations actually declined 500000.
Speaker Change: Okay.
Speaker Change: Diligent expense management continues to be a focus of the organization here moving forward.
Speaker Change: Trustmark capital ratios expanded meaningfully during the quarter and tangible equity to tangible assets increased 55 basis points to 9.07%.
Speaker Change: While the CET, one ratio expanded 38 basis points to 11, 3%.
Speaker Change: And a total risk based capital ratio expanded 42 basis points to 13 seven 1%.
Speaker Change: Tangible book value per share was 28 $26.88 at September 30 of 2024, an increase of six 5% from the prior quarter and 32, 9% from the prior year.
Speaker Change: The board declared a 23 cent dividend payable on December 15th to shareholders of record on December 1st.
Speaker Change: From a credit quality perspective, net charge offs of $4 7 million during the quarter representing.
Speaker Change: One 4% of average levels.
Speaker Change: Oh, it's for credit losses represented one point to 1% of loans held for investment and nearly 500% of non accrual loans, excluding individually analysed slides.
Speaker Change: At this time Barry Harvey.
Barry Harvey: I'll provide an overview of our loan portfolio and credit quality, probably go out to his wife, Thank you turning to slide four.
Barry Harvey: Loans held for investment totaled 13 four.
Barry Harvey: One 1 billion as of September 30th.
Barry Harvey: Which is the one indicator is relatively flat for the third quarter increases in the third quarter came from existing multifamily loans are.
Barry Harvey: But that's a lot of business and one four family mortgages. They were offset by declines in C&I state in political laws and other CRE, we continue to expect loan growth.
Barry Harvey: Low single digits for 2024.
Barry Harvey: As you can see our loan portfolio remains well diversified by both product types as well as geography.
Barry Harvey: Looking over to slide five.
Barry Harvey: Trustmark CRE portfolio is 95% vertical with 70% in the existing categories, and 30% and construction land development or construction land development portfolio is 82% construction truck box office portfolio. As you can see is very modest at 262 million ounces.
Barry Harvey: Sandy, which represents only 2% of the overall loan book.
Barry Harvey: The portfolio is comprised of credits with high quality tenants as well as low lease turnover strong occupancy levels and low leverage.
Barry Harvey: Turning to slide six the bank's commercial loan portfolio is well diversified as you can see across numerous industries with no single category exceeding 14%.
Barry Harvey: Looking to slide seven.
Barry Harvey: Provision for credit losses for loans held for investment was seven 9 million during the third quarter, which was driven by specific reserves or individually analogs credits and net adjustments to our qualitative factors.
Barry Harvey: The provision for credit losses for all balance sheet credit exposure with a negative $1 4 million.
Barry Harvey: Which resulted primarily from a decline in unfunded commitments.
Barry Harvey: At September 30th the allowance for credit losses for loans held for investment was $158 million.
Barry Harvey: Turning to slide eight we continue to post solid credit quality metrics.
Barry Harvey: <unk> for credit losses increased to one point to 1% of loans held for investment representing 497% of non accruals. Excluding those laws that are individually analogs.
Barry Harvey: In the third quarter net charge offs totaled $4 seven day, maybe you have to do I mentioned earlier, both non accruals and nonperforming assets increased during the quarter, primarily as a result of two commercial credits. However, they are materially.
Barry Harvey: Materially declined year over year due to continued efforts to effectively manage and resolve problem assets a family matter.
Barry Harvey: Why.
Speaker Change: Great. Thank you Barry now compounds will cover deposits net interest margin and non interest income.
Speaker Change: Thanks, Dwayne and good morning, everyone turning to deposits on slide nine.
Speaker Change: Had another good quarter, which continued to show the strength of our deposit base.
Speaker Change: It's totaled $15 2 billion at September 30th.
Speaker Change: The linked quarter decrease of 222 billion or one 4%.
Speaker Change: And a year over year increase of $139 million or 0.9%, However, as Duane indicated.
Speaker Change: Significant driver of that decline was a targeted intentional.
Speaker Change: Run off in deposits specifically to linked quarter increase was driven decrease was driven by a $200 million decline in brokered Cds.
Speaker Change: We allowed to run off at maturity rather than replace.
Speaker Change: And we had a $330 million in public fund balances.
Speaker Change: Which really targeted decline related to large accounts that tend to be somewhat volatile quarter to quarter looking beyond that we had a solid quarter of deposit growth.
With growth of $155 million in personal balances and about $152 million in commercial balances representing linked quarter growth of about one 9% and three 5% respectively.
Speaker Change: Noninterest bearing DDA balances remained resilient declining by $11 million linked quarter and remaining above.
Speaker Change: Above 20% of our deposit base.
Speaker Change: Time deposits increased by 124 million linked quarter, excluding the decline of $200 million in brokerage Cds.
Speaker Change: As of September 30th our promotional and exception priced time deposits totaled $1 4 billion with a weighted average rate paid of $4, 97% and a weighted average remaining term of about five months.
Our broker time deposits totaled 400 million at a weighted average all in rate paid a 541% and weighted average remaining term of about two months as of September 30th.
Speaker Change: And our cost of interest bearing deposits increased by six basis points from the prior quarter to 281%.
Speaker Change: Turning to slide 10, Trustmark continues to maintain a stable granular and low exposure deposit base. During the third quarter. We had an average of about 460000 personal and non personal deposit accounts.
Limiting collateralize public fund accounts with an average balance per account of about $28000.
Speaker Change: As of September 30, and 65% of our deposits were insured and 12% more collateral five meaning that our mix of deposits that are uninsured and uncollateralized was relatively unchanged linked quarter and 23%.
Speaker Change: We maintain substantial secured borrowing capacity, which stood at $6 $2 billion at September 30th representing 176% coverage of uninsured and uncollateralized deposits.
Speaker Change: Our third quarter total deposit cost increased four basis points linked quarter and 2.22%.
Speaker Change: The favorable variance to prior guidance reflects proactive strategic pricing actions that we took during the quarter in anticipation of the fed September rate cut.
Speaker Change: Based on those costs as well as the cuts that we're currently contemplating in anticipation of a possible cut by the fed in November 7th. We're currently projecting a linked quarter decline in deposit costs for the fourth quarter of about 13 basis points to 2.09%.
Speaker Change: And as a frame of reference for that guidance. We're on track for deposit costs of approximately $2, one 1% month to date here in October.
Speaker Change: Turning our attention to revenue on slide 11, net interest income FTE increased $13 $7 million linked quarter totaling $158 million, which resulted in a metric interest margin of $3 six 9%.
Speaker Change: Our net interest margin increased by 31 basis points linked quarter driven.
Speaker Change: Driven by.
Speaker Change: Our securities portfolio restructuring as well as ongoing accretion from loan rate and volume.
The deposit pricing actions taken in the third quarter as well as the actions.
Speaker Change: We'll likely be taking in the fourth quarter to offset the <unk>.
Speaker Change: <unk> paid a fed rate cut in November 7th should enable us to achieve a net loss of $3 65 to $3 17 for the second half.
Speaker Change: Second half of 'twenty four.
Speaker Change: Turning to slide 12, our interest rate risk profile remained essentially unchanged as of September 30th one portfolio mix of 52% variable rate coupons.
The cash flow hedge portfolio, which is structured to mitigate asset sensitivity.
Speaker Change: Active notional of $875 million and a weighted average maturity of three five years.
The effect of $390 million in forward, starting swaps and $125 million in forward several floors.
Speaker Change: The weighted average received fixed rate on the 850 million active notional swaps is 312% and a weighted average so for ratings on the $25 million of active notional floor is this 4%.
Speaker Change: Turning to slide 13, noninterest income from adjusted continuing operations totaled $37 6 billion in the third quarter, a linked quarter decrease of approximately 700000 in a year over year increase of about 600000.
Speaker Change: The linked quarter decrease was driven primarily by seasonal and onetime items and have increased during the second quarter, rather than fundamental recurring drivers that decreased third quarter revenue.
Speaker Change: Mortgage banking net hedge ineffectiveness normalized somewhat linked quarter to negative $2 5 million, but remained unfavorable year over year by $1 5 million.
Speaker Change: Excluding that packaging effectiveness.
Speaker Change: Jen effectiveness noninterest income increased by $2 $1 million or five 6% year over year, which is consistent with our full year guidance.
And now I'll ask Tom Chambers to cover noninterest expense and capital management.
Tom Chambers: Thanks, Tom turning to slide 14, we will see a detail of our total noninterest expense.
Tom Chambers: During the third quarter noninterest expense totaled $123 $3 billion linked quarter increase of $4 $9 million.
Tom Chambers: For 2%.
Tom Chambers: The increase was mainly driven by an increase in salary and benefits of $1 $9 million.
Tom Chambers: From an increase in annual performance incentive accruals of $1 $2 billion in salary expense of 423000 due to annual Merit increases beginning July one.
Tom Chambers: If you'll look services and fees increased $981000, mainly as a result of increased third party professional fees.
Tom Chambers: Other real estate expense net increased $2 $1 million driven by establishing a reserve related to one property during the quarter.
Tom Chambers: When you remove all the real estate net for each period and the litigation settlement expense incurred during the third quarter of 2023.
Tom Chambers: There was a decline in adjusted non interest expense when comparing the third quarter year over year of approximately two 4%.
Tom Chambers: Turning to slide 15.
Tom Chambers: Trustmark remains well positioned from a capital perspective.
Duane Dewey: Dwayne previously mentioned our capital our capital ratios remained solid.
Duane Dewey: At the end of the quarter common equity tier one ratio was 11, 40% linked quarter increase of 48 basis points.
Duane Dewey: Total risk based capital was 13, 71% linked quarter increase of 42 basis points.
Duane Dewey: Although we currently have a $50 million share repurchase program in place our priority for capital deployment continues to be focused organic lending.
Speaker Change: As Dwayne indicated we will continue to evaluate the share repurchase program is the market and capital levels dictate.
Speaker Change: Back to you right.
Joey Rein: Great. Thank you Tom now turning to slide 16, we expect loans held for investment to be up low single digits for the full year 2024 and deposits excluding brokered deposits to remain relatively stable for the full year 2024.
Joey Rein: Securities balances are expected to remain stable.
Joey Rein: Reinvest cash flows.
Joey Rein: We anticipate net interest income to increase in the mid single digits in 2024, reflecting continuing earning asset growth stabilizing deposit costs and accretion from balance sheet repositioning, resulting in full year 2024, net interest margin of approximately $3 50 based on.
Joey Rein: Market implied forward interest rates, we expect the net interest margin to be in the range of $3 65 to $3 70 in the second half of 2024.
From a credit perspective, the provision for credit losses, including unfunded commitments is dependent upon credit quality trends.
Joey Rein: Current macroeconomic forecast and future loan growth.
Joey Rein: Net charge offs from continuing operations are expected to remain below the industry average based on the current economic outlook.
Joey Rein: Noninterest income from adjusted continuing operations for full year 'twenty 'twenty four is expected to increase low to mid single digits, while non interest expense on an adjusted continuing operations all year 'twenty four is expected to be approximately unchanged reflecting heightened.
Joey Rein: Cost containment initiatives.
We will continue our disciplined approach to capital deployment with a preference for organic loan growth.
Joey Rein: Central market expansion M&A or other general corporate purposes, depending on market conditions.
Joey Rein: We will also continue to assess the board of directors approved 2024 share repurchase program as the market and balance sheets dictate.
Joey Rein: That concludes our prepared comments this morning, and we now open the floor to questions.
We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Bill Jones with K BW. Please go ahead.
Bill Jones: Yeah, Hey, thanks, good morning, everyone.
Speaker Change: Good morning, well or not.
Bill Jones: So I wanted to start with the margin I mean, the trends, we're obviously really impressive in the quarter. As you know we saw the first kind of full quarter impact with the securities restructuring the margin, perhaps came even even a little bit better than expected thought Tom you alluded multiple times that you know some of the deposit pricing actions that you guys were able to take it could you just walk.
Bill Jones: US through you know a little bit on what you were able to do there.
Bill Jones: Towards the end of the quarter end.
Bill Jones: You know, what whether or not you saw any pushback from clients or just any general commentary about.
Speaker Change: Well, we'll have a terrible to achieve on the deposit front.
Speaker Change: Yeah, well so thank you for the question.
Speaker Change: The big cuts that we made two deposits in the third quarter, we made with the intention of substantially mitigating.
Speaker Change: The pressure.
Speaker Change: From the 50 basis point reduction on our floating rate loan coupons, we feel really good about the monitoring.
Speaker Change: Monitoring and reporting we have we look at it on a daily basis in terms of account activity and deposit flows and we are very encouraged at this point, we feel really good.
Speaker Change: About our ability to maintain our deposit base our deposit base.
Speaker Change: The challenge will obviously now is we're potentially looking at another 25 here.
Speaker Change: Coming up real soon November 7th and then who knows maybe one in December and so you know when you start to get into sort of a you know relatively rapid fire sequence of fed cuts tactically you're always in that position of theirs, what you want to do but at the same time you know.
Speaker Change: And they want to do is obviously to maintain our net interest margin and offset the adverse impact.
Speaker Change: On our floating rate loan portfolio, but at the same time, we're we're on a daily basis as I sat in monitoring deposit activity, we feel good right now and the guidance that we're putting out there right now.
Speaker Change: Reflects what we anticipate at this point, Mike there ought to be the opportunity to do a bit better there might be you know the last couple of quarters. We've been managed to come in favorable relative to guidance and so it's just gonna get tricky, you're I think tactically, but that's going to continue to be our intent is to maintain our net.
Speaker Change: First margin going forward.
Yeah.
Speaker Change: Yeah, that's great I appreciate that comprehensive answer it feels like you know maybe we have a pretty good understanding of what deposits and deposit costs will do next quarter, but.
Speaker Change: Is there any way to kind of quantify what the impact you expect to see you know maybe on the loan yield side, just just understanding a little bit higher exposure to variable rates and.
Speaker Change: But there's also a little bit hedging involved as well.
Speaker Change: So again about half the portfolio is floating rate.
Speaker Change: You know so well there's.
Speaker Change: And it gets a little trickier here again with us with the fed cutting rates in the background.
Speaker Change: Half the portfolio the loan portfolio is floating rate half of it's fixed in very round numbers right and so you know you've got the repricing characteristics of each.
Speaker Change: In the background.
Speaker Change: We eat.
Speaker Change: And fed rate cuts in the background and as I've said on prior calls we continue to have that effect of what do you think of it as a couple of basis points, a month or five or six basis points per quarter of lift to loan yield absent.
Speaker Change: The fed's actions right and so it's also interesting here that we've seen.
Speaker Change: Post fed rate cut we've actually seen some steepening of the yield curve.
Speaker Change: If you look at a three year swap rate or a five year treasury the belly of the curve there where most of our fixed rate pricing would be off of it's interesting that those rates are now going up even in anticipation.
Speaker Change: It is anticipated that the fed will like.
Speaker Change: Likely cut in November so that is helpful. Right that is helpful that you still have some lift in the background.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: I appreciate that and just as a point of clarification on.
Speaker Change: The fee and expense guidance.
Speaker Change: Do you guys happen to have just Andy you know the adjusted continuing ops.
Speaker Change: Fees and expenses from 2023, just so we're all kind of comparing off the same base.
Speaker Change: Well, we do well and I'm going to ask Tom Chambers to address that.
Speaker Change: Okay.
Speaker Change: Well this is Tom Chambers, how you get there is if you look at our 2023 10-K as filed if you look at non interest income off the income statement and back out the insurance segment revenue.
Speaker Change: In the insurance segment revenue footnote in the back that's the base, we're looking at for noninterest income.
Speaker Change: In the noninterest expense base you do the same thing, but you also take out the significant nonrecurring items that we incurred during the year last year, which would be litigation settlement expense of $6 $5 million and.
Speaker Change: Reduction enforced expense, we incurred in the fourth quarter last year of 1 million.
Speaker Change: So if you'd do that exercise you will get to the base. We're looking at so noninterest income to backup all of them. They know it's going to be approximately $148 million.
Speaker Change: Noninterest expense, if you'd do that exercise is going to be about $488 million.
Speaker Change: Mike you might know us so well in the deck with credit and they get them, where we had at the front of the deck last quarter, we have in the back of the deck the.
Speaker Change: Adjusted continuing operations.
Speaker Change: Calculation, so that may help some as well to get the baseline numbers.
Yeah.
Mike: Yes, alright.
Mike: Thanks, a lot.
Speaker Change: A lot of sense, that's very helpful.
Speaker Change: If you kind of look at the expense guide and you know you're just kind of see what implied.
Speaker Change: That that would be for the fourth quarter of this year.
Speaker Change: No.
Speaker Change: Feels like we may see a little bit of an uptick in expenses in the fourth quarter.
Speaker Change: Are there any puts or takes that we should be considering as you know we kind of think about.
Speaker Change: So the run rate into next quarter, and you know what that potentially you know implicates for 2020 five.
Tom: So I think here this is Tom.
Tom: I think your logic is accurate.
Tom: Looking at it.
Tom: A little bit of an uptick in the fourth quarter, if you do that math.
Tom: 2025.
Tom: I believe we have you know we're going to continue to challenge our expense initiative reduction initiatives.
Tom: Battle that front as hard as we have in 2024, but at this point I don't believe we're ready to give guidance on 2025.
Tom: We will reiterate that we feel really good you know on a year over year basis, excluding the sort.
Tom: Sort of unusual items.
Tom: Items were.
Tom: Down what two and a half a percent year over year in noninterest expense from adjusted continuing operations. Yeah from my third third third murder of <unk> for third quarter of 2003, So we feel good about that accomplishment.
Tom: Particularly in the inflationary environment, which we've been operating.
Yes, I mean, no doubt about that.
Tom: But then the profitability for this quarter, so, but that's it for me everybody. Thank you.
Speaker Change: Thank you will.
Speaker Change: The next question will come from Tim Mitchell with Raymond James. Please go ahead.
Tim Mitchell: Hey, good morning, everyone. This is Tim in for Michael.
Speaker Change: Good morning.
Tim Mitchell: Just want to start out on loans, we've heard a lot of your peers talk about maybe some elevated payoff activity in the third quarter. You know you saw some declines in C&I.
Tim Mitchell: Just hoping you could discuss kind of what you saw that drove the modest decline kind of flattish balances in the third quarter, then based on the guide it would seem.
Speaker Change: We expect some modest growth here in the fourth quarter.
Bill Jones: Yeah, Tim This is bill.
Bill Jones: Oh, let me just reiterate you know our guidance for the year hasn't changed we're low single digits.
Bill Jones: During the third quarter, we did have of.
Bill Jones: Slight loan shrinkage the $55 million, that's primarily a result of some paydowns on some corporate and commercial lines during the latter part of the quarter.
To that point, even our average loan balances are actually up for the quarter because those payoffs did come late based upon our analysis. We fully believe these pay downs are just the normal ebb and flow of line utilization or historical line utilization has averaged around 37% during the quarter our.
Bill Jones: <unk> decreased from 37.
Bill Jones: So 35%, but we fully expect these bonds to draw back up in that in the near term.
Bill Jones: We do when we look at our corporate commercial and CRE pipelines. They remain very strong production activity is.
Bill Jones: It's doing quite well we are like all other banks that have a have a real estate exposure. There is a certain amount of payoffs that are in front of us that we'll need to deal with in terms of runoff that we need to cover all but where we're very pleased with the way our pipelines look today.
Speaker Change: Great appreciate the color.
Bill Jones:
And then maybe more strategically you talked about market expansion, a little bit we've seen some M&A activity pick up in the past few months. So hoping you could discuss maybe your approach to building out new markets, whether it be via M&A or snips and team lift out team lift outs.
Any markets that are particularly attractive to you right now.
Speaker Change: Well all the above are definitely attractive to us we're actively.
Speaker Change: Building I guess, we'd say, we're building a pipeline of M&A opportunity here as we move forward.
Speaker Change: Feel good about the overall.
Speaker Change: Performance of the company that our capital situation and everything now is lining up very very nicely for a potential opportunities. We are seeing a definite increase and our pipeline in conversation and are interested I guess interested parties in the marketplace. So I think that's a possibility.
<unk>.
Speaker Change: In terms of the organic side. We are we are very definitely focused on expanding business lines and in expanding in markets, where we have a current presence that would include markets like Houston, Birmingham Atlanta.
Speaker Change: Hum.
Speaker Change: Maybe south Alabama, and so on so we have opportunities to expand in those markets, where we have knowledge and a presence and a good visibility into attractive came said we're actively working on that front. Additionally, we've had good success on the equipment finance side, we've got a year off.
Speaker Change: Most two years now under our belt and that business, we've got a familiar with our.
Speaker Change: Underwriting standards et cetera, and feel there are definite expansion opportunities in our production staff in those businesses and then finally, you know the mortgage market is coming back to life.
And we had strategically reduced mortgage production over time, and we feel there's opportunity once again starting to surface in the mortgage business, where we have potential to add production teams across the franchise. So we see a lot of opportunity organically on that front.
Speaker Change: But are also very interested in your comment and your question on M&A, that's a very defined focus for us.
Speaker Change: Great I appreciate the color. Thanks. Thanks, Thanks for taking my questions. Thank you.
Speaker Change: Again, if you have a question. Please press Star then one our next question will come from Gary Tenner with D. A Davidson. Please go ahead.
Gary Tenner: Thanks, Good morning.
Gary Tenner: I wanted to Hey, I wanted to ask about the loan yields here in the third quarter relative to the commentary about the fourth quarter NIM NIM outlook. It looks like loan yields were up one one basis point I'm wondering if there was any impact either way regarding bone loan fees or anything just as I'm trying to think of the kind of upward repricing.
A portion of the loan portfolio from a fixed or a hybrid perspective.
Gary Tenner: So Gary this is Tom Owens No I don't think there was really anything, particularly unusual about loan fees in the third quarter relative to where we've been running on average I'd say very probably for the last six or eight quarters right. I mean, it's been pretty much steady state.
Gary Tenner: Okay.
Speaker Change: Thank you and then just.
Speaker Change: Alright good.
Speaker Change: Oh go ahead, just as it.
And then as it relates to the increase in NPA is can you just kind of give any color around.
Speaker Change: Kind of the credits.
Speaker Change: You know the type of credit location et cetera.
Speaker Change: So first of all about again npa's, but as far as what was the question.
Give any color on the MK, sorry, the third quarter, Inc. Third quarter inquiries, Okay, I'm, sorry, I wasn't sure if you're referring to the year over year third quarter.
Speaker Change: We just we had two credits that you mentioned earlier that for both corporate customers that.
Speaker Change: One of them had been non accrual several years back and had targeted a company around they began to struggle again and we've moved that credit back into the non accrual status. We did go ahead and reserve as part of our individually analogs process and reserved it approach.
Speaker Change: Freely based upon the current price, where we have even going in and and scrutinized, maybe a break so a little bit and maybe making what we felt like were appropriate haircuts to the appraisal to make sure. We've got an appropriate reserve and then the other credit was.
Speaker Change: Was it a different different industry, but nonetheless, it was a credit that had been.
Speaker Change: <unk>.
Speaker Change: Been troubled for a quarter or two and then it began to be the need for making certain concessions at which point. We determined it was not only sub standard. It's also non accrual and moved into non accrual I do feel like the second credit is smaller in nature, but I do feel like the ultimate result, there is gonna be illiquid.
Speaker Change: Nation, and they have begun marketing the assets and we do have a really good sense of what they should bring and we were able to establish a reserve all that individually analogs credit based upon those laws, but we've already received will go through is that we've got that accounted for properly.
Speaker Change: Thanks for the color.
Speaker Change: The next question will come from Christopher Meronek with Janney. Please go ahead.
Christopher Meronek: Thanks, Good morning, I just wanted to continue on Gary's questions and if you looked at the interest rate move in September does that help at all on.
Christopher Meronek: Upgrading credits in future quarters or is it too early to kind of use that as a catalyst.
Barry Harvey: Hey, Gary this is Barry.
Barry Harvey: I think it's a little bit too early there definitely 50 basis points really makes things look better I think most people would look with having seen about 150 basis point brought up.
Barry Harvey: Most banks would like to see 100 basis points or even 100, a quarter I think that makes it pretty much all of the CRE projects that had been struggling ferreting out additional cost of carry.
Barry Harvey: <unk> performed much better even if they're in early stages of construction or maybe they're stabilizing but hasn't stabilized yet I do think when you look at the pro forma and you look at 100 basis points down.
Barry Harvey: Even 100, a quarter I think that makes everything work that maybe didn't quite tend to borrow a previously so to 50 makes a big step in that direction, we'd like to see the other two 'twenty boss that were alluded to for the rest of this year and then next year, it's a little bit unknown, but if we can get a little bit of help next year I think the.
Barry Harvey: Good news in that is promote from a risk weighting standpoint from a reserving standpoint that that is very beneficial I do also think as you move into a lower interest rate environment you do.
Barry Harvey: <unk> will be some credits moving away from you as a result to being able to achieve a better cap rate on the sale.
Barry Harvey: Ill or possibly better financing in the permanent market, we're already seeing a little bit of that I think we will continue to see better better project in the permanent market. So the downside could be some some migration of some of your portfolio that is at a point, where it has stabilized my might begin to move out maybe even ahead of them.
Barry Harvey: Charity that would be the downside.
Speaker Change: Got it. Thank you for sharing all of that and then is there anything from your normal tax return work and client interaction on the commercial book, So taking C&I that would lead to more inflows there.
It's not.
Speaker Change: Great. Thanks, again for taking the questions.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Duane Dewey for any closing remarks. Please go ahead Sir.
Duane Dewey: Well. Thank you again for joining us for this quarter's report, we're very excited where the company is positioned and look forward to a great fourth quarter and I look forward to getting back on our call at the at the January timeline and you all have a great rest of the week.
Speaker Change: The conference has now concluded.
Speaker Change: You for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Mhm.
Speaker Change: [music].
Speaker Change: Yes.
[music].
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: [music].