Q2 2019 Earnings Call
Good afternoon, and welcome to the first merchants second quarter 2019 earnings Conference call.
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This presentation contains forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act such forward looking statements can often be identified by the use of words like believe expect or May include statements relating to first merchants goals business plan growth strategies, well known in the past that portfolio asset quality risks and future costs and benefits.
These statements are subject to significant uncertainties that may cause results to differ materially from those set forth in such statements, including changes in economic and business conditions. The ability of first merchants to integrate recent acquisitions and attract new customers changes in laws regulations and requirements of the company's regulators the cost and other effects of legal and administrative cases changes in the credit worthiness of customers and the impairment of collectability of loans fluctuations in market rates of interest and other risks and factors identified in first merchants filings with the Securities and Exchange Commission.
First merchants undertakes no obligation to update any forward looking statement, whether written or oral relating to the matters discussed in this presentation or press release.
In addition, the company's past results of operations do not necessarily indicate its anticipated future results.
Please note this event is being recorded.
I would now let's turn the conference over to Michael Rollins, President and Chief Executive Officer. Please go ahead.
Thank you Gary and welcome everyone to our earnings conference call and webcast for the second quarter ending June Thirtyth 2019.
Joining me today is in most of our calls Mark Hardwick, Our Chief Financial Officer, and Chief Operating Officer, John Martin, Our Chief Credit Officer.
First merchants released earnings in a press release. This morning, approximately eight o'clock eastern time and the presentation want to cover with you. This afternoon speaks to material from that release.
The directions that point to the webcast were also contained in the back end of that release and my comments are going to begin on page four.
Slide titled Second quarter 2019 highlights.
Our key highlights included.
Earnings per share of 83 cents, a 3.8% increase over the second quarter of 2018.
$41.1 million in net income after tax of 3.6% increase over the second quarter or 2018.
So strong quarter of growth for us with total assets of $10.7 billion, which grew 10.3% over the second quarter of 2018.
Our annualized quarterly organic loan and deposit growth of 11.8% and 13.5% respectively.
In addition to that the bank produced strong fee growth covered in the release and that Mark will cover here shortly and our asset quality continues with strong metrics results in portfolio trends remain positive and you'll hear John Martin's thoughts on that soon as well.
All told high performance measures 11, 1.56% return on average assets, 11.10% return on average equity.
With a 51% efficiency ratio Mark would you pick up from here.
Yeah. Thanks, Mike My comments will begin on slide six.
Total assets on line seven increased by $853 million or 17.3% on an annualized basis. This year.
Organic growth and total loans on line, two equaled 288 million or 8% on an annualized basis since year end 2018, well investments on line one increased by 460 million.
Or an annualized 56%.
The composition of our seven and a half billion dollar loan portfolio shown on the <unk> as shown on the left side of slide seven it continues to produce strong loan yields totaling 5.32% for the quarter.
As the graph on the right illustrates 69% of our loans are variable demonstrating the asset sensitivity of our bank the growth in yields created by our variable rate loan.
Base will prove challenging and if short term index rates continue to decline in the future as anticipated.
On slide eight.
Our longer than normal duration investment portfolio as a good offset to our variable rate loan portfolio. During the year. We have increased the portfolio to 2.1 billion from 1.6 billion as protection against falling rates.
As rates in 2019 have started to fall our unrealized loss of 8 million as of December 31, 2008.
Flipped to an unrealized gain of 55.5 million and most of the growth in this investment portfolio.
<unk> is really the al.
The outcome of the deposit growth as I'll talk about in a moment.
Now on slide nine total deposits.
Increased by 564 million during the first six months of the year by an annualized 14.5% much of the growth came from higher cost institutional accounts and money market and CD specials.
Approximately half of the growth is variable rate funding, while the other half is fixed for a period of approximately 12 to 15 months.
On slide 10.
Second quarter deposit costs totaled 1.32%.
Up from the first quarter of 2019 rate of 1.20 per se.
Controlling future growth.
And actually reducing interest from the interest from deposit.
Interest expense on deposits for the remainder of the year will be an imperative for the remainder of 2018 and into 2020.
Now on slide 11, we noticed a couple of investor write ups, focusing on demand deposit trends and it seemed appropriate for us to share a tactic we started deploying back in 2017.
Through multiple acquisitions, we've acquired and maintain 22 different free checking accounts that were frozen and door grandfathered at the time of each integration.
We made the decision to migrate these grandfathered free accounts.
Of which we do not sell into our current product set for a variety of operational and strategic reasons.
The migration is going as expected and were pleased with the reduced risk and simplicity of the product of the current products that the outcome of the migration is shown in the chart how materially impacts any review of demand deposit.
You know the inflows or outflows dating back to 2017.
Now on slide 12, all regulatory capital ratios are above the regulatory definition of well capitalized and our internal targets, we believe the strength of our.
10%, plus tangible common equity ratio and 14.5% total risk based capital ratio will continue to provide optimal capital flexibility into the future.
The corporations net interest margin on slide 13 is our is our biggest financial challenge.
To overcome for the remainder of this year or next.
We do continue to outpace the compression in net interest margin by growing our balance sheet or earning asset base enough to allow for growth in net interest income as you can see on line one.
However, the core costs.
Of our funding base base has exceeded our internal forecast in 2019, and the portfolio growth driven by institutional funding as discussed in the investment section on slide eight accounted for 10 basis points of compression.
Fair value accretion continues to to to run behind all prior periods.
As it accounted for just nine basis points again this quarter.
Looking ahead, our interest rate simulations suggest that we will lose three to four basis points for each 25 basis point decline in the fed funds rate or prime rate.
On a go forward basis.
On the way up we have gained about five basis points for every 25 basis point fed move.
So we believe that.
Even though the simulation says three or four basis points, we think that that we probably lose.
A similar amount on the way down that we did on the way up.
For each FOMC reduction.
And we're expecting one in July .
Given the continued upward pressure on deposits at least that we're experiencing currently we're anticipating.
That next quarter's margin may be under pressure by nine or 10 basis points.
As usual, we'll find a way to win despite these headwinds.
One area of financials of our financials that is countercyclical as noninterest income on slide 14 total non interest income reached 21.6 million our strongest quarter in recent memory.
1.4 million of the improvement over first quarter of 2019 came from customer specific categories.
And Additionally, 800000 of the increase as a result of gains on the sale of securities as we harvested some of the recent pickup in valuation.
Non interest non interest expense on slide 15 performed as planned and totaled 57.6 million for the quarter included in the quarter was an extraordinary $1.3 million of expense related to our fair lending settlement.
$1.2 million was Expensed in line eight under marketing expense, while 100000 reserve was recorded in line for under professional services.
On slide 16, EPS totaled 83 cents for the quarter and the efficiency ratio totaled 51%.
Now on slide 17 highlights our positive trend lines, including a changeable book value.
Of over $21 per share as of quarter end.
Second quarter and 2019.
On slide 18.
Oh, we highlight our May 17.
Second quarter dividend increased to 26 cents per share and our double digit compound annual growth rate of tangible book value per share dating back to 2010.
Thanks for your attention and now John Martin will discuss our loan portfolio composition and related asset quality trends.
Alright, Thanks, Mark and good afternoon.
I'll begin my a walk through of the deck on slide 20 with changes in the loan portfolio review asset quality and the asset quality roll forward cover the allowance and provisioning and then close with some summary remarks on the portfolio.
Turning to slide 20, then the loan portfolio grew in the second quarter as Mark just mentioned.
3% or 12% annualized with commercial and industrial.
And owner occupied commercial real estate on lines, one into increasing a combined $100 million or 4% in the linked quarter.
We continue to see robust credit demand in the structured finance area with both sponsor and public finance.
Construction loan balances were up $83 million on line three with the investment real estate portfolio.
Down $23 million online for.
I mentioned this on on other earlier calls our approach to construction investment real estate lending includes financing construction projects with the expectation that.
They will likely move to the permanent market, where terms are frequently more favorable.
This leads to a building construction loans with fluctuation in non owner occupied real estate as projects stabilize and move to the secondary market.
The agricultural lending environment continues to be challenging with the portfolio in lines five and six remaining mostly unchanged in the quarter, while public finance and other commercial loans grew $36 million or 8.4%.
In finishing out the slide residential mortgage and consumer lending Onlines nine and 10, both increased 2%, while other consumer loans declined a million $11 million in the quarter.
That's primarily resulting from a recap classification of roughly $8.5 million private banking loan that moved into the CNS portfolio.
Representing the change there we continue to grow the portfolio in a balanced way the portfolio is roughly one third cninety, one third construction and investment real estate, one third other commercial and consumer our construction concentrations continue to hover at around 50% of risk based capital.
With the Investor real estate concentrations hovering around 220% of risk based capital.
Now these levels give us concentration room for real estate growth as opportunities arise balanced by Cnine consumer lending.
Turning to the asset quality summary on line two are on slide 21 asset quality remains stable and healthy at this point on lines, one into non accrual loans and other real estate owned decreased $2.4 million and $800000 respectively for the quarter.
There are currently four non accrual relationships greater than $1 million, leaving a fairly granular remaining nonperforming loan portfolio.
With the renegotiated loans unchanged at a $100000 increase in 90 days past due the Npis and 90 plus days past due on line five were down $3.1 million or roughly 10%.
Turning to slide 22, which reconciles the migration of nonperforming assets, we started the quarter on the far right column titled Q2, 19, with $31 million in NTS and 90 day delinquencies, we added $1.6 million of new non accrual loans in the quarter resolved $2.5 million of the same online three with no new already online for and only $1.5 million of gross charge offs on line five.
This netted to a $2.4 million decrease in non accrual loans aligned six.
Dropping down to other real estate owned changes on line seven through nine which we sold $500000 of Oaktree and have $300000 of Oreo write downs, which resulted in a decrease in our re of $800000.
Finishing out the slide 90, plus days delinquent loans increased a $100000, which led to an overall decrease in total npis and 90, plus days delinquent up $3.1 million ending the quarter at $27.6 million.
Moving to slide 23, which highlights the triple while the allowance and fair value summary.
We began the quarter with an allowance of $80.9 million or 1.1% of loans in the quarter provision expense offset charge offs on lines, two and three by $400000, resulting in an increase in ending allowance to $81.3 million.
The dollar increase the allowance and a three basis point change our three basis point coverage declined from 1.11 times to 1.08 times on line seven reflects stable and modestly improving credit quality with additions for a growing loan portfolio and our allowance coverage of non accrual loans on line five in excess of 300%.
Then summarizing on slide 24, I guess I'd, just say, we had a good quarter of loan growth as Mark mentioned and you can see we had strong credit demand across the bank from commercial to mortgage and consumer asset quality remained stable with most measures improving including non accrual loans and lottery and overall NPL days and 90 days past due ending the quarter at 36 basis points of loans.
Net charge offs were only $100000 with provision expense.
Supporting increases in loan growth.
Overall solid results.
Thanks for your attention I will turn the call back over to Mike Bracken.
Hey, Thanks, John .
Good coverage there of a productive quarter for first merchants in several regards I really like the balance we're demonstrating across all of first merchants markets in terms of originations in terms of loan types, we're really achieving a little bit more balance and what we might have had four or five years ago. So as we look forward.
Organic growth protocol.
Is job one for us that we're going to look to continue to manage our market presence, our core banking business margin and fee generation and and on the fee part Mark spent a lot of his remarks talking about the net interest margin, we're going to look to as the bullet point offers optimize our retail and commercial deposit strategy.
Managing our margin and obviously, a changing environment smart rates vis-a-vis the market forces with whom we compete with a really clear awareness of what the fed's rate direction appears to be.
So we go into that with a just a terrifically strong balance sheet and flexibility as it relates to liquidity and capital and.
Credit condition that John spent some minutes describing with ample reserve for.
Should we have an eventual slowdown.
We're excited to continue to work on our revised integration schedule, a marketing plan for Michigan and were working with regulators towards a closing before the end of the third quarter and as we offered a few weeks ago in our press release, our targeting now and integration for the back half of the fourth quarter. We think Thats a continues to be great opportunity, we're working with Doug shape and his team up there.
Last point on here you know, we're trying to we see an opportunity to be an even better company by being better at banking. The underbanked that would include the entirety of a corporate social responsibility playbook kind of telling our story.
Around philanthropy and volunteerism more consistently around the company, we look forward to executing on that.
All told.
It's an economy thats good for first merchants the employment is strong.
I was talking earlier with some of our colleagues almost a growth constraint. It's so strong to some of our commercial customers, but the consumers are doing well retail sales are strong like theyre throughout the country.
Kind of a nice low growth consistent.
Feeling to the Midwest much like you might.
Measure in our national GMP kind of level.
Commercial activity may be slowing just a tiny bit don't know if its tariff related or not but all told a really good environment for first merchants continue to post high quality results.
So at this point, Gary I'm ready for questions, if you've got people in the queue.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from will Curtiss with Hockey Group. Please go ahead.
Hey, good afternoon guys.
Good afternoon will.
Mark If you don't mind you can you go back through kind of your margin outlook I got the part about the think the model suggests three to four basis points.
For for each 25 basis point cut, but I just want to make sure I understand.
I missed some of the rest of your comments. So if you can go back to that would be great.
Yes, the model is more static and it's really just a or you'll see when we run our interest rate risk simulation.
And as published in the in queues.
And I guess it was a little more conservative or I guess optimistic than maybe what we think could happen just in the coming quarter.
That's a 100 basis point move and it suggests.
That will have.
Three to four basis points decline for every fed move.
When when rates were going up we were pretty consistent it's consistently communicating and delivering on five basis points of expansion for every 25.
And I was saying is that.
If rates are going to go down next week, we think that thats at least a starting point.
And.
And we have spent time looking closely at just the next.
This 90 day period.
And we anticipate that the fed move is a is a negative.
To interest income and that we are continuing to fight some upward pressure.
In the deposit base and hopefully our kind of expectation is that.
This quarter, we just published store next quarter end up being the kind of the peak of those numbers.
And so the maybe more clearly the guidance, we're giving for next quarter as we expect compression of around nine to 10 basis points in Q3 compared to Q2.
Okay and then.
And any sense for where accretion levels.
The addition of MTF I know they've been pretty stable. The last couple of quarters, but just curious if you have a kind of an early sense as to what to expect.
No I I could pull up our model and see what we looked at but in terms of the acceleration.
Typically what we do and our and our M&A models is just.
Average it out over the life of the portfolio.
And historically.
Based on pay offs. It ends up accelerating early and then being a little bit less and they have in the out years and so I can pull that up and get it back to here in just a minute, but I don't have it right at my fingertips.
All right no problem.
And then maybe the last one from me.
Hi, This is mark for you again I think yes.
In the past you've kind of guided to flash expenses, excluding DTF and just curious if that holds true as we excluding MTF. If you still think you can hold the expense base.
Kind of where it is now and then if you don't mind to remind us.
In terms of the cost saves.
The integration in the fourth quarter do you expect to get the majority.
The saves out by the by the end of the year. Thanks.
Yes, we have nine and a half million built into cost savings at Monroe.
We've been watching their financials closely and communicating with their management team really closely and we still feel good about those levels and they should all be completed by the end of the year. So we should start 2020.
With a really clean.
Monroe financial statement and.
In terms of our core numbers.
We feel we felt really good about this quarter, obviously, we had.
The $1.3 million of extraordinary.
That should be able to back out of the numbers on a go forward basis, but.
We feel good about our ability to continue to streamline the franchise.
And and maintain a really low single digit growth rate and noninterest expenses.
Like one or 2%.
Okay. Thanks for the help.
The next question excuse me. The next question comes from Nathan race with Piper Jaffray. Please go ahead.
Hey, guys.
Hey, how are you.
Doing well how about yourself Mike good thanks.
I'm just going to going back to that last question. Just in terms of expenses that 1.3 that you just called out is the is it assumed that thats going to come out of the run rate. After a two Q here I guess, what should we anticipate in terms of ongoing recurring expenses associated with the.
Activities that you will be undertaking in the wake of that settlement.
Yes, Nate its a good question, we really kind of.
Recognize the majority of the hard costs in the current quarter and so if you read the settlement you received it was one lump sum payment in there that was a half a million dollars may be slightly more and we had a couple of three year obligation items that we're going to get started on it right away and took those in the quarter and so on an ongoing basis. If you saw the handful of activities that we've committed to they we think they are going to really do a nice job for the market, but they're around what I would call traditional marketing opportunities directed towards.
The Marion County area. So to answer your question. The majority of it is going to be recognized in the current quarter.
Okay understood I appreciate that color and pressed to changing gears, a little bit and looking at.
Non interest income run rates from here and I guess curious when you guys expect to close and Bts and then just how we should kind of think about.
Back half of this year.
Noninterest income levels with Bts and the fold and obviously given the strength that we saw here in the second quarter Cross it.
Yes.
We've gotten a lot of conversation rightfully so on the margin, but when you think about your question I feel good about the second half of the year with and without Monroe. So the mineral we would anticipate to being part of the company in the fourth quarter and as Mark alluded to and myself briefly their run rate seems to be a really consistent with what we have them modeled to be in our plan, which was for a longer part of 2019 as it relates to first merchants alone Mont numbers that I'm more familiar with there are some offsets to pressure on the margin for instance earnings credit rate have the chance to be reduced which drives a marginally higher fee income number and like you saw in the second quarter with our hedge activity hedge activity is actually a client activity. It doesn't have to do with first merchants balance sheet per se. It's us asking is a fee generator for commercial customers in managing their obligations and so the lower interest rate environment, not only did it show itself well.
For the hedge category within non interest income in the second quarter, we would expect based on what we see for the current period in the fourth quarter to be stronger as well.
Okay, that's great to hear and so.
Just to clarify you guys are thinking early Fourq you close.
We're actually hoping to close by the end of Q3 with an integration in the fourth quarter.
Okay understood I appreciate guys taking the questions.
Youre welcome.
The next question comes from Terry Mcevoy with Stephens. Please go ahead.
Good afternoon.
Hi, Terry.
Hi, a question for Mark I guess direct question can you grow or do you think you can grow net interest income quarter over quarter in the third quarter with nine to 10 basis points of margin compression.
Well, we do and part of it is the fact that a lot of our growth this quarter came late.
And so we feel good about adding those earning assets so in a way that would outpace.
Okay.
The anticipated reduction in margin.
And within that nine to 10 basis points, what are your thoughts on deposit costs I guess, they went from 120 to 132.
Would you expect continued kind of repricing higher in the third quarter and then stabilize in Q4, where do you think that pressure continues throughout the year, excluding the acquisition obviously.
Well, we've run the models multiple ways and we have some strategies, where we're going to be reducing some of our interest expense on variable rate categories. The institutional money is is the most variable category that we have.
So there is a chance that that we reduce interest expense and its.
It's it all kind of depends how retail plays out.
Through.
The remainder of this third quarter.
As we have some accounts migrating out of <unk>.
Lower cost categories into more expensive categories, like CD specials and money market specials, because the the rates are still attractive on there and the retail front.
So I really am not sure it's going to be close.
One way or the other but we think we're really close to this being kind of the craft of our interest expense on a go forward basis, if rates move down like we expect yes. Terry this is.
Mike Reckon it.
It calls for more frequent alco discussions really.
Thorough look at the marketplace and the balance between retaining all the deposits that we work so hard to gather with just trying to assess how high our liquidity needs to be as you can see from the balance sheet. It's it's pretty steep right now so it's a it's a great question and interesting topic for banking, we'd rather start with a position of having a really ample deposit base and kind of managing that market's smart as we go.
Thank you and then just one last question.
The nine to 10 basis points of NIM compression that is.
Assumes 125 basis point rate cut in the third quarter.
It does with.
And and I wouldn't anticipate the same answer for the second.
Rate cut.
You know given some time, because we do think deposits will normalize.
So.
Okay I understood.
Thanks very much.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Damon Delmonte with KBW. Please go ahead.
Hi, good afternoon, guys hows it going today.
Good Damon how are you great Mike Thanks.
So just a question on the outlook for the provision.
IVC credit trends continue to perform very well.
Just wondering if you give some perspective as to what you do you think is a reasonable range for a quarterly provision.
The I think what we've looked at in the past is.
In the range of between one and $2 million.
And it really is obviously just dependent upon what we see.
But with asset quality, where it is today.
You know, it's probably at the up maybe the lower end of that range, but we budget for something closer to $2 million.
Okay.
All right.
And then from a loan growth perspective, I apologize, Mike if you touched on this in your comments, but.
You know just given the trends you're seeing in your pipelines.
You feel uncomfortable in that kind of.
Mid ish or so single digit range for the remainder of the year, Yeah, I really am if you looked at so we referenced annualization of the second quarter, and the 12 and 13% loans and deposits and.
On the loan side, which I think is the spirit of your question.
That seems to me to be a little high when we talk about that to your point of your question, 6% to 8% on annualized basis I still like that number we had a pretty slow first quarter I think through the first two quarters on a combined basis, we're right in that range and I think we're going to stay there but to be more specific our pipeline is strong. So I think at the last quarterly call I might have referenced that $360 million and the commercial pipeline, it's a $100 million higher than that right now.
And so that gives us reason to believe that some of the strength we saw in the second half of the second quarter could continue.
All of that is.
Apart from.
Construction projects that leave in terms of payouts. The pipeline includes the closing of full commitments, which obviously aren't fully drawn on the front end. So it's it's not appropriate to completely draw hard line correlation between the pipeline, but as to the fact that.
You get a large translation of the pipeline into a closed loan that holds true. So we think the back half of the year ought to be strong.
Okay gravy not quite as strong as the second quarter.
Okay, Great and then.
Mark you touched on the.
The non interest bearing deposits and the reasoning behind the <unk>, the the visual outflow quarter over quarter percentages, So you're down to about one 1.350 billion and noninterest bearing how far do you see that run off going down too.
Well the account migration is complete so.
We feel like we have a great baseline from here to continue to build that will primarily come from commercial growth in deposits.
Kind of Treasury management type accounts instead of retail this was really a retail migration, where we had free accounts and move them into an account structure where.
With balances our transactions et cetera, they have the ability to to still have a free account, but that it's not just automatically free.
Got it okay.
Thats all I had thank you very much.
Sure Damon Thank you David.
The next question comes from Brian Martin with Janney Montgomery Scott. Please go ahead.
Hey, guys.
Hey, Brian how are you not too bad thanks for asking so the just a couple from me Mike I guess just from me.
You talked about kind of evaluating capital just kind of where it's at and the profitability take can you just talk about.
How you expect to manage that here post the.
How are you thinking about that.
Doing that post the Mb.
Acquisition.
Yes so.
I think we might have even spoken at the last call given the delayed close of the opportunity that we haven't been able to enact.
A buyback and yet it's a ripe environment for that so discussions with our board are supportive of that is just that it's not on the table right. Now that's clearly a tool we're going to continue to evaluate I doubt, we would have any other dividend activity. This year.
But.
In M&A post Monroe.
Obviously, we like to have cash on hand to be have the greatest flexibility for purchase consideration, but of those couple of variables clearly buyback when its available tool is the quickest way to normalize that because you followed us for a while Brian and you can see that were kind to have a significant gap above our targeted levels.
Right, Okay and as far as.
The buyback I guess that can take that can occur post the close of the transaction is that what the soonest it could.
Come into place.
Correct.
Okay, all right and just from an M&A perspective, I mean, I guess are you in a position today I guess once you close MPT I guess, how quickly would you be willing to.
Consider something as you work to integrate Monroe.
Well integrate is the more appropriate term than the closing because we feel like the integration is really this sign that you merge the companies and so clearly for 2019 purpose is our.
Singular priority is getting Monroe close.
Okay.
Understood, Okay and just as.
You talked about the pipeline so just.
He's jotting it down like the pipelines today, given the strong growth you had this quarter our.
Are still pretty healthy going into the second half or are they kind of.
They are down a bit from last quarter.
No no they are actually about $100 million higher than the last quarter. We entered the second quarter with a 360 actually a 358 million dollar pipeline were a $100 million higher than that and I might have said a moment ago. The debt was commercial it's actually the entirety of the business lines that we capture which would include consumer and mortgage as well, but its dominated by commercial.
Gotcha, Okay, and then just the last one for me just kind of marketing you talked in your remark remarks about the accretion.
Being a bit lower than it has been I guess do you expect that to continue to tail off or I guess, how are you still comfortable kind of worth at right now.
You know as you think about the next couple of quarters.
Yes, I'm I'm still comfortable with where it is that we've had two quarters, where it's effectively just the amortization levels, we haven't had any extraordinary.
Although at some point.
It runs off.
And back to the question of Monroe, It looks like we're around 14 $14.5 million of credit marks.
So were anticipating and then when we ran the model. This has been a while but we had interest rate marks a $7 million that clearly will have to kind of reevaluate.
But typically you anticipate seeing those come in over a four year period.
And last you end up with.
A real credit challenge or you have a pay down.
In the portfolio. So we typically just model it as amortizing in overtime.
Okay, all right and the biggest yes, I guess offset to the margin pressure as you guys sit today I guess, what do you if you kind of rank the the offsets.
In magnitude and then where are the biggest offsets I guess in your mind today on managing the rate environment.
Once in a challenged by.
Well there.
Good question, I think you're saying within net interest margin or just overall, just overall and that kind of.
Yes, well some of these countercyclical measures that we've taken we think are positive.
Like growing the bond portfolio and its a fixed rate portfolio by $600 million helps you know as rates begin to fall and most of the funding is much shorter term than those new investments Weve put on.
Five year duration and most of the deposits if even if they are fixed or less than a year.
And then some of the fee income sources mortgage tends to do better as Mike mentioned, our our hedge income tends to perform a little better.
As customers try to lock in longer term fixed rate funding at a low rate.
And we always have a little bit of bond sale activity available to us.
And Mike also mentioned in service charges on deposits, just performing better because the earnings credit rates are less.
So I think those are some of the categories that we think of as being countercyclical and and obviously, our our credit quality continues to hold up great.
Yeah, Okay I appreciate the color and I guess your comment earlier mark about the.
Second rate cut if there is one if you go back to kind of thinking more along the lines of what it was in the way of the five basis points versus this quarter, while they still got the deposit cost.
Impact.
That is how we think about it obviously the timing of how fast the next one comes matters, but.
We'd like to see one caught a little bit of stabilization before the next one.
Yes, Mike Brian and.
I would agree with what Mark said, we clearly have some pro activity around managing our deposit rates independent of the market and so we're making some steps there that.
We know have a tangible benefit should rates go down more than once.
Yes did you guys quantify the amount of deposits that are kind of index or variable rate or that I guess you do to your point, Mike has some flexibility on versus what the what the loan what loans are variable rate.
Yes.
The only thing that's really fixed our CD portfolio and those all have kind of a roll down.
And then a handful of institutional accounts, but it's not a real meaningful dollar amount.
Of the 8.3 billion in deposits that we have.
I got you okay. Thanks for taking the question guys.
Hey, Brian .
Before you go I just noticed that when I was offering you some of those figures from the the pipeline that I referenced last quarter's 358, and current quarter's $100 million higher than that as total bank those are commercial only.
I got you okay. Thanks for the clarification Mike.
You're welcome.
This concludes our question and answer session I would like to turn the conference back over to Michael Reckon for any closing remarks.
Thanks, Gary These will be brief its one of appreciation for all the questions and for any of the listeners on the call. We look forward to talking to you following our third quarter results. Thank you.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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