Earnings Call: Q2 2021

Jul 22, 2021

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Earnings Conference Call. Instructions given at that time. As a reminder, the conference is being recorded. I would now like to turn the conference over to our host, CEO, Jeff Deuel. Please go ahead. Thank you, William. Welcome and good morning to everyone who called in or those who may listen later. This is Jeff Deuel, CEO of Heritage. Contending with me are Don Hinson, Chief Financial Officer Brian McDonald, Chief Operating Officer and Tony Shelfamp, Chief Credit Officer. Our earnings release went out this morning pre market and hopefully you've had an opportunity to review it prior to the call. We have also posted an updated second quarter investor presentation on the Investor Relations portion of our website, which can be found at heritagemanknw.com. We will reference the presentation during the call. I'd like to point out that we have a new format for the investor presentation that includes more granular detail on a variety of topics. I hope you find it useful, and we welcome feedback on it. Please refer to the forward looking statements in the press release. We're very pleased with our financial performance for the Q2. We continued our focus on carefully managing expenses with good success, including lower non interest expense and improving expense ratios. Additionally, our long standing focus on credit quality and managing loan concentrations continues to play out well for us as the pandemic recedes, and that discipline has enabled us to report more favorable credit trends and recapture some of our reserve build from last year. The combination of these factors has allowed us to report EPS of $0.90 for Q2 as well as an ROA of 1.85%. While overall loan volume was soft in the Q2, our team is fully focused on developing new business opportunities and we continue to bring in new customers, including many prospects we helped with PPP round 1. With the recent elimination of COVID restrictions in our region, our teams have been focused on more traditional outreach to customers and prospects. We are already seeing the results in a rapidly expanding number of opportunities for deposits and loans, which positions us well for the balance of the year and into 2022. I also want to add that we've continued to focus on completing important technology initiatives during the past year, which we have highlighted on Page 6 of the investor deck. Our CL360 initiative provides us with a fully automated commercial underwriting platform, and Heritage 360 provides us with a fully automated customer relationship management platform, all of which will be fully functional as we roll into 2022. These undertakings together with future enhancements will enable us to be more efficient, will enhance capacity on the team and allow us to provide a more seamless customer experience. It's very exciting for our team to have the initiatives fully deployed across the bank now. We'll move on to Don Henson, who will take a few minutes to cover our financial results. Thank you, Jeff. As Jeff mentioned, overall profitability was very positive in Q2. I'll be reviewing some of the main drivers of our performance. As I walk through our financial results, unless otherwise noted, all the prior period comparisons will be with the Q1 of 2021. Starting with net interest income, there was an increase of $2,000,000 due mostly to an increase in income from PPP loans and the recovery of interest from payoffs of non accrual loans. Another factor affecting this line item was the increase of $121,000,000 in average investment balances. The net interest margin decreased due mostly to lower core loan yields and a higher percentage of excess liquidity. Overwrite interest earning deposits increased to 15.2% of average earning assets compared to 11.8% in the prior quarter. This increase in the percentage of overnight cash was offset by similar decrease in the percentage of loans to average earning assets. Trends in the composition of average earning assets is shown on Page 26 of the investor presentation. Removing the impacts of discount accretion and PPP loans, the yield on loans increased 9 basis points. This increase was due mostly to an 18 basis point positive from the payoff of non accrual loans during Q2 compared to a 5 basis point impact in Q1. Ryan will discuss loan production and balances including PPP lending in a few minutes. We continue to work down the cost of our deposits with interest bearing deposits decreasing 3 basis points. Our cost of total deposits decreased to 10 basis points in Q2, down 2 basis points from Q1 levels. More information regarding deposit growth and cost deposits can be found on Page 24 of the investor presentation. All of our regulatory capital ratios remain strongly above the low capitalized thresholds and our risk based capital ratios grew strongly in Q2. The combination of strong liquidity and capital gives us tremendous flexibility as we continue to grow the bank. And you can see Page 28 of the investor presentation for more information on capital and liquidity. Non interest income saw a slight increase primarily due to higher fee income being partially offset by lower mortgage loan sale gains. Fee income increased mostly due to higher interchange income as activity has increased with our economies in the Pacific Northwest opening up. We expect that quarterly mortgage loan sale gains will continue to decrease in the near term due to lower volumes and margins. We continue to see nice improvement in our overhead ratio. Due to a combination of expense management measures and asset growth, our overhead ratio decreased to 2.06% compared to 2.22% in the prior quarter and down from 2 point 3 6% in Q2 2020. Non interest expense decreased in the prior quarter due mostly to elevated costs in Q1 relating to the January branch consolidations and professional expenses related to PPP Round 2 originations. The most significant impact to our earnings in Q2 was a reversal of provision for credit losses in the amount of $14,000,000 Of this amount, dollars 12,800,000 was related to the allowance for loans and $1,200,000 was related to the allowance for unfunded commissions. Although partly due to lower loan balances and a net recovery in Q2, the most significant factor to the provision reversal was due to improved economic outlook. In addition, we are seeing improvements in many of our credit quality metrics. I will now pass the call on to Tony who will have an update on these credit quality metrics. Thank you, Don. In the Q2, we continue to see improving credit quality across our loan portfolio. The ending of many COVID related restrictions in both Washington and Oregon has allowed many of our borrowers to move back towards a more normalized level of operations. For the Q2, non accrual loans declined by $17,500,000 or 33% from the prior quarter end. As of June 30, non accrual loans totaled $35,300,000 or 0.84 percent of total loans. Dollars 10,700,000 of the decline was the result of a full payoff of an agricultural lending relationship that was originally placed on non accrual status in the Q3 of 2019. The remainder of the decrease was due to various pay downs and payoffs of multiple loans that have been subject to long term workout strategies and were not pandemic related. The addition of new loans to non accrual status in the Q2 was $401,000 which is consistent with the low level that we experienced in the Q1 of 2021. Other than non accrual loans, the bank has no other non performing assets. Criticized loans, those risk rated special mention and substandard declined by 12.5 percent or approximately $34,000,000 from the total at the end of the Q1 and 19% from December 31, 2020. While improving, criticized loans remain elevated when compared to pre pandemic levels. At $235,700,000 criticized loans are approximately $93,000,000 higher than December 31, 2019, which we consider to be representative of our pre pandemic or normal levels. It is important to note that criticized loans in the hotel and restaurant industries, our most heavily COVID impacted industries, currently totals $89,000,000 This seems to indicate that absent the COVID-nineteen impact on our loan portfolio, credit risk has remained relatively stable when compared to pre pandemic levels. For more information on loans in the industry categories most impacted by COVID-nineteen, please refer to Page 21 of our investor presentation. We ended the quarter with net recoveries of $158,000 Through the 6 months ending June 30, the bank is in a net recovery position of $333,000 Along with very low commercial loan charge offs, we are continuing to see declining levels of consumer loan losses as we wind down our indirect lending activities. Our success in achieving payoffs in several long time problem loans resulted in the recovery of approximately $2,000,000 in interest and fees during the quarter. We are continuing to see declining levels of loans that were modified for our COVID-nineteen impacted borrowers under the CARES Act. As of June 30, there were 57 loans totaling $41,000,000 that remain in a payment deferral modification status. This is down from 67 loans totaling $47,000,000 at the end of the Q1. It is important to note there are 3 relationships that total $31,700,000 that accounts for 77% of the total remaining modified loans. These three customers are in the hospitality or travel industries and their individual financial performance continues to trend in a positive direction. The modifications were done in 2020 and all are currently making some level of monthly payments. Under their respective modification plans, they just won't be back to pre pandemic payment levels until later in 2021. It is our expectation we will not compile this modification data in future quarters as they continue to decline and become less meaningful. In summary, we're pleased with the improvement in our credit quality metrics and we're also pleased to see the strength of the recovery in the Washington and Oregon economies. Barring any new economic setbacks, we expect to see a continuation of this positive trend in future quarters. Brian McDonald will now have an update on loan production and our SBA PPP activity. Thanks, Tony. I'm going to provide detail on our Q2 production results, starting with our commercial lending group. For the quarter, our commercial teams closed $152,000,000 in new loan commitments, down from $226,000,000 last quarter and down from $212,000,000 closed in the Q2 of 20 20. The commercial loan pipeline ended the 2nd quarter at $492,000,000 down from $540,000,000 last quarter and up from $421,000,000 at the end of the second quarter of 2020. We are continuing to see an elevated level of new loan requests from customers and prospects similar to the Q1 and remain optimistic this will continue to grow with most restrictions in Washington and Oregon being lifted by the governors at the end of June and our bankers out actively meeting with customers in person in some cases for the first time in over a year. Loans excluding SBA TPP balances decreased $46,000,000 during the Q2 due to an elevated $168,000,000 of prepayments and payoffs. This included $16,000,000 of non accrual loans and is in addition to the continued runoff of the indirect consumer loan portfolio, which declined $24,000,000 during the quarter. Consumer production, the majority of which are home equity lines of credit, was $23,000,000 for the 2nd quarter, up from $16,000,000 last quarter and up from $19,000,000 in the Q2 of 2020. Moving to interest rates. Our average second quarter interest rate for new commercial loans, excluding PPP loans, was 3.47 percent, which is down 6 basis points from 3.53 percent last quarter. In addition, the average second quarter rate for all new loans, excluding PPP loans, was 3.45%, down 21 basis points from 3.66% last quarter. The mortgage team closed $49,000,000 of new loans in the Q2 of 2021 compared to $43,000,000 closed in the Q1 of 2021 $53,000,000 closed in the Q2 of 2020. The mortgage pipeline ended the quarter at $41,000,000 versus $36,000,000 in Q1 $51,000,000 in the Q2 of 2020. Refinances made up 63% of the pipeline at quarter end. Moving on to SBA PPP forgiveness. The SBA PPP forgiveness process continues to progress smoothly. As of last week, all but 275 of our 4,006 142 Round 1 PPV customers have submitted an application for forgiveness. We also opened for forgiveness for Round 2 PPV customers in May and as of Monday had received 4 69 applications out of 2,542 total Round 2 PPP customers. Please go to Page 20 in the investor presentation for more detail on PPP loans. I'll now turn the call back Jeff. Thank you, Brian. As I mentioned earlier, we're very pleased with our performance to date. We're also delighted to be pivoting back away from our defensive posture over the last 15 months. In June, we began bringing back remote employees, and we expect most of our remote employees will return to the office over the summer with substantially all of our employees settled into their go forward working environment by Labor Day. As Brian mentioned earlier, we're seeing nice upswing in activity across the bank with deals coming from existing customers and new high quality prospects. We remain cautiously optimistic that we will see medium to high single digit growth as the year progresses. We also expect to continue our focus on expenses with the consolidation of 4 more branches in October, which together with the 9 branches consolidated earlier this year is a 21% reduction in our branch footprint. As Don mentioned earlier, our capital levels and our robust liquidity provides us with a strong foundation to address challenges and to take advantage of opportunities. Our focus is on growth, supported by efficient operations that will allow us to continue to deliver consistent long term performance. That is the conclusion of our prepared comments, William. So we are ready to open up the call to any questions our callers may have. And we'll go to our first question from the line of Jackie Bohlen. Please go ahead. Hi, good morning, everyone. Good morning. Just wanted to dial into loan growth just a little bit more, and see if there were any factors in the quarter that resulted in, it sounds like fewer commitments this quarter than last. Yes. I think, Brian, you want to jump in on this too. But I think there's a couple of things, Jackie. This last quarter, we saw the pipeline kind of stretch out. We tend to focus on a pipeline of what we can see coming at us in 90 days. So that was a factor and I think part of that may have been the slowness of our region to open up. People were putting things off and moving it forward. Brian, you want to join with some comments? Yes. Just to pick up on Jeff's first point. We did see the closing percentages a little lower than normal in the pipeline. And then the over 90 day pipeline, which we don't report on, is actually up to close to $120,000,000 So, some of the opportunities have been building in there, but not reported within the 90 day it's only been 3 weeks, but it appears there, it's only been 3 weeks, but it appears there is a number of new opportunities coming out of just our bankers meeting once again in person with customers and prospects and watching that activity. Customers and prospects and watching that activity. We continue to think there's reasonable loan demand out there and as the summer progresses, hoping to see it translate into a bigger pipeline and higher closings this week and later in the year. Jackie, Brian has reminded me a couple of times in the last couple of weeks that or the last couple of days that he'll say what he just said. It's only been 3 weeks where we've had full range of activities for us and for our team. We have mentioned a couple of times how we're still seeing the benefits of our hard work around PPP round 2 continue to come to us. And anecdotally, I was on a call last week with a prospective customer, and the notion of what we did for them with PPP when their large bank couldn't get it for them is still very fresh in their minds and they are anxious to do business with us. And we're happy to know that, that line of thinking is still very fresh in the minds of many of our PPP prospects that came across, which you'll recall, there were something like 900 that we brought across that were not customers and are new to the bank. And we individually, Brian and I have talked about it a number of times, is the bloom off the rose with regard to PPP and the goodwill that we created and it is not. So I think we've got that tailwind for the balance of the year as well as the fact that the openness in our region is only 3 weeks old. So there's a lot of room for things to happen. Okay. So it sounds like maybe there's some timing at play here. Correct me if I'm wrong on that, just with customer demand maybe is a little more pushed out than I would have anticipated. I think we feel the same way. It is somewhat about the timing. While we would have been delighted to have and we did have our relationship managers doing outreach as best they could when they couldn't be in person using the phone and Zoom and WebEx, etcetera, It really is way more meaningful when you're sitting in front of the customer. And I think that while we were in lockdown, there was a lot of economic activity around us and things were getting done. But it was hard to convince a lot of these prospective customers to make the move in that environment. And I think they're feeling more emboldened and comfortable now starting to think in terms of moving their accounts. So I think there's a lot to work with there. Is there possibly any effect because you had such a strong participation in the PPP programs that some of your customers and potential customers, at least outside of PPP, were kind of taken care of with the program, and just with the economy reopening, it's going to increase their demand. Is that at play at all? Well, we clearly helped many of our customers because we were able to accommodate anyone who wanted PPP from us as well as the prospects. And I think it played out in the report that Tony did. It helped many of our customers survive and live to fight another day. And many of them also did quite well and have a pretty nice cushion to move forward with. And I think that that cushion which you see embedded in our balance sheet in the form of deposits is there for now. But as we talk with people who are actively thinking of how they're going to grow or develop their business, a customer that we met with a few weeks ago made the comment, I'm going to wait for forgiveness. And as soon as I have it, I'm going to start shopping for a headquarters building and I want to buy another company to add on to the footprint of the one I already have. So I think it helped the people that were impacted most negatively and I think it also has helped the customers who got through it just fine. Okay. Just one quick follow-up on an earlier comment you made and then I'll step back. You mentioned that the closing percentage was a little bit lower than normal. Is that to the extent you're able to quantify that, does that reflect customer preference, interest rates or credit? I think it's timing, Jackie. It wasn't wildly off. It's just looking at what the pipeline is and then what the closing dollars are. It was just a little lower than what you might think. And some of that is just more of a timing issue. I still think the deals will close. It will just be maybe a month later than what he might have previously just with everything else going on. And Jackie, as you can see in the slide in our deck that talks through aluminum production quarter end to quarter end, we were impacted by higher than payoffs or prepays that we've seen in several quarters. So that was a little bit of a new phenomenon. And I think it was some of it was pay downs coming from proceeds of PPT, people having flesh with cash and just paying off buildings, that kind of thing. And you recall, you would have heard us saying that back in 2018 and into middle of 2019 too. Okay, great. Thank you everyone. Thank you. Next, we'll go to the line of Matthew Clark. Please go ahead. Hey, good morning guys. Maybe just first on the 4 additional branch closures. I think in discussions we've had in the past that savings you can generate from closing a branch is roughly $500,000 annually. Is that about right? I'm just trying to get a sense for the overall cost save opportunity. Yes. Good morning, Matt. Don, I think you need to answer that because I think that number is a little high. Yes, it's more like $250,000,000 So like we did in the ones at the beginning of the year, we did $8,000,000 in January and we saved about $2,000,000 So we run overall fairly inexpensive branches, but still there are some savings there to be had. So it might be a little over $1,000,000 for these 4, but I would go with that, about $2.50 per branch overall. Okay. And in terms of timing? Timing is Q4 and so we will have some exit costs related to that, probably about we are guessing about $300,000 is our current estimate. But we also these are funds that were only 1 of the 4 are leased and so we have some buildings with some gains in them. So at some point we expect to more than offset those exit costs and gains on sale of buildings going forward, but it probably won't happen in Q4. It probably happens sometime next year. Okay. And then just shifting gears to the NIM. I know you had a little bit of a benefit from a recovery, I think, this quarter. And you gave your new money yields curves kind of gone against you though in the securities portfolio. I'm just trying to get a sense for the inflection point in the margin, when you think that might be and knowing you guys had excess liquidity to help defend that? Yes, I think we're still looking, as I mentioned last quarter, I don't think it's changed. I think we still look at the end of the year as kind of the inflection point as far as when we'll bottom out on NIM. Okay. Got it. And then on PPP, Slide 20, I see the fundings. I'm just curious what the outstanding balances were for round 1 and then also the balance for round 2? If you had I think it's on the slide there. Yes. Not funded, just the outstanding balance for each. It's still just on the graph at the bottom there. Yes. So it's $346,000,000 Oh, I see it now. Got it. Never mind. Thank you. Got it. And then last one, just on M and A and capital return buyback as well. Any updated comments around your discussions with potential partners and whether or not that those conversations are picking up or not? And also on the buyback, how active you might be given where the stock is trading today? Yes. Don, I'll take the first part and you can take the second part. With regard to M and A, Matt, we were saying that things were pretty quiet through the pandemic and leading up until the end of this last quarter. But we kept up conversations. And I guess I'd characterize it that now that things are opening up, those conversations are becoming more there's more of them, which would indicate to me that there's potential for us maybe later this year or potentially early next year. Yes. And then regarding buybacks, we have $1,640,000 remaining in our current repurchase plan. So we've got a lot that we can do this year. We will at these prices, we will be active. How much will depend on the movement of the stock price and other opportunities that we have for the capital. Got you. Thank you. Thank you. Next, we'll go to the line of Tim Coffey. Please go ahead. Great. Thank you. Good morning, everybody. Good morning, Tim. Jeff, the can you kind of talk about the on the other side of the technology projects, you're looking at your non interest expenses as a percentage of average assets. I mean, you're definitely trending lower. Is there a range that you think you'll likely settle in? Yes. I think that's a good question, Don, for you to answer. Tim, can you repeat that please for the non interest? Yes. I'm looking at your non interest expenses as a percentage of average assets. And if we look beyond the other side of this technology project, where do you see that settling out at? Because it seems like you're definitely coming off of a higher plateau. Right. I think that we're obviously, we had different goals before the pandemic. I think our goals have elevated as far as our wanting to be efficient and using technology and other means. I think we want to stay in the low 2s for the overhead ratio long term. I think this year we might see the next couple of quarters a little bump in the overall expense levels compared to where we were in Q2, because of trying to get through some technology initiatives this year in addition to things like exit costs on branches. So it might be a little elevated for the next two quarters, but we do want to keep it the overhead ratio itself. Again, it might not be quite as low as it is like this last quarter, but again in the low 2s. Okay. Okay, that's helpful. Thank you. And then forgive me for asking this question, but if the excess liquidity stays on the balance sheet longer, there's obviously a number of levers you can pull to reduce that. Which ones are you most focused on? Well, I think we mentioned this earlier in the call that we're focused on organic growth right now, and we've just talked a lot about that. We'd love to do further M and A to flush out our footprint as well. And Don, you may have some comments that you want to add to it. I know that the opportunity to buy investments is kind of rigorous territory right now given the rate environment. We've bumped up our purchases in the last two quarters, even Q2 over Q1. I would say that when the rates come down as much as they have, we slow down a little bit. We still want to keep buying, but maybe not as rapid of a pace as we were. So I think that Lending it out and those type of opportunities is our first choice, but we're going to continue to process. This conference is being recorded. Did I ask your question, Tim? Okay. Yes, it did. Thank you very much. And then I'm just curious on the originations and loan originations in the quarter. Was there specific geographic areas you're seeing the highest win rates? Jeff, do you want me to take that one? Yes, please do, Brian. Yes. We're still seeing really strong originations out of King County and then our other metro markets to the north of Seattle, Snohomish, Pierce County and then in Portland. Although I would say looking at the pipeline going forward, King County continues to be really strong and then we're seeing building in all the other geographies. And next we'll go to the line of Jeff Rulis. Please go ahead. Hi, thanks. Good morning. Good morning, Jeff. I'm glad you're on. You're usually number 1. Well, I don't know what that means if I'm number 4. But anyway, I wanted to yes, I just want to follow-up on the you had the conversation on the pipeline, a little stretching out. I just in terms of the net growth discussion, wanted to check-in. JAK, you mentioned in the prepared remarks about taking a less defensive stance. And Brian, I think you itemized about $16,000,000 of your payoffs out of non accruals. I'm wondering a piece of the net growth factor is and I wanted to confirm this is do you feel less as credit improves, do you feel like a part of that is letting some credits go that you didn't feel great about? And as you get through those, the opportunities for better net growth is a product of that? Or is that ongoing? Yes. No, that's part of it, Jeff. And as Tony pointed out, a lot of what we saw get straightened out on the nonaccrual side in the last quarter was really stuff that's been around for a while that was not PPP related. So we're going to continue to actively manage the portfolio like we normally do. And that could potentially have a little bit of an impact on our net loan growth. The indirect portfolio running off doesn't help, but we've talked about that before too. And then the payoff that we talked about earlier. So we're hoping that when our teams get their legs under them and get moving, we're going to start to see the net improve. And I think that's why we're kind of cautiously optimistic for the rest of the year because we can see the activity. It might not even be on the pipeline yet, but we know it's coming our way and it's going to come our way between now and a good portion of it now and the end of the year. Brian, anything you want to add to that? Yes. I've been watching really the activity pick up really February on and then since we opened, as Jeff said, lots of activity. And so that's those are the positives. The market is competitive, and we are seeing some increasing payoffs. So I think over the next couple of months, really going to see it play out. And then we didn't talk about utilization rates, but with all the liquidity, those also continue to be pretty low. You can see on Slide 18, which has the change in loans, there's just a tiny amount of net advances. But on our commercial lines, the utilization rate is still down at 24 percent. But really, we're looking at the activity since February and then since the governors raised the restrictions, we've got more staff in the office and more meetings going on. A lot of economic activity in the markets as well. So where exactly that those factors balance out a little unclear, but we are happy to see the activity in our customers looking at doing things. Okay. Got you. Yes, I was just trying to it sounds positive and turning the right way. I just didn't know if it was the internal messaging of defensive stance has softened to some degree. And anyway, and I understood that you guys had some preexisting credit things that were non pandemic that got cleaned up. So all good. Don, I wanted to just nail down the, if you had it, kind of the core margin sequentially if we were to kind of lot of recoveries, PPP, any sort of other impact. But do you have a Q1 to Q2 what you would assign a core margin that we could track? Well, yes, core is you start subtracting too many things and you kind of make a lot of assumptions. I mean PPP is going to be around for a while. So the numbers are in there. I think if they did come down, I think if you looked at especially if you look at especially if you look at the impact of the non accrual, which I would think is you might consider a non core item versus 18 basis points impact on the loans compared to 5 basis points in the prior quarter. But we do hope to continue to work down our non accrual balances, probably not to the same extent, but we do plan to continue to work those down and then we do list what the PPP impact is. It's you can strip all that out, but we are going to have PPP for a while. It is in the low 3s, right. If you strip all that out, we're probably just above 3%. But I would say by the time we the PPP loans go around, we expect to have more leverage and we expect to I'm hoping the rates increase. We don't know that's going to happen. But if nothing else, I think we'll have more leverage by the time all the PPP loans go away. So I hope that helps you. Okay. Yes. No, just trying to ask a different question of, I think, you alluded to kind of margin bottoming by year end. And knowing that PPP, we identify a balance there. We can kind of track that separately and recoveries come and go, but just trying to get what you were alluding to in terms of your margin bottoming trend and that may just be everything running, PP running out and others. So we're just confirming that. But it sounds like it's all in the same. So that's it for me. Thanks. Thanks, Jeff. The next question is from Andrew Turel. Please go ahead. Hey, thanks. Good morning. Good morning, Andrew. Hey, so maybe just thinking on margin and I think you mentioned potential rate increases a second ago. Just thinking about should we get to that point? I think about 55% of the total loan book is variable rate or adjustable rate. Can you just remind us within those two buckets, how much of those loans are currently at their kind of floor rate? And then as a follow-up, just on average, how many rate hikes would we need, 25 basis point rate hikes would we need to move off of the average kind of loan floor? Yes. Don, you want to take that? Well, the second one, I'd have to look up some more information on that, Andrew. We don't have we're not expecting too many loans to reprice further down this year. I think we had about $65,000,000 that either don't have floors or not on their state at floor. So there's not too much there. But the biggest risk and I guess to the overall loan yield is the fact that we're again continue to put on new loans at rates lower than current portfolio yields. So that's the biggest risk there. Going the other direction, I think we're pretty asset sensitive. So if we can get rate hikes and again, there's starting to be some indications we might have even some short term rate hikes by the end of next year. And I would hope that the long end would go before that. So we are pretty asset sensitive. And so will hopefully help us in the coming year. Okay. Thanks. That's helpful. And then maybe just kind of ticky tacky on modeling out loan yields. So the non accrual interest recovery was $2,000,000 this quarter, dollars 1,500,000 of that was one specific credit. As we think about kind of normalizing the interest recovery moving forward, should $1,500,000 fall out of the run rate or is it the full $2,000,000 Well, I and maybe Tony can talk about what our prospects are as far as non accrual loans. But I think that we do continue to hope to work that down. I think it will be, you might call bumpy. Some quarters will be higher than others. I think even 5 basis points might be high overall, but I think we're going to see some of it maybe every quarter, but some quarters will be more than others. So that was obviously a really big one. I don't expect to have that big one again, but we could have other quarters of 5 basis points. I don't know, Tony, if you have any other thoughts on the working out of non accrual loans? Yes, yes. Thanks, Andrew. We do expect to see some continued move, maybe not payoffs on some of the non accruals, we may have some of that, but we also are looking more at moving some back to accrual status. If you look at Page 21, you can see about 2 thirds of the way down, you can see the non accrual loans that are in some of these impacted industries. As those continue to improve and get back to a more normal payment structure, we might be able to move some of those back into accruing status. That won't necessarily result in a recovery of the interest like a payoff would, but we could see some continued improvement in that area. But there's also some long term workouts that we've been that have been in place for a long time that could resolve. But I don't think we'll see the magnitude of the drop like we did this quarter in the next couple of quarters. Some of the recovery on that COVID related stuff could move more out into 2022 before we feel comfortable with putting it back in accrual status. Got it. Okay. Thank you. And then sorry if I missed this, but for the 4 branches you're intending to consolidate in October, are you modeling any kind of deposit attrition? Or do you expect any deposit attrition? Or are some of the kind of actions you're taking on technology investment on the technology investment side kind of able to offset any kind of expected attrition? Yes. We typically do model some level of attrition, Andrew, when we consolidate branches. It really depends on how close they are to another branch and typically model 10% or 20% for a close consolidation and maybe up to 50% for a distant consolidation. And if we just use the last 9 as indicators of how things are going these days, They had none of them have really come close to what we've budgeted for the attrition. And I think it goes to the point that you just had in your question, which is the technology has made the customers a lot stickier than they used to be. And I think that's playing to our advantage. And it's also as we've watched how customers manage through the pandemic, it gave us a bit more confidence to take the actions we are because we're seeing a pretty significant uptick in the consumer and the commercial side with customer usage of our technology. So that's helping as well. So we don't expect significant runoff in any of the 4 that we are talking about. Okay. Great. Well, thank you for taking my questions. Thank you William, are there any other callers? There are no additional questions at this time. Okay. Well, we'll call that a wrap. And we'll thank you all for your time and your support and your interest in our ongoing performance. And hopefully, we'll be talking with many of you in the coming weeks. So thank you and goodbye. That does conclude our conference for today. Thank you for your participation in using AT and T Conferencing Services. You may now disconnect.