And kind of after that, our borrower lost a little interest in the property and really kind of started to focus on trying to fill it up with what we would consider to be slightly above market rents. And so, we kind of got to the point over the last maybe six months or a year with that borrower that they needed to show some better effort on improving the value of the property. And we had an opportunity to probably sort of modify and extend, etc., but we really got to the point we felt like the property value was either deteriorating or not improving, and we didn’t think that our current borrower was going to be the right party to do that. We don’t take it lightly when we take things back. But at the same time, you can’t be afraid to do so, especially at our leverage.
Some of the loan was, I think, at about $27 million or so. So we negotiated a return of the property that came with some obligations from our borrower. We brought it down under $23 million now, so between $22 million, $23 million, and we’ll work it there from there, as is values. We just got an appraisal of $32 million, which is down 55% from its peak, but it’s down 55%. We’re still at 70%. We feel like there’s some opportunity there. We were fortunate also that our existing office space in L.A, the lease was maturing at the end of this year. So we’re moving out of our property. We’re moving into this property. We’ll be there on site and start to work towards stabilizing this property. We have a good relationship with the owner.
That was not the case, our borrower did not have a good relationship with them. And so I think everybody is working towards now the same goal, which is, let’s improve the value of the property, and we’ll use it until we lease the rest of it up. But we like the location. We think it’s a good property, and I think you can’t be afraid to step in and do these things every once in a while.
Stephen Scouten: Appreciate the color guys. And glad to see you’re still out there fighting Johnny. Keep it up.
Operator: Our next question comes from the line of Matt Olney with Stephens
Matt Olney: I want to ask about the event income that was highlighted. I think you mentioned it was negative in the third quarter, had been positive for a while. Just any color on kind of the drivers. I think you mentioned the non-accrual reversal. Just also remind me, in a normal quarter when that is positive, just remind me what that represents and what kind of outlook we should expect here?
Stephen Tipton: Matt, this is Stephen Tipton. It was about $1 million in non-accrual interest from the two credits that Kevin talked about during the quarter. So, I think it was $0.5 million or so net negative. So it would have been $1.5 million. It bounces between $0.5 million and several million a quarter, just depending on the pace at which loans pay off and we may accelerate origination fee income. So, a little hard to target going forward, but I don’t recall it being a negative number any time in our history here. So, would not expect that going forward and that was the – it was just from those two credits.
Matt Olney: So it sounds like, Stephen, that can be a result of – in a normal quarter, it can be a result of our origination or a pay down, not either one – I’m sorry, not one or the other, but both, is that right?
Stephen Tipton: Yes, that’s fair.
Matt Olney: Okay. And then I guess Stephen, sticking with you on the non-interest-bearing deposits, still some outflow in the third quarter. It looks like the end of period balance is still a little below the average balance in the third quarter. Just any color on what you’re seeing there throughout the quarter? And any thoughts on kind of where we go from here?
Stephen Tipton: Yes. I mean I think it’s just a general combination of customers seeking higher yields and we’ve seen some here lately that our competition is offering a rate of interest on demand deposits, which has not historically been a thing or it hasn’t in a long time. And so, you’re having to combat some of that. But as Tracy and I look every day, every month, I mean I think a lot of it is just general customer spend, too. When we look at current balance versus average balance over the last 12 months or so, I mean broadly you’re seeing a lot of those balances are off 20%, 25%. And I think a lot of that is just general business customer spend there. So, it may have a little trend downward from here, but we’re managing the interest rate aspect of it best we can every day.
Matt Olney: Okay, appreciate that. And…
Stephen Tipton: And Johnny, on the…
John Allison: Go ahead.
Stephen Tipton: I was going to say, Johnny hit on the asset side of things. I mean I think that’s – we’ve said for a long time, in this cycle that we’re in, interest rates have gone up. We negotiate with customers one off. We’re going to have to continue to pay that. I think the main thing is just to try to offset that on new originations, which we are and what we’re able to pull through on renewals.
Matt Olney: And it sounds like you found some maybe – I’m sorry, go ahead.
John Allison: Go ahead. Matt.
Matt Olney: Well, I was just going to ask about just margin stability overall. I think you mentioned in September you found some margin stability. Curious kind of what kind of confidence you have that we’ll see some more stability in the fourth quarter or could that be more like early next year?
Stephen Tipton: Tracy is laughing at the end of the table. Some optimism, I think, just from September being up a couple of ticks from August and kind of being in line with where it was for the quarter. But I think we’ll take that on a weekly, monthly basis as we work through the deposit side.
John Allison: We had a customer – got a customer who walked in, in one of our banks and put – a customer that I don’t get along with, and he didn’t get along with me, and we don’t like each other. But he walked in and put $2 million in our bank and he said, “I know it’s safe.” I’m glad, it’s safe. So, I don’t know if our ads are working or not, but we’re working that side of it pretty hard. You don’t see any – I mean, our ads are all strength ads. We’re going to be here. If the big bad wolf shows up Home, will be open in the morning.
Operator: Our next question comes from the line of Brady Gailey with KBW.
Brady Gailey: Wanted to start on M&A. I know, Johnny, you mentioned that you’re having a couple of recent conversations. And you also mentioned there’s some banks out there with negative tangible common equity. Are those deals even possible to do without government assistance? Does the math even line up for that to make sense for a strong buyer like Home?
John Allison: No. I mean, they get to a point – they get to a point where you can’t do them. I mean they just – we’re on a trade with a great people, great market, but as rates have gone up, it has just killed their loan book. So, it makes it – it was possible at one point in time, but since we met them, I mean, it’s probably impacting another couple of hundred million dollars. So, just tough. I mean, it’s tough. I feel for them. I really feel for them. Good people, good markets, good bank, well – they just made a mistake that the people who are no longer there have made a mistake. Not the people there have made a mistake, but the people that are gone made the mistake. They just won’t – they don’t work, and I hate it.
