Question-and-Answer Session
Operator
[Operator Instructions].
And your first question comes from the line of Mark Fitzgibbon. Please proceed.
Mark Fitzgibbon - Sandler O'Neill & Partners
Good morning, fellows, or good afternoon, fellows. First question I had is on credit. First off, you had one large commercial real estate loan that looked like it went sour this quarter. Could you give us sort of the general issue there, what’s going on, do you see any other issues on the commercial real estate state books?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Good question. First of all, let me quantify this, when you say large, it’s relative. It's a $3.6 million loan, it’s a commercial real estate loan and it’s just, all we have is onesies and twosies. If take a look at this loan plus a $ 2 million mortgage, single family mortgage reacceptance [ph] secured, the accounts were essentially 70% to 80% increase in the non performing assets from second quarter to the third quarter. So it’s really, no it’s nothing to give anything, it’s just one loan .
Mark Fitzgibbon - Sandler O'Neill & Partners
So the size of the provision this quarter, was that a function of this particular credit and we should expect a lower level, going forward?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
No, as we said many times before, we have formal line [ph] that we follow when it comes to provisions or loan losses of adequacy, I should say, and depending on, give us a little flexibility, not very much but we made the decision this time to increase the provision $1 million, we didn’t have to.
Mark Fitzgibbon - Sandler O'Neill & Partners
Okay. And then the other question I had on Chittenden, we are getting close to completion that year I guess early next year, and they have about $1 billion in securities and you guys have been truly vocal in saying you don’t like the business, the wholesale business right now. Are we likely to see Chittenden run that down in advance of the deal or post closing would you guys likely be selling/ restructuring that book?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Well, I suppose right now you should ask them what they plan to do. I can relate the reasons they have, securities portfolio they have is because their core deposits exceeds their loan portfolio. That to me by the way is the one temporary acceptable reason for having a securities portfolio. I will state, you've got core you don’t want to run them down, you want to invest in something you plan somehow and if you don’t want to lose on your credit standards the best thing you can do is by securities, and I'm definitely with them there, within reason of course and limits. When the time comes, and the transaction closes early in January, we'll reassess the situation on what we want to do, depending on them? the reassessment of all their businesses.
Mark Fitzgibbon - Sandler O'Neill & Partners
Thank You.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Sure.
Operator
And your next question comes from the line of Thomas McGowan with Lehman Brothers. Please proceed, sir.
Thomas McGowan - Lehman Brothers
Hey, Phil, how are things going?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Hey Tom, how are you?
Thomas McGowan - Lehman Brothers
Good. I just had a question on? I know you guys don’t really need to aggressively grow your deposits right now. But in terms of the overall deposit market I think we had kind of seen it rationalizing a bit. And then over this quarter you have mortgage lenders now offering these very high CD rates. Do you kind of see where things are going in terms of competition in that area?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Yes, your observation, of course, I would concur with. We have seen just that. Frankly those mortgage lenders are offering us very high rates on issues that we simply don’t have. We don’t feel particularly compelled at this point given our overall liquidity posture to follow suit. Generally speaking of course, we try to remain competitive and frankly, ideally we are looking for this magic efficient frontier terms of managing our cost of funds on the one hand and holding on to our market share, growing it if possible. And in my comments I alluded to the most recent FDIC data. Frankly from my perspective we are basically there. We have managed to hang on to our market share. In the year by the way we have seen an influx of a huge number of competitors, a number of new branches in accounts is astounding. I think it’s 31 new branches in that past 12 month period. We had Washington Mutual, HSBC, Commerce piling in. And in fact it would essentially, from our perspective, limited success. Meanwhile we are trying to hang on to our market share and keep a cost of funds dramatically lower than anybody else. To me that defines success.
Thomas McGowan - Lehman Brothers
Great thanks.
Operator
And your next question comes from the line of Jared Shaw with KBW. Please proceed.
Jared Shaw - Keefe, Bruyette & Woods
Hi, good afternoon, Philip.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Hi, Jared, how are you?
Jared Shaw - Keefe, Bruyette & Woods
Good, thanks. Just if you could give a little more detail again and update on the home equity portfolio and if you are seeing an increase in the usage rates or if it’s just a actual declines in the number of loans and also if you can just give us an update on the combined loan to value and why it's worse?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Right, the home equity portfolio continues to do wonderfully well, thank you for asking. And the dollar decline is due again to the nationwide trends. People have been paying some of those loans out. The overall loan to value ratio on a combined basis remains at an astounding low 59% for the entire portfolio, and the usage remains very, very static I mean generally fluctuates between around 50% and so forth there, maybe dropping a little bit.
Jared Shaw - Keefe, Bruyette & Woods
Great, thank you, good quarter.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Thanks.
Operator
And your next question comes from the line of Collyn Gilbert with Stifel Nicolaus, please proceed.
Collyn Gilbert - Stifel Nicolaus
Thanks, good afternoon Philip.
Philip Sherringham - Executive Vice President and Chief Financial Officer
Hi, Collyn, how are you?
Collyn Gilbert - Stifel Nicolaus
I am good, thanks. Just when you has said that there are no cracks in credit quality, what goes into your assessment to make that statement?
Philip Sherringham - Executive Vice President and Chief Financial Officer
Good question. Well I mean all banks we have a slew of reports and measures and credit quality is something we pay attention to, on a very close basis, you might imagine especially today. And this assessment or statement is based on the fact that we don’t see any migration, we don’t see any trends and delinquencies that could lead to non-performance later. Everything and where we look and as hard as we look? of course as I often have said in the past, every once in a while a loan goes bad, we're a bank and it happens. But we are talking about onesies and twosies at this point, and there is simply, whether it's on the mortgage side, domestic side, the commercial side, there is no indication of broad based deterioration in credit as far as we can tell. And that’s the basically on all the internal measures that we have which are very detailed, I can assure you.
Collyn Gilbert - Stifel Nicolaus
Okay, okay. And can you just talk a little bit about the SNC portfolio, it looks like the growth rates have been increasing in the last couple of quarters and just remind us again of the limits that you have there and just have the? what the credit quality looks like on that portfolio?
Philip Sherringham - Executive Vice President and Chief Financial Officer
Sure. That portfolio, I'll answer about limit first is the cap internally, the self imposed cap has 15% of the total commercial banking portfolio outstanding. I just mentioned at the end of the third quarter, it was a little bit above that for the only reason that again quite naturally as you would expect, given what’s happened in the financial markets overall, liquidity crunch et cetera, many of those commercial borrowers have started rediscovering that a way to get that liquidity was actually to go down bank lines, surprise, surprise. So anyway, that’s what we are seeing, so it's 16%. The credit quality of this portfolio since inception really goes back about five, six, seven years now. It has been totally outstanding and frankly, as possible we can tell it remains this way so far. Now that’s not a guarantee of future performance necessarily. It could be said of a lot of portfolios, but certainly it’s helpful to note. This is the portfolio that performed better than any other we have so far.
Collyn Gilbert - Stifel Nicolaus
Okay, great. And then just if you could give us a quick update on how the Westchester branch is doing?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
I would be happy to. The Westchester branch is doing extremely well. We have now opened a second one by the way, I can’t tell you about the second one, but the first one is way ahead of schedule in terms of deposit growth. I think after the first few months, four months or so, it’s up to $15 million in deposits.
Collyn Gilbert - Stifel Nicolaus
Five-zero?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
No, one-five.
Collyn Gilbert - Stifel Nicolaus
Oh, one-five okay. Okay, great and then just finally, you guys got the approval on RP today, is that right?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Correct.
Collyn Gilbert - Stifel Nicolaus
Okay. When can you start buying back for that?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Tomorrow.
Collyn Gilbert - Stifel Nicolaus
Okay. And then any update on where the OTS stands?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
No, we are still talking to them. As you know, we can’t realize whether they will give us the approval or not, we can't start buying stock until the close of the Chittenden transaction.
Collyn Gilbert - Stifel Nicolaus
Right, but they haven't given you any clarity as to where they may be going?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
No, I mean, at this point, I think it is fair to say no. We suspect, this is pure speculation on my part and unqualified as such, I would suspect that they are unlikely to give us an approval, so we can't do anything with it. So my sense is they'll probably wait until we actually close the Chittenden deal and then thereafter address the issue. If we addressed it earlier, it wouldn’t be helpful.
Collyn Gilbert - Stifel Nicolaus
Okay, all right, thank you very much.
Operator
And your next question comes from line of Matthew Kelley with Sterne Agee. Please proceed, sir.
Matthew Kelley - Sterne Agee
Hi, guys. Just a question on the margin going forward, the pro forma, now that Chittenden's margin came in pretty strong as well this quarter. You had mentioned that yours might be down a little bit in the fourth quarter, I mean pro form, put these two companies together not going to much in the way of wholesale funding, which in terms of franchise value will be pretty positive, but in terms of the margin trajectory, with additional Fed re-cuts potential, what was the magnitude of the potential combined margins compression in a way.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
That’s obviously, we cannot tell you exactly in terms of what the Fed is going to do or what period of time, if we can, please go ahead, I am sure, I will be interested. But absent that, I mean clearly, given the fact that all the proceeds of the second step are currently invested in short term securities, essentially Fed funds or equivalent, on paper they fairly asset sensitive. Now remember, some of that cash doesn't go away quickly here in terms of, in combination of the Chittenden acquisition closing, and then buybacks. So we see that going down. But my sense is? and you're right, Chittenden's margin came in pretty strong. When you combine the two, I'd say, on the safe side, depending entirely on what the Fed does, it could compress by, I don’t know up to 3% to 5 % maybe.
Matthew Kelley - Sterne Agee
Okay. And then just to follow up on Collyn's question with the national credits. What is the unused lines of credit there? What’s the drawdown rate on that $ 700 million portfolio, what is the capacity left for those borrowers?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
I am sorry, I may have to get back to you on that, that’s a number I don’t have handy.
Matthew Kelley - Sterne Agee
Okay, all right, thank you very much.
Operator
[Operator Instructions].
Your next question comes from James Abbott with FBR Capital Markets. Please proceed.
James Abbott - Friedman, Billings, Ramsey
Thanks for taking the question here , it’s also great to see the expenses perform this quarter. Could you give us this sense going forward on that number, do you, other than the $1 million, you said that there would be $1 million additional expenses in the fourth quarter. Does that $1 million of re-branding go away starting in 2008?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Yes, the re branding will cost us some more $ 4 million this year. That will go away in 2008. We are not ready frankly, to give much indication on 2008. We are not there yet. And so I don’t want to comment too much on the expenses in '08. The one thing I will mention is, as someone observed, we got an approval today for the RP plan and the stock option plan. That has an expense implications obviously, which I'd ask you to think about, and it's probably going to start impacting fourth quarter of '07.
James Abbott - Friedman, Billings, Ramsey
Okay, we will model that in. But you don’t see any issues coming up in the fourth quarter such as incentive accrual catch ups or reversals of incentive accruals, or anything like that. I don’t know exactly how the incentive accrual plan is planned.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Nothing major there. I can’t comment with any high degree of certainty on incentive accruals but it’s not going to move the needle, I don’t think either way.
James Abbott - Friedman, Billings, Ramsey
Okay, so the third quarter is good run rate, you think into the fourth quarter?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
I cautioned you about the additional re-branding expense, unusual expense tied to the RP and stock option plans.
James Abbott - Friedman, Billings, Ramsey
But the re-branding, the $1 million was already there in the third quarter. So it just continues or is that in addition to the third quarter level, there will be an addition $1 million?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Yes, there will be additional. And as we have discussed in prior calls, we are working very diligently on this technology infrastructure update. If you look at the release, you will see that the $1.6 million I think in the quarter tied to technology project, that’s going to continue and it’s going to increase particularly in '08. Again I don’t want to? I'm giving you a directional statement here, nothing in dollars yet. But that will come later.
James Abbott - Friedman, Billings, Ramsey
Okay, thank you. And then the follow-up question I had is on non-interest bearing deposit balances. Was that some end of quarter volatility? I know that they were down on a linked quarter basis.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Yes, I never really? I think if you look at average balances, they are not really down very much, and that’s really what's important. End of quarter, anything could happen to impact those, I don’t think very meaningful.
James Abbott - Friedman, Billings, Ramsey
Okay, you didn’t see then, it wasn’t a widespread exodus in that sense, it was just sort of more of the?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Not at all, not at all.
James Abbott - Friedman, Billings, Ramsey
Okay. All right, thank you very much.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Sure.
Operator
And your next question comes on line Michael Collin with Sunova Capital. Please proceed.
Unidentified Analyst
Hi, good quarter. Quick question, I didn’t get the clarity on the net interest margin, I have [inaudible] some guidance, but sort of impact from the Fed, did you say 3% to 5% meaning--?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
The margin was 428, absent Chittenden, by the way. This is strictly I talking about? People United Bank, remember that the Chittenden deal's only going to close in early '08. So for the fourth quarter this year at this point in time, I would say margins likely to compress between 3% and 5%; if you take for 428, 3% to 5% of that.
Unidentified Analyst
Okay, and that’s including Chittenden. I guess, you haven't made full decisions about you might want to reposition their balance sheet?
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
No, I want to be a little cautious here at this point.
Unidentified Analyst
Great, thank you.
Operator
And there are no additional questions at this time. I would now like to turn the call back over to Mr. Sherringham for closing remarks.
Philip R. Sherringham - Chief Financial Officer and Executive Vice President
Excellent. Well, hope you enjoyed the quarter, we certainly did. And, looking forward to many more like this, and better. And see you all, I guess, I'll talk to you all next year, if not before. Thank you very much.
Operator
Thank you for joining in today's conference, you may now disconnect, and have a wonderful day.
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