Q3 2020 ServisFirst Bancshares Inc Earnings Call
[music].
Good day and welcome to the Servisfirst Bancshares Inc. third quarter earnings call, all participants will be in listen only mode.
You need assistance. Please signal a conference specialist there pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask.
You ask a question you May press Star then one on your Touchtone Fab withdraw your question. Please press Star then too.
Please note. This event is being recorded I would now like to turn the conference over to David Mange Director of Investor Relations. Please go ahead Sir.
Good afternoon, and welcome to our third quarter earnings call, we want Tom Broughton, our CEO, but BOCI, our CFO and Henry habit, our chief credit officer, covering some highlights from the quarter and then we'll take your questions I'll now cover our forward looking statements disclosure.
Some of the discussion in today's earnings call May include forward looking statements actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings.
Forward looking statements speak only as of today, they're made and Servisfirst assumes no duty to update.
With that I'll turn the call over to Tom.
You divest and good afternoon.
As a backdrop to prefer for our call today I'll give you an update on our.
You know, where we see the economy, we've seen a really nice rebound in the economy.
In the last several months.
One helpful thing is the southeastern United States has never had to shut downs like many areas of our country.
And it's all had the social unrest problems and in many areas. So it is now fully reopened.
Unemployment rates on average and the southeast or under 7%, which is much lower than most of the country. So were fortunate in that regard.
We're not seeing many issues even in affected industries, and I would attribute that partly to softer and shorter shutdowns in the economy.
We've also saying that well run businesses adapt to a new environment and that is what we have seen even in industries that have been affected by the holiday how they affected by the pandemic.
Oh, we did have one client that had a 100% revenue lost due to kind of in a company was restructured in the quarter Henry I'll talk a little bit more about that and.
In a minute.
Let's talk about our loan pipeline level, it sort of hit a low <unk> at the end of the last quarter.
And it's now back at record levels.
Up 40% over last quarter.
So we are seeing a nice rebound and loan demand since mid July.
The pipeline has more small closing spending and in large part due to our bankers efforts and the Triple B program assisting customers of other banks and we're starting to see that.
Those customers transition their banking over to to US now from their former bye.
Many projects are moved.
Our moving ahead, where we both we and the clock hit the pause button during the.
During the during early part of the fan Damon.
The multifamily industrial commercial sales.
Commercial real estate loan demand does seem very robust.
We do where significant lags in growth of Al Stanton Sloane Outstandings for the construction loan. So we have a pretty good backlog of construction loans that will that will ramp up over the next few quarters.
Let's see I see an off line utilization is still historically low levels and you know we over the past quarter. You you describe loan demand senile loan demand is fairly tepid.
It has improved significantly at the end of the quarter and we are.
Part of the reason we've had low line utilization continuing as I think as the triple B loan proceeds.
And I think also we have customers that still have low inventories is their supply chains are still not rebuilt.
From the early days of the band Danny.
So all in all we would expect pretty solid loan growth over the next few quarters with construction loan advance as organic growth in.
And expect in line utilization increase.
Talk a minute about it expenses and expense cuts and I see a lot in the industry written about how the.
All the bikes need to look for expense cuts.
Due to tighter margins and lower loan demand.
We do try to constantly look for expense savings, which is why one reason we have one of the lowest efficiency ratios in the industry.
Well, we do have a small branch network. The pandemic has proven to us in our buy it even our bank can be more efficient with our branch network and we see opportunities to reduce staffing in the future.
We do see opportunities in core processing for expense savings plus additional outsourcing.
One thing I'll say about expenses, you can cut expenses to improve profitability.
I will now LP reach prosperity, so our focus will always be on revenue growth.
On the deposit side, we continue to see strong deposit inflows.
Which we attributed in large part to our strong performance on the Triple B program.
Program and again many of these are strong owner managed companies were limited borrowing needs that are all big good core deposits in the future.
You know we are asked constantly about mergers and we are open to the right acquisition opportunity.
Uh huh.
While many might make economic sense few are a good cultural fit and.
And most that we would see out there have a large legacy branch network, which would not be a good family pit with service first.
We are generating excess capital and we'll look at acquisitions on a selective basis.
I will say this I think if you make a lot of acquisitions you will over time become a very mediocre bank.
So that's something we would like to avoid.
But were content will continue to also look at enhancing our dividend.
On an annual basis.
I will now call on Henry Abbott to give a credit update thanks Tom.
Pleased with many aspects of how our bank loan portfolio performed in the third quarter and throughout the pandemic for the quarter. We continued to see a significant decrease in deferrals as they burned off and those clients who are in a deferral return to normal payments as of 930, we had roughly $28 million of loans that were on some form of the deferral.
This represents a 92% decrease.
From the prior quarter and when we had $342 million in loans on deferral throughout.
Threats pandemic the overwhelming majority of deferrals granted we're principal only deferral.
At the same time as those deferrals burned off our past due loans growing $9.3 million, which is lowest we've had in over three years, we have not seen a significant rise in past due credits as noted by past due to total loans being only 11 basis point.
As it relates to deferral than past dues, we've not seen any major swings within our cobot impacted industries hotel restaurant retail theory as discussed in the past these segments on a standalone basis. Each makeup between one and a half and 3.5% of our total loan portfolio and the investment slide deck.
Posted on our website provide this data in more detail, we had one performing hotel loan roughly $2.7 million added to the watchlist and one oil and gas customer with exposure of roughly 3.6 million added as well no hotels are currently on a deferral and less than 1% only $1.5 million.
Followers of our restaurant portfolio is on a deferral.
We have a well diversified portfolio from an asset class and geography perspective, and we continue to diligently monitor and take proactive actions as appropriate.
Non performing assets were $33.5 million for the quarter, which is down from the prior year end 2019, as well as from the first quarter of 2020, but this is an increase of roughly $5 million from the prior quarter end.
I'm proud to say, our non performing assets to total assets were 29 basis points at quarter end, which is lower than the majority of our peer banks in less than our results were at 2018 and 2019, when they were 41 and 50 basis points respectively.
While our asset quality continues to remain strong we were proactive with one large charge off which elevated net charge off in the third quarter credit expenses for the quarter were roughly $11.5 million. This is an increased amount specifically related to one severely covered impacted borrower, which represent 63.
Percent of our total credit expense for the quarter the borrowers in a line of business within the transportation industry that has dramatically impacted by covered and the revenues have basically been reduced to zero.
The borrower had a viable business prior to coated but need the economy to continue to reopen before they can return to full scale operations. At this time, we feel we have taken procreate steps to mark the loan and don't anticipate any future large charges of this nature on this relationship we continue to spend a great deal of time on credit servicing Act.
Devotees, which should help identify elevated risk pockets and enable us to mitigate future credit expenses Tom.
Tom will pass back to you. Thank you and we'll call him Budd folks you now give a financial update for the quarter. Thanks.
Thanks, Tom our net interest margin for the third quarter was 3.14. It was 3.32 in the second quarter.
If you exclude the average triple pay loan balances of 1.05 billion and the interest income and loan fees related triple pay of 6.6 million margin was 3.25.
And also if you exclude the increase in our average fed funds. So.
610 million the margin was 3.33 there.
The remaining triple B deferred fees at end of September or 25.3 million.
CD maturities for the remainder 2020 or $127 million. The average rate is 1.33 on those Cds, We expect majority Cds reprice at 0.5 over below I did.
Additional cuts posted CD rates occurred on October 16th.
With these rate cuts in repricing, we'll see annual expense reduction of 1.1 million.
According to the cost of funds is decrease this year it was 1.14.
In the first quarter.
Six nine in the second quarter and 0.58 in the third quarter.
Right cuts on September 11th.
Will reduce annual interest expense by 5.5 million.
Additional cuts to posted.
Money market rates occurred on October six to eight.
Those costs will reduce expense on an annual basis about 360000.
At quarter end deposit costs total deposits were 0.34.
Interest bearing DTA councils 0.32.
Total interest bearing deposits was <unk> 0.47.
Holding company is in process of refinancing one.
Longest sub debt issues will close on October 21.
The total debt is 34.75 million.
The annual savings from the refinancing we 348000.
We had submitted 45 truck paid loans to SB eight for forgiveness to total loan amount is 42.7 million three.
Three of those loans have been forgiven that totaled 143000.
A reminder, we have no accretion income related to acquisitions.
Liquidity, our fed funds sold with 600 million when we started funding triple paid loans in April.
Funds for 1.55 billion at the end of September.
Our noninterest income credit card income was $1.8 million for the third quarter versus $1.4 million in the second quarter.
For the spend amount purchased cards increased 4.5 million in the third quarter business.
Business credit cards increased 9 million anchored center increased 1.3 million.
Total spend for the third quarter 2020 was 151 million.
Versus the 135 million third quarter 2019.
Spend is back to pre endemic levels, except for business credit cards.
Merchant servicing income year to date is 397000.
Versus 299000.
2019.
And we have two officers dedicated to selling that service.
Mortgage banking income of 2.5 million.
In the third quarter versus 2.1 million in the.
In the second quarter.
Also we purchased 300 million notional amount.
I have a one year LIBOR of cap and.
And the second quarter.
The mark to market adjustment with the third quarter was a negative 343000 and.
And strike price is 0.5.
As a reminder, we don't feel any government guaranteed loans to generate non interest income.
Noninterest expense for the year total producers were down.
We're down five where we had 134 producers.
In September total employees.
Our down nine from year end 2019, 496 employees at September Thirtyth.
We talked about expense control in our previous calls so.
Totals argued for non interest expense had been.
Had been adjusted free Triple pay expenses, the phase 391 deferral related triple pay loan originations and our expenses. So for the first quarter that total was 27.2 million.
Second quarter 26.4 million.
And third quarter $26.2 million.
Capital of the bank's tier one leverage ratio was.
8.78% at dinner.
September.
After earnings retention.
We're paying 70 and a half since the quarter dividend, but our earnings retention for the quarter was 78.2% year to date was 76.2%.
Taxes for the third quarter the rate was 20.3.
For third quarter 2019 that was 20.2%.
Year to date 2020 that rate is 20.1%.
Year to date 2019, the rate was 20.2%.
That concludes my comments alternative program back over to Tom. Thank you Bud. Thank both of you for the reports.
As you can see we had really solid financial performance and the and the quarter and also very strong.
Performance from a credit quality standpoint, where there were a lot of questions early on in the pandemic about loan deferrals and this will put that question to bad for US we're going to have to talk about loan deferrals again, so we'll be happy to answer questions you might have.
It started right now thank you.
And we will now begin the question and answer session. If you would like to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pregnant with key.
Thank you for your question. Please press Star then two.
And our first question today will come from Kevin Fitzsimmons with da Davidson. Please go ahead.
Hey, good afternoon, guys how are you.
Okay. Okay.
I appreciate all the detail you all provided just a couple of follow ups here I noticed the allowance ratio despite the.
The charge off which which looks like its emanating from one one lumpy loan in a particular industry. Like you described what the allowance ratio largely was stable to even slightly down so based on what you see here Tom would you.
Do you think you're at peak reserve level in terms of having to buy.
Having to build that reserve further not including.
Whatever you may do when you retroactively adopt cecil, but just thinking about the next two or three quarters, whether the days.
The Lions share of reserve build you think is behind you. Thanks, yeah, well, we're above seasonal today, our seasonal model would call for our reserve to be.
About $3 million lower than it is today.
So were above seasonal if that answers that question, Kevin we are.
I realize that of course, nobody has a crystal ball and.
You know I also would point out that the actual loan loss reserve levels.
Is up you a regulator of yourself is always tail regulators the best defense against losses is profitability.
And we have profitability and that is the very best defense against any future loan loss.
Loan losses, So we don't see any reason to think that we need.
Substantially higher loan loss reserves today are certainly we would have you know provided for them during the day.
During the quarter, we still do have a fairly large.
Oh.
Triple B loan fees that will.
Yeah.
Of course, it who knows when that's to be able to start paying loans you know we've tested a few loans to the delavan.
$45 million they paid for it.
Three loans.
Got 45 totaling $145000. So it is not any money. So I don't know when they'll start doing that and when our customers will tender the loans to us for for us to send them to the SBS. So.
I don't have answered your question Kevin.
Yeah, that's that's great Tom I appreciate that maybe just shifting gears I know, but you provided a lot of detail.
Detail on rates coming down on the funding side.
What was driving the margin compress.
Compression this quarter can you just from a more top level.
Help us in how to view the likely truck.
Trajectory of the margin I'm going forward here over the next.
Several quarters, whether you want to take that from.
Just stated margarine or whether you view it more as a core level.
Level, excluding some of these the lumpy items that you described thanks.
Yes, yes, the harder sales verdict is going to be the liquidity I mean were 1.6 billion.
At the end of September.
We've we've been at the 1.51 0.6 level for a while that's coming for the margin to increase that's that's really going to change and loan production did pick up in the third quarter, but.
Just you know that know how to pick up more or you know a lot of the triple pay income I mean, I'm sorry, a lot of Utrophin pay funds the customers got but that money is still sitting here. So it's hard to forecast, whether they're going to spend that.
Plus like Henry pointed out line utilization is still down so we're.
We're waiting on that turnaround for wouldn't really gave a good answer on our margin improvement.
Kevin I can't imagine there's ever been a worst time for analysis to try to run their models than right. Now there are just so many variables in there that none of us know the answer to in terms of liquidity.
When the line utilization is going to go back up but they're going to go back up it's just a matter of when but that's.
Almost.
You know arlo, our our our line draw down well over $300 million.
You know since the pandemic began so we you know.
We say loans flowing back in we see loans picking up so that will certainly help a bit with the margin, but it will that get us back to where where you're used to I don't think is going to happen any time soon Kevin.
Yeah, you can say that again about them off.
Yeah, and then one last thing and I'll get off is just you had mentioned earlier about the.
Yeah, Hey, repaying some of these forgivable loans and the process with that and all the uncertainty. So I mean is it fair to say if we were assuming.
The bulk of the you know that.
You know that forgiveness impact to the margin running in in fourth quarter. Its now probably reasonable push a lot of that out to first quarter do you think thats reasonable.
Yeah, My guess and this purely a guess, but I'm guessing that of the remaining days that we have grew 25% of them in the fourth quarter.
Or take him in income and then 75% of them come in the first quarter of next year.
You don't of course the date it seems they are not paying the large loans yet there's there probably is a very small loans I've talked to three loans totaling $145000. Those are probably the three small as loans that we.
There have been a couple of business sales that we've turned those in and some of those are larger a lot one was <unk> million I know.
No that has not been paid so.
Well, it's interesting you know we're trying to do all the due diligence necessary to make sure that we don't lose.
Our ASP guarantee and.
You know I read a statistic the other day that fintech selling process, 15% a triple b.
Loans and the vast bulk of the problem situations uncovered so bar are all the fintex. So I think it bodes well for traditional community buyings that know their customer and.
We we look at look at hard who the customers are but I think thats a that'd be my guess, Kevin It is purely a guess on mop or.
Okay I appreciate that thanks, guys have a good evening. Thank you.
And our next question will come from Brad Milsaps with Piper Sandler. Please go ahead.
Hey, good evening guys.
Right right.
Hey, Tom you sounded pretty optimistic on loan growth I'm, just kind of curious if you could give us a little bit more color you know kind of the magnitude as that's kind of what you're seeing it come back into you mentioned the pipeline was up you know maybe 40% above.
Well you know you talked a lot about pipelines and kind of you know this year.
Sometimes I work that paper right now, but just kind of curious kind of what you're thinking about pull through rate and then where are those loans being originated that in terms of a new rates coming on the books.
Yeah, we are where we are but in terms of I'll. Let you answer the question on the new loan rates are you in line with our existing portfolio.
Yeah, most of Oh say loans are probably four to four to core somewhere in that range.
Probably close before.
So yeah from the standpoint of note last pipelines are not are not perfect predictors of.
Future loan growth right I'm off.
Always the first to say that and I'll say it again.
But.
Predict what we see in the loan pipeline from a say in our side is a lot of smaller.
Credits that are coming on as a result of our efforts on the triple B a <unk> loan.
Front and they are new customers to the buy at.
And they're they're they're pretty small, but that's fine. There's just a lot of oil and that adds up to just substantial amount of money I think over the next you know.
Couple of quarters, and then our construction loan draws that we expect or you know in future quarters as well over $300 billion on loans that already closed.
But we do see a number of multifamily projects, we see Oh, the commercial real estate projects and we will.
Hopefully, we'll start seeing in the line utilization come back up.
Over the next few quarters and as as you know again I think is as much you know the lack of.
The ability to acquire product for our customers to rebuild their inventories their supply chains are just still broken from the pandemic and they cannot rebuild their their their oh inventory bucket. So that's a good bit of our line utilization problem. I think is is due to that so all of that gives me cost a reason for.
For optimism Brad in terms of our future outlook.
And just on the rate comedy you guys, you know rates, where they are you instituted sort of servisfirst Prime this time around where you guys sort of are going below a certain level just kind of curious if you're doing that and if the market supports it.
But we are in court there you know their bikes that are outliers and we just don't participate in.
We we say, we're disciplined growth company to say as high standards for performance and.
The word discipline is right in there in that sense. So we try to be disciplined and have more disciplined than some of our some of our other.
The banks in the industry. So we will.
We continue to do that.
Great and then just to follow up on your comments around expenses and I know you know six or nine months ago. You guys were talking about getting tighter on the expense front you said on this call that you know you can't.
On your way to prosperity, but just kind of curious if some of those initiatives that you guys were talking about you know nine months ago.
Nine months ago or are they kind of in the run rate or is that maybe still the com I'm just kind of want to get a sense of kind of where you guys were with that.
Well me like second and third quarter.
I think you're light, where a 26, if you strip out the triple pay in the already were 26.4 in the second 26.23rd quarter. So.
We feel like that's a that's a pretty good level I mean weve.
So usually cut out a salary increases for this year, none of us that will really come into play and 2021.
We feel like Florida, we're [noise].
You know we're at a good level go.
Going forward somewhere in that range for non interest expense is that what you're saying is that is third quarter again I think Brad. Thank you.
Like it for as far as cash into more margin for an analyst there's never been a worst time to forecast expenses either.
Government you know because there's so much noise in the numbers right now with the.
Triple B loan expenses.
Loan expenses and things that we have there were totally unexpected you know overtime pay incentives and natural thing that we're paying and should pay to our people for you know for a job well done and so we see.
We see you know.
We have a number of initiatives that have begun not yet begun to pay off in terms of core process, an expense and other outsource expenses that we see opportunity to control and bring those.
In terms of you heard the headcount.
Reductions we've had we think those will bear fruit in the future as we go forward.
But of course, we're still hiring people you know we hired.
Well number this month in the last month and [noise].
Two or three of our growth more so.
You know it will offset some of that.
All right. Thanks, Thanks, Tom take it easy onto this weekend pretty good.
Thank you, Brad well, [laughter], we need or EPS after Georgia [laughter].
Oh.
And once again, if youd like to ask a question. Please press Star then one the next question will come from Kevin Swanson with Hockey Group. Please go ahead.
Hi, guys.
Hi, Kevin.
Hey.
Yes, we're up slightly up there the higher charge offs, but obviously theres still below levels earlier. This year could you provide any color on why do you think Mds might peak and if there is any specific credits added this quarter.
Yeah in terms of when they might peak I mean.
Yeah, I don't want to speculate on that but I mean.
Obviously, we feel good about our asset quality. There was one large seen I credit that was added that helped drive that figure for the quarter operating company.
One that's a long time customer that had been traveling and we felt it appropriate to move it on to it and be a but.
Not I feel good about where we're going to end the year in terms of Npis I don't.
My Crystal ball.
You know Kevin.
You know what we see in our credits they always bounced around a little bit you know if you chart back over the last 12 quarters it'll be lumpy.
Well up or down on time, or you know quarter, two and then down and then up a time or two and then down. So there there there is a range. They ban again most of our loan problems.
I can go down the list with you and and only one credit in <unk>.
Involve this quarter was as far as I know I think this one is covenant lite is as we mentioned the large large write down to rightsize that company. So you know.
No nothing else is kind of unrelated you know once an energy credit you know related to energy industry that you get that I guess that potentially is covered related as well so it's a small.
Oil and gas supplier so.
We can't give you much better answer than that other than we try to recognize problems as soon as they happen.
And be proactive and we don't see.
You know a large backlog of potential problem last EPS in terms of.
For example, as you know the SBL you've made all the payments on seven eight loans for six months and that you know that just ended.
Well you know we don't have a lot we're not a big SBK lender, but if I wasn't big SP, a lender I might be a bit worried that there was.
There was a big backlog of SB eight loans that have been following it because the ASP. They made their payment. So now they're going to have to make their own payment and they could.
Pop up as potential problems in the next you know this quarter. So from an industry standpoint, we'll know what their problems in the seven day world.
Over the next over this quarter of <unk>.
The SPX five before laws, we have a few of those are the world's partly we had to put him on the federal obviously that's required so we.
We feel pretty comfortable that has to be a long exposure and we just don't see you know I read everything that.
Everybody right now the stimulus is going to expire and this is going to happen and all that but you know we don't have any really consumer.
Related exposure.
Just pick up at all so we just don't see the you know.
No. It is the tale of two economies you know lot of businesses are doing extremely well.
Frankly, well and you know we only have one one hotel.
Yes, just on the watch list or not all deferral. So you know we're just in that the one one center said one restaurant. So we just don't see potential problems out there at this point Kevin.
Thanks, that's great.
Looking at the environment does have lower rates for longer.
Against your success of adding deposits and some of the liquidity.
Liquidity.
Change in and what the value of the relationship looks like I'm, considering some of the difficulty in the past to put that money to work.
Well in terms of you know would go for it.
Well, it's a core deposit works today compared to a few years ago we.
Yes, Thats fair, Yeah, I mean, you know certainly yeah, I still think that the core deposit relationship is the key relationship in a bind in a bike and it is not.
You know well, let's see I'd say just sales force as percentage of book value, what they don't have as core deposit relationships.
I just got a book assets to play so so.
You know and local relationships I still think it will always be you know.
If you take a long view, yes, I would agree with you you know core deposit premiums are probably not what they are today compared to a couple of years ago. It's funny. We were we were worried about you know liquidity back in February and today, we have in our liquidity is.
You know we've had $2 billion in deposit growth in the last 12 months. So it's kinda unbelievable the changes weve seen there Kevin.
All of us.
Yeah, great. Thanks, and then maybe just a final one.
Prior to the pandemic there is quite a bit of potential from a lot of M&A in your backyard.
Good on the offensive moves I know you in your prepared remarks, you mentioned, you're hoping to an acquisition, but just curious and maybe any.
Any color on that order or any you know some of the more kind of team acquisitions you guys have done in the past.
Yeah, we continue to to you know higher producers, we hired a number of <unk>. This this this quarter.
We're very excited about we think their key additions to the staff. They are they are production people looking and and their call and our people and calling us and call a million sales.
So are they interested in making it making a move so we think we're the best place for.
Banker to.
To bring their customer base and and so.
So we're excited about that we certainly obviously they don't we don't see a lot of.
We don't see a lot of M&A activity right now, there's nothing going on right now that.
Oh, I think everybody wants to get.
The next piece.
He must behind US and then we'll have total clarity on the.
I know what our credit quality is I'm not sure I know what everybody else is credit quality is oh at this point in time Kevin.
Okay, great. Thanks, guys stay healthy thank you.
And our next question will come from William Wallace with Raymond James. Please go ahead.
Thanks, Good evening guys.
Uh huh.
So Tom maybe just kind of following up on on the point that you were just making.
You look at you look at your deferrals relative to all the other banks that are operating in your markets and in you are at it's not near the the best attempts to bunch as far as having the lowest amount of loans on deferral.
I'm I'm curious if you've spent any time trying to to discern what might differentiate the loan portfolio at surface first relative to maybe some of your competition.
You know I don't I don't know Wally other than the we don't have any.
You know.
Companies that have been really heavily impacted by Cove. It is all I can say is that is there you know we don't have convention hotels and in some of the sort of properties that.
You know not a lot of big retail properties you know so.
Yeah, I, just don't know what they have on their books out there is no you know what we have but but.
Hotels, I mean, what do you know what occupancy rates have been in the portfolio and at what the debt service coverage looks like for your hotel lumps are worse.
Our worst hotel is the one we've got on the watch list on most of that service goes 0.9.
It's below one that I mean, it still looks like localized to one the.
No the the global coverage.
Coverage is more than good on that service anticipate percent loan to value I guess.
You know, we feel very confident about that property and that is worth that we can sell or not we wouldn't sell them for less than bar, let's put it that way.
We would not sell that long at a discount.
Oh, so we we feel pretty good about our you know again the restaurant exposure to people you know that pretty well to the new environment. The good business people do and we think we have a good.
No we don't have a lot of heavily leveraged.
Borrowers quality and and you know there's no shift T for equity in a business there.
Clarence I was talking about this early in a week you know you look at a business has got a lot of debt no equity is a formula for disaster.
We don't have a lot of highly leveraged companies. So I think that's that's part of it and we've just shied away from that type of borrower.
Okay.
In the in the loan that you charged off or was that starts off did you write off the entire balance and if not what's remaining.
No we did not write off the entire balance direct debt to that borrower remain it's roughly $13 million as Tom alluded to try to right size the debt to get them through the other side of that pending that they've got a viable business. It just kind of needs to reopen before they can get.
Back on the road to full utilization I'm trying to.
No for that alone was was that loan in the in T. a bucket in the second quarter.
That one or were not because.
Alone was not in the N.D.A. bucket.
And is it then is it in now in the third quarter numbers or not.
No.
We worked out yet or is it.
It is a pleasure to offer Kobe quality is one of those poster children for code as a great company and just you know hundred percent revenue last year in Cove. It it'll come back and we feel good we have you know.
All the same collateral base that we've had before good borrower.
High quality Parson this owner of the company so it.
Oh and getting some family help to get through the pandemic. So we feel good about the company.
And then sorry go ahead.
But yes, you're right no. Sorry go ahead is that most heavily impacted you know government customer.
And the amount charged off was that just a charge down to your estimate of the value of whatever collateral there is or was there a restructure or for what yeah, you get down to the enterprise you know the enterprise value you know closer to you know yeah.
You know you can't say wants to collateral worth today right. If you took that value there's not a big market for collateral when nobody was using it right is kinda like what our real have tail loan to values you know when when I say this a 50% loan to value I don't know we had trust sales of the you know foreclose on the hotel to sell it but I would suspect that loan to values are higher than.
We we than it was when we underwrote the loans for all of these type of impact.
Impacting industries.
And just one last question just sort of circling back to that hotel portfolio.
Excluding the one on the watch list what what are you seeing what's happened with occupancy rates in the third.
In the third quarter same from somewhere we kind of Troughed in April or so.
Yes. So we're following up with most of our borrowers in getting Star report and I think it it really just depends or where they are I mean, I think across the board occupancy ticked up but it's very market specific on where those hotels My day and you know, they're they're down by the beach Medico they'd seen pick up.
Due to the summer, but I mean, we're certainly getting debt service coverage and tower portfolio on them quarterly that kind of understand the trends within that specific oral.
Okay.
Okay, Oh, sorry.
You have maybe a range of UBS rates that youve seen I'm I know you guys operate in a handful of different metro markets around the southeast but.
Just.
Any color.
Yeah, I mean, I I get you more specifics, but I mean, I think it's in the 50, 50% range or so yeah, just slightly below Fiftys, Mike My guess it just depends.
Most of the hotel operators also are very satisfied with the you know most of our cash flow and doing doing.
Doing well all in we just don't have a big highly leveraged you know borrowers and.
You know again I think is.
I think it's only 70 start quoting them a loan to values you know what is the value today of two yeah, alright, yes, yes.
About common sense knows that this is not what it was for.
For the pandemic it certain that we don't have any convention hotels, and we're pleased about that because I don't know that.
Wherever we're going to see the level. The conventions, we had in the past you know that's certainly going to be Uh huh.
Hey will it's going to be like an airline is going to be a while before they have a full come back.
Yeah. So.
We like where we are today.
Okay moving on to credit My last question is just on the loan growth did you say in your prepared remarks, Tom that your pipeline is is at record levels did I hear that it is yes.
It is right back at record levels.
And are you have you all had just did any of your underwriting requirements. Just just kind of been out most of caution around uncertainty around pandemic or.
Well you feel like you were always conservative so you're you don't need to make adjustments, where we're doing additional stress testing on any potential ball, where while it just you know it just makes sense to do you know, we sat around and talked about it in.
You know, our Florida banker said you know.
Let's just take them over.
A very cautious about approach underwriting just like we did during the you know during the first big recession down in Florida, where there was not even several able to impact it so.
You know, we we always try to underwrite you know we pride ourselves on.
Well, making the same decision through good times and bad right. He said you know what the stock market was up or down it doesn't doesn't matter that we dropped by the same decisions every day, but we have been from a look at a very hard at it credits from a pandemic related standpoint to make sure that they're not smell bini.
And for same.
Consequences, Henry doctors anything any Diane no I agree I mean, just like you said looking to stretch rates a little bit more in terms of occupancy on things and right now.
No I mean.
Okay.
Yeah, it's kind of just.
Kind of digging a little deeper on that.
Entertainers then they can see another thing we have materially change with them.
Okay. Thanks, very much guys I appreciate it thank you Bob.
And this concludes our question and answer session. That's concluding today's call we'd like to thank you for attending today's presentation. At this time you may now disconnect your line.
[noise] for everyone.
[music] mm.