Q3 2020 First Financial Bancorp Earnings Call
All participants will be in a what's it only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question Press Star then one using a touchtone telephone.
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Please also note todays event is being recorded at this time I'd like to turn the conference call over to Scott Crawley Corporate controller. Sir. Please go ahead.
Thank you Jamie good morning, everyone and thank you for joining us on todays conference call to discuss first financial Bancorp third quarter and year to date 2020 financial results.
Speaking on today's call will be Archie Brown, President and Chief Executive Officer, Jimmy Anderson, Chief Financial Officer, Bill here at Chief Credit Officer.
But the press release, we issued yesterday and the accompanying slide presentation are available on our website Www Dot bank. Its first dot com under the Investor Relations section.
I grew up with reference to the slides contained in the accompanying presentation during today's call.
Additionally, please refer to the forward looking statement disclosure contained in the third quarter 2020 earnings release.
Yes, you see filings for a full discussion of the company's risk factors.
In addition, we will provide today is accurate as of September 32020, we will not be updating any forward looking statements to reflect facts or circumstances. After this call.
I'll turn the call over arching Brown.
Thank you Scott good morning, everyone and thank you for joining us on today's call.
Good afternoon, we announced our financial results for the third quarter.
Right pleased with our performance, especially when considering the challenging economic environment.
Our third quarter results demonstrated continued strength and diversity in our business lines.
Despite difficult business conditions, we produced 100 twentyth consecutive quarter of profitability.
I'll watch after being adjusted to remove nonrecurring items.
Included earnings of 44 cents per share.
1.09% return on average assets.
14.18% return on average tangible common equity.
At 59% efficiency ratio.
Core banking trends were solid as net interest income increased slightly despite the continued interest rate headwinds impacting the industry.
Transaction deposit growth was extremely strong with increases from the prior quarter, a $435 million on average.
Were 19% annualized.
Much of that growth in personal and business non interest bearing deposits, which.
Which increased $179 million or 23% on an annualized basis.
The third quarter was again highlighted by record fee income from mortgage banking and our panic burn foreign exchange team.
Our mortgage team had a sensational quarter supporting the home financing needs of our customers.
During this historically low interest rate environment.
Expenses were temporarily elevated in the third quarter.
Our strong operating results and exceptional fee income performance.
The higher incentive and commission expense.
[noise] credit trends remained relatively stable, while our allowance for credit losses increased to 1.81% of total loans X.
Excluding P P P.
As reported $13.4 million up provision expense in anticipation of credit to.
Credit deterioration for the remainder of this year and into 2021.
Our low delinquency of payment deferral trends are encouraging we.
We continue to manage the portfolio in a disciplined manner given the backdrop of increasing COVID-19 cases in the Midwest and.
And it certainly is around the timing of vaccines to brand a pandemic under control.
[noise], we've made much progress over the last six months or the global pandemic and are encouraged by our improved operating performance and their.
And the resilience of our associates.
Almost all our retail banking centers have reopened and some associates are returning to the corporate work spaces, albeit that's it.
At significantly reduced capacity levels.
Our guiding principles in managing this crisis continues to be prioritizing I suppose getting clients safety pro.
Preserving the continuity of our business assisting our communities and ensuring the safety and soundness of our company.
I'm sincerely appreciative of the ability of our associates produced strong financial results, while prioritizing these individual needs of our customers and communities during these challenging times.
I'll now turn the call over to Jamie to discuss details of our third quarter results and after.
And after James discussion I'll wrap up with an update on loan payment deferrals or provide some forward looking commentary Jamie.
Thank you Archie and good morning, everyone.
Slides four and five provides a summary of our third quarter and year to date 2020 performance.
The third quarter saw earnings continue to increase from the first half of the year as record fee income and declining provision expense offset a slight decline in net interest margin and elevated variable expenses.
Similar to the first half of the year the pandemic continue to produce meaningful headwinds in the third quarter.
While credit metrics have remained relatively stable, we recorded $13.4 million a provision expense during the quarter and we believe our current reserve levels position us to absorb expected credit deterioration as the pandemic continues to play out over the coming months.
Our capital ratios improved during the quarter and remain in excess of both internal and regulatory targets we can.
We continue to believe that our balance sheet is well positioned and our stress testing results indicate that our core fundamentals positioned us to maintain these levels for the foreseeable future.
As expected our net interest margin declined eight basis points compared to the prior quarter driven by a decrease in asset yields due to lower interest rates and dilution from PPP loans.
However, we were able to partially offset these negative impacts by deliberately managing funding costs and growing low cost core deposits well letting higher priced brokered CD balances declined.
Once again fee income was the highlight of the quarter and one of the main drivers of our quarterly results.
Mortgage banking exceeded expectations, increasing $1.9 million or 11.6% compared to the second quarter and.
In addition, bannockburn had a record quarter and deposit service charges rebounded.
This elevated fee income offset by an increase in variable expenses resulted in another quarter with a sub 60% efficiency ratio.
Third quarter results indicate that we remain well positioned from a regulatory capital standpoint, as both total and tier one capital ratios improved on a linked quarter basis.
Total capital increased 18 basis points, and our tangible common equity ratio increased 16 basis points in the third quarter to 8.25% or 8.79%, excluding the impact of PDP.
Additionally, we were pleased that our tangible book value per share grew by 30 cents to $12 and 56 said at the end of quarter.
Slide six reconciles our GAAP earnings to adjusted earnings highlighting items that we believe are important to understanding our quarterly performance.
Adjusted net income was $43.2 million or 44 cents per share for the quarter.
Which excludes $100000 of COVID-19 related expenses and $2.1 million and other nonrecurring items, such as branch consolidation costs.
As shown on slide seven these adjusted earnings equate to a return on average assets of 1.09% and a return on average tangible common equity of 14.2%.
Our 58.9% adjusted efficiency ratio remains strong despite elevated incentive compensation during the quarter and reflects our continued diligence in managing expenses.
Turning to slides eight and nine net interest margin on a fully tax equivalent basis was 3.36% for the quarter.
The eight basis point decline was primarily related to lower asset sales, which were negatively impacted by the low interest rate environment.
Asset yields and mix negatively impacted the net interest margin by 19 basis points during the quarter due to lower rates.
This was partially offset by lower funding costs, which.
Which positively impacted the margin by 14 basis points during the period in addition.
In addition, PPP resulted in three basis points of incremental margin dilution from the second quarter.
As shown on slide nine asset yields continue to decline as a full quarter impact of the low interest rate environment negatively impacted the yield on loans, which declined 25 basis points.
And while the investment yield dropped 11 basis points.
In response to these declining yields we aggressively lowered our our cost of deposits 13 basis points during the period, which reflects deliberate rate adjustments as well as a shift in funding mix from higher price brokered Cds to core deposits.
Slide 10 depicts our current loan mix and balance changes compared to the linked quarter end of period loan balances were relatively flat for the period as increases in C. R. E loans were offset by modest declines in all other loan types.
Slide 11 shows the mix of our deposit base as well as the progression of average deposits from the linked quarter and.
In total average deposit balances declined $169 million during the third quarter driven by a decline in higher priced brokered Cds. However.
However, we are pleased with the trajectory of deposit balances as this decline was partially offset by increases in core deposit balances.
Which included $179 million in non interest bearing deposit growth.
We will continue to monitor it upright deposit pricing over the coming months and make any necessary adjustments based on market conditions and our funding needs.
Slide 12 highlights our noninterest income for the quarter third quarter fee income was our highest since 2011.
It was driven by a significant increase in mortgage banking and foreign exchange income.
We were also pleased as wealth management fees were in line with expectations and service charge income began to return to pre pandemic levels.
Non interest expense for the quarter as outlined on slide 13.
Overall expenses increased compared to the linked quarter, however, absent incentive compensation non interest expenses were in line with our expectations during.
During the quarter, we incurred $100000 October 19 related expenses and approximately $2.1 million of other cost not expected to recur such as branch consolidation costs and.
In addition, we incurred $4.4 million of incremental incentive compensation related to improved operating results and $2.6 million of commission expenses directly related to mortgage production and foreign exchange income generation.
Also included in our third quarter expenses was a 500000 dollar contribution to the first financial Foundation.
Turning to slide 14.
Our third quarter Hcl model resulted in a total Hcl, which includes both funded and unfunded reserves of $183 million and $13.4 million in total provision for credit losses.
The model utilize the Moody's baseline economic forecast for at least at the end of September which was slightly improved from the second quarter.
Similar to the first half of the year, it's worth noting that the majority of the third quarter's provision expense related to the expected economic impact from Coca 19, Hello.
However, the model was positively impacted in the third quarter by an increase in prepayment rates.
As shown on slide 15 credit quality was once again fairly stable.
As we had $5.4 million net charge offs for the period and only slight increases a nonperforming and classified asset levels.
Net charge offs were 21 basis points as a percentage of loans for the quarter, which remains lower than historical levels and were 10 basis points year to date.
While our credit metrics don't reflect much stress at the current time, we do expect some deterioration through the remainder of the year and into 2021.
As such we believe our current reserve levels adequately positioned the balance sheet to absorb further deterioration.
Finally, as shown on slide 16, and 17 capital related capital ratios remain strong and are in excess of regulatory minimums.
Total than tier one capital ratios each increased during the quarter and all ratios continue to exceed internal targets.
Our tangible common equity ratio grew by 16 basis points during the period.
And our tangible book value increased to $12.56.
We do not anticipate any near term changes to the common dividend.
However, we will continue to evaluate various capital actions as the economic impact of the tow that endemic further materializes.
I'll now turn it back over to Archie for commentary related to specific areas of focus in the loan portfolio, our deferral program and our outlook for the remainder of the year arching.
Thank you Jamie given.
Given the continued economic circumstances related to COVID-19, we got.
Slide 19 through 29, which cover loan payment deferrals Aspen.
And specific areas of focus within our loan portfolio.
As mentioned earlier slide 21 highlights our participation in the Paycheck protection program.
Which included $910 million in loans and $24.2 million in unearned fees as of the end of the third quarter.
At this point, we've opened dart forgiveness portal and a limited number of loans have completed the forgiveness process.
Customer forgiveness requests have been steady.
[laughter] spec those to continue throughout the fourth quarter and into 2021.
Jumping to slides 26 and 27.
We continue to provide a bridge for our clients to navigate a difficult business environment.
$1.5 billion or 70% of the loans that we have exited around one deferrals have returned to our normal payment schedule.
Well approximately $630 million or 6.2% of total loans have moved to a round to deferral with.
With $85 million, yet to exit the round one deferral period.
Well route one deferrals were universally granted round to deferrals were granted on a case by case basis after due diligence of our operations.
Financial condition.
Liquidity and cash flow.
Slide 28, 29, providing updates specific to our areas of focus within the loan portfolio.
Our franchise portfolio, 66% of the expired round one deferrals have returned to a normal schedule all 81% of those receiving a second round differ or making interest only payments.
Distressed continues to be primarily with sit down restaurant portfolio and we're actually working with these borrowers to ensure a positive resolution.
As discussed on prior calls our hotel portfolio will likely require additional time to stabilize.
As occupancy rates are slowly improved due to the 25% to 45% range.
We have limited exposure to large convention hotels event space or fly to leisure destinations, which.
Which are expected to take the longest to recover due to their dependents upon large social gatherings.
93% of our initial hotel deferrals have been granted been granted the second deferral with 20.
With 25% of these different second deferrals, making interest only payments.
[noise] regarding our retail I see every portfolio. We are pleased that 96% of around one deferrals have returned to a normal payment schedule only.
Only $20 million or 4% of initial I see a repayment deferrals rented.
I've received a second deferral.
Given the uncertain operating environment, we're continuing with limited forward looking guidance.
Slide 30 shows the key factors that we expect to impact our performance moving forward loan growth is expected to be in the low single digits excluding.
The transitory impact of the PPD program.
And deposit balances are expect to remain elevated over the near term.
The net interest margin is expected to be positively impacted by the timing of PPP forgiveness pay offs Andy.
And the associated accelerated.
Recognition.
Excluding PPP impacts, we expect some slight pressure going forward.
Given the low interest rate environment and ongoing purchase accounting decline.
Absent these variables, which can be somewhat volatile we expect margin to stabilize in the near term.
Regarding credit the full impact of the pandemic is yet to play out. However, we expect moderate declines in our provision expenses going forward.
We've added totaled $125 million to our allowance for credit losses during 2020.
Which brings our total hcl to greater than three times the balance at December 31, 2019.
This should we believe help us address future losses materialize.
Specific to fee income, we expect continued strong mortgage originations in the fourth quarter. However.
However, we anticipate some seasonal decline in volume and lower premiums.
We expect service charge and interchange revenues to continue gradually improving and foreign exchange income to be consistent with the third quarter.
With respect to expenses, we expect the fourth quarter to decline by approximately 5% due to lower incentive compensation.
We follow a disciplined approach to expense management and a pause on most planned hiring discretionary expenditures.
And significant investments, except where critical last.
Last quarter, we closed four branch locations.
Bringing to a total of 58 closures over the last two years or almost 30% of our branch network.
In light of accelerated changes in customer behavior observed during the pandemic, we continue to evaluate our distribution channel for opportunities to become more efficient.
Overall, I'm very pleased with our performance this year, considering the challenging circumstances, our capital and liquidity remains strong as.
As weve effectively managed to ensure the safety and soundness of our company.
Or the broader economic environment remains uncertain and our clients continue to face challenges.
Going forward, we will continue to manage pandemic priorities and believe we have positioned the company for even stronger financial performance.
When the health crisis subsides.
As we close out this memorable year, we remain steadfast in our focus on the well being of our associates clients communities and shareholders.
This concludes the prepared comments the call will now open up the call for questions.
Ladies and gentlemen at this time well begin the question and answer session to ask a question. Once again you May Press Star then one using a touchtone telephone.
If you are using a speakerphone, we do ask that you. Please pick up the handset before pressing the keys.
And withdraw your question is you May press Star two again that is star and then one to ask a question.
At this time, we will pause momentarily to assemble the roster.
And our first question today comes from Scott Siefers from Piper Sandler. Please go ahead with your question.
Good morning, guys, how you doing.
Hey, Scott.
Hey.
I think the first question is just on on that front. So you guys again, given excellent color on the run.
Around one in round two dynamics I appreciate that I guess, just as you sort of look at things like the hotel portfolio. Some of the sit down restaurants, those will take a longer period of time to.
Work out completely but I guess Archie is you're looking at things what would.
What would how would you recommend we sort of level set our own expectations for where are the aggregate level of deferrals could go.
Over the next I guess 90, 880 days, what what sort of things are you guys looking for internally.
Sure Scott, Let me start and then I feel parents here he can.
You can add to my comments.
And so.
So you know we're in a kind of a bulk now the second round of deferrals, we've disclosed what that looks like.
I think we would view that.
That will continue to winnow down yeah.
No I think these were basically 90 day deferrals and again a good portion of those were interest only as opposed to full payment, but it'll window down Scott over that 90 day window.
We ended the back part of the first quarter, and then we'll evaluate who needs additional support.
But it's primarily going to be centered in that in that hotel books. So.
I would say without getting too too precise.
Does that 6% number dropped by half.
By the end of the second round will probably get into that range and then as primarily hotels and maybe some shutdowns bill any other comments on that yeah. I mean that that is what we're we're kind of anticipating right now.
Yes, we have to around two deferrals, we did a lot of additional due diligence including.
Assessing the prognosis for potential third around.
That kind of puts us in the range that NRG just.
Alluded to as far as what we expect on the backend and this.
And then Scott when I look at it.
We get into that window of time, we'll evaluate what is the right prescription for those those types of borrowers and where are we.
Borrowers and where are we at with a vaccine will just look at the conditions and decide whats the appropriate course, but we do think it's probably longer stabilization windows for those types of those types of borrowers.
Perfect all right. Thank you and then.
I think you guys had said in your prepared remarks.
So the dividend it doesn't sound like that's a real concern.
Real concern and I think that would be pretty much supported by.
The earnings stream is but you said you would continue to evaluate capital actions. When you say, what what are you referring to Gary thinking like additional sub debt or preferred things like things like that.
Well I think it's everything from.
You know buybacks to M&A to just looking at it all the levers we may have to pull and I think.
Our view is it's too early to we don't think we need to do more in terms of adding to capital other than just growing earnings right now but.
When you think about how do you start to utilize that in.
And you know improve.
Results I think there are some things we can do but it's going to come after.
We get comfortable that things have stabilized after we know theres a vaccine thats it.
It's and distribution things like that so we're just we think we're creating flexibility personals down the road.
Okay. Good all right I, just wanted to sort of put on that all right. So it's more when were talking capital actions. These days were thinking more along the lines of return them.
Raise.
I guess put it simply yes, yes perfect.
Okay. Good. Thank you guys very much.
Thanks Scott.
And our next question comes from.
From KBW. Please go ahead with your question.
Hey, good morning, everybody.
Good morning.
Jim Let me start with you.
We've seen quite a few bad.
Quite a few bags.
Click the excess liquidity in and optimize the balance sheet I'm interested in your thoughts here in terms of.
In terms of reducing some borrowings.
Growing the investment portfolio and Im just trying to think how I'm just trying to get my head around how you're thinking about managing the.
Managing the balance sheet near term.
Yes, so obviously we've seen.
We've seen that increase in Japan.
Deposits on the SER and surge deposits.
And really across the board on that and the transactional accounts. So one of the things that we did early on in the pandemic in that in that March April timeframe, as we rotated out of federal home loan.
Federal home loan bank advances and took out some.
Took out some brokered CD. So as liquidity has remained on the balance sheet and we've actually seen deposit balances transactional deposit balances increase we have so you saw it this quarter, we had over a $500 million drop in brokered CD. So we are where we are.
Were reducing what I would call the Uh huh.
The whole sales side of the of the balance sheet from a liability standpoint.
Yeah, we were in a little bit of a wait and see mode I would say over the last three or four months as.
Just kind of seeing what how customers were.
Reacting how deposit balances and really monitoring deposit balances.
We are seeing those.
Seeing those take a little bit more than.
Maybe we thought that they would in the beginning and so we are looking at.
Putting some more dollars to work from putting some of that liquidity to work in the in the India.
In the investment portfolio and increasing the investment portfolio by.
Roughly $300 million here going forward.
And then and then we'll kind of see after that but yes. We are so we really I would say, we really did but both things that you are talking about we've reduced we've reduced borrowings and I think we're going to put some of that.
Liquidity to work.
And just so I'm just I'm certain things. Thank you for the color the $300 million of additional securities that's relative to the call through 3.2 billion in the quarter three and a half is kind of where you are targeting.
Correct.
Correct.
[music].
On the guidance wondering if I understand the guide the expense for Q4 is your starting point or the GAAP expenses or the adjusted expenses.
The starting point would be that you adjusted expenses.
Okay.
Yeah, and then we had so from the on the expense side, we had the increase.
Increase about a $7 million quarter to quarter increase in and.
And incentive compensation slash commissions, so about $2.6 million of that was related directly to commissions for.
Mortgage banking and foreign exchange and then the other piece of that is related to our our company wide bonus plan and just based on our earnings through three quarters the improvement really in the third quarter.
We needed to book that additional amount in the third quarter in anticipation of the expected payout at the <unk>.
After the end of the year, so, but no. We we booked out amount, we expect that to come back down as we mentioned in the outlook, we expect that to come back down and the and the fourth quarter to more normal levels.
Great and then two other quick ones Jimmy Dean.
The guidance on the on the margin is that.
With with or without the PPP impact.
Well so when we were talking about the margin I would tell you. We're we're talking about the margin without PPP I mean, when you look so really when you look at our margin I would say our you know our core margin without that impact of ERP will be relatively stable.
So over the next really going forward here, maybe you know with that just maybe I'd add of pressure.
Pressure just from.
From a reinvestment rates and but we're getting we're still projecting a decent amount of relief from the deposit side here over the next couple of quarters, but.
Overall, the core margin.
[music].
Is is relatively as relatively stable and then you have the the volatility of the loan fees, especially lung fees related to the PPP, but loan fees in general can be.
A little bit volatile quarter to quarter and then obviously.
Obviously, we still have some purchase accounting that affects our margin as well which is.
Which we would model and so to me.
Going down, but again it can it can bounce around a little bit quarter to quarter.
Okay, and then lastly on taxes, maybe any.
Maybe any thoughts on the on the prospective outlook and then the sensitivity to.
What's being proposed and in Washington on taxes.
Well, so here I mean going forward absent any absent any change in in Washington to the rate I mean the.
Our our effective tax rate is.
Roughly right around 19%.
Obviously that changes if that.
Something comes out of the election or the out of the administration.
Right, but the sensitivity that you got on the way down Theres nothing Phil.
Philosophically different on the way up right the proportional increase no. Okay alright. Thanks.
Thanks.
Hi, Chris.
And our next question comes from Terry Mcevoy from Stephens. Please go ahead with your question.
Good morning.
Eric.
Archie can you just run through the branch actions that occurred in the third quarter and then I assume your retail customers are just using the digital platform more you know since March how has that impacted traffic and.
Just some opportunities as you look out into 2001 I was wondering if you'd be maybe a little bit more specific or some some thoughts on the year and what you could do with the branch network.
Yes, so we close I think at the end of the second quarter well for four locations and as I mentioned that it takes us to about 58 or so.
Over the last couple of years. So we continue evaluate it Terry we're seeing even still now.
Their branches or lobbies are fully open we're still running 15.
Sure.
Hi, teens, 15% to 20% range down.
On transaction levels from from where we were pre pandemic.
If you look at things like ITM usage.
Just so alternative means those areas are up remote deposit are up.
Are up significantly.
So really we do things some clients found other ways to do their banking and some of that sticking.
So we are evaluating transaction counts for office and say well second looked like in the future are they.
Further consolidation opportunities there may be some repositioning opportunities as well, but we are going through a fairly extensive study of that.
The outcome of that will be probably over time, yes.
We'll be making some.
Some changes that I don't think you'll see all that materialize in a quarter or two but it will certainly aggressively.
Gradually bleed in and we will be communicating more as a as we get further in that study.
And Terry this is Jamie.
That I think one part of your question maybe it was around the expenses that we incurred during the quarter to 2.1 million of branch consolidation costs those are mainly.
Fixed asset write downs, and then kind of then from the.
The branches that we just took action on or branches in the past as well that we might have gotten an updated appraisal or something like that so so that's part of that $2.1 million as well.
Thanks for that and then.
And then just as my follow up if your outlook is correct. The FX business. It will be the third quarter out of four quarters. This year that will be over $10 million.
Just since it's a relatively newer business and not one that I model and any other bank does that $10 million is that a new step up as you think about next year or is there something going on this year to drive the upside relative to what we've seen in the past.
Yes, its taking about a turn to the second quarter force was down and that was really the shutdown of the economy and.
Not much transaction occurring it just it was lower but.
Other than that it's been running kind of close to that number and.
We would have said I think coming into the year, we would have said that probably.
Eight to 9 million a quarter would be the expectation and ramping up as we got into later this year and into next year ramping up another vendor so a quarter or so.
So getting into that 10 million range. So we think we're kind of at the level, we would expect and you know as they keep keep doing.
Keep doing their work it will incrementally improve but 10 minutes kind of a good number for the run rate.
Okay. Thank you guys.
Yes. Thank you.
And our next question comes from Jon Arfstrom from RBC capital. Please go with your question. Thanks, Good morning, guys.
Hi, John.
Archie one for you.
Okay out of this draft or is that you placed on what's your.
Kind of qualitative view of your local economies and how people are doing all the small businesses are doing.
No.
Really well other than these some of these areas that we know we're in we've highlighted.
Really I think they're doing very well.
We've been very pleased and why you see.
When you think about where we were six months ago and thank everybody in the country certainly we felt like.
Well this is going to be add how bad could it get and I think.
We're optimistic about how the resiliency of the business community and consumers and how they performed so the local economies are doing very well they're doing strong.
Hotels.
Some sit down restaurants, some have done well in terms of the if converted into kind of a good take out type of a business or delivery kind of a business, but still pressure in those kinds of areas, but other than that I think very well I will say this the case counts.
Related to cope it are peaking right now.
They are probably four to five times, where they were in April may kind of at the end of the states that were operating in.
So that's that's creating some concern.
But right now things are still I think moving along pretty well for businesses.
Good.
And then maybe for.
Are you worried that bill.
Lodging you talk about.
Some extra due diligence for the second round the deferrals.
When you go into do that due diligence what are you finding as it is it.
Generally improving results.
What kind of things are you asking for in return just walk us through the process.
Yes, absolutely as Phil.
You know.
We do a number of things with the hotels and Clooney.
So of course of our sponsor and then also the property.
You know where its at what type of.
Business doesn't serve yeah.
Is that really the demand generator.
And what we see as a short term long term prognosis and.
When you take our hotels on the whole.
You know what we've learned is that you know were we don't have a lot of destination hotels were not ours RG talked about earlier that are going to need large crowd gatherings, a lot of our hotels benefited from.
The summer for summer and the summer travel splurge by individuals by families.
And as business.
Businesses start to freed up and start to travel more we'll also see a pickup from so we saw a nice pickup in our occupancy rates over the last.
Over the last couple.
But.
And we do expect it to kind of go down a little bit maybe the fall here, but then.
But then also picked up a rough around the holidays, especially as.
Especially as business travelers get out more and more.
That is really what we're seeing I mean, we're in a nice.
Market, where our flags, we don't have a ton of.
Full service.
Ill reception in convention dependent stuff.
So with our Hilton.
Good choice Sperry out those type of flags.
Yes, when you start to see the traffic come back.
I would also add John this Archie that.
We're looking at the deferrals and going another round up another thing to Phil and his team are.
Our doing is evaluating.
Really the sponsor's commitment so were rescued the sponsor to step up and do some things along with the bank kind of a shared shared.
Shared effort to help help of hotel sustain over time and get back to where it needs to be.
And just to add on that just a little bit I mean, we do a lot of work with her but their budgets their their breakeven cash flow in and we put covenant packages in place to monitor that.
Okay got it that's helpful.
Jamie maybe one for you.
Mortgage really stands out.
Given that let me pull.
Let me pull back a bit but.
Talk a little bit about the pipelines and maybe what kind of a pullback you expect in that revenue line.
Yes.
Yes. So obviously you had great not only great third quarter second quarter was was good as well and we do see that.
Coming down in the fourth quarter and some of that is is the seasonality of that business as well.
So I mean overall I would tell you we do see it coming down overall, the fourth quarter, So no doubt about it.
And so I mean overall, we would look at the overall volume in the fourth quarter compared to the third quarter to be down roughly fit.
Roughly 15.
20% and then I mean, the other thing that we were seeing in both the second and the third quarter and especially in the third quarter.
We're in you know you saw this everywhere probably.
You know the premiums on the backside when you're selling knees were just or.
Or a huge so.
We're expecting nose to come back down.
Two.
We revert to the mean, a little bit and come back down to more kind of historical norms over time and won't come down.
Right away, but we do expect those premiums to come down as well, so and that's probably another another 15 or 20% or so so we do see that revenue coming down although it will still be elevated compared to a year or so ago from an income standpoint, but.
That will come down.
Okay, alright, thanks, a lot nice job guys.
Yes.
Once again, if you would like to ask a question. Please press star and then one to withdraw your question you May press Star and two.
Our next question comes from David Long from Raymond James. Please go with your question.
Good morning, everyone.
Okay.
Just wanted to get back to Christys question on the on the expenses.
Just wanted to confirm are you, saying that you are using the 95 million dollar base for your expenses when you're talking about the 5% decline in the fourth quarter.
Yes, that's correct.
Okay got it and then yes 95, Yeah 95 is adjusted out it takes out that was a couple of million of those branch.
Write downs.
Yes, yes in the the 4.4 million in proved mint from performance across the firm was there some catch up in there I assume then from earlier in the year.
I mean catch up might be a little bit of Oh they.
I mean, a little bit of a misnomer, it's really just I mean, it was really just looking at where we were on a year to date basis and the improvement from the second quarter.
You know caused us to have to to take a look at that take a look at the expected payout and then adjust the accrual accordingly.
Got it Okay talked about your hotels and maybe some of the sit down restaurants, having to extend deferrals beyond the 180 days, how do you envision accounting for that and have you talked to regulators about how you're going to treat those loans then going forward.
Yeah.
This is bill we have reviewed our round three or more work on re stabilization.
Products with the regulators.
And it would include the interest only period.
And to extend into next year.
And we will be having.
Some incentives are more fees paid on the backend of those.
And based on our review with both the regulators and our towns.
You know from a cash standpoint, you know we would not be classify most necessarily as TV ours now individual cases may dictate that we would.
Categorically.
It's not intended still five does is deferrals, but not necessarily TV ours.
Got it and through.
Through this whole process of deferring some of the loans have you been downgrading credits on deferral. If you think it's appropriate.
Yeah, absolutely and with each stage.
A deferral, we do a reassessment of the rating.
And depending upon the factors surrounding that credit.
Both the performance as well as support outside from the owners and sponsors it's really a loan by loan and a case by case analysis.
To determine what the appropriate ratings should be.
Got it thanks for the color I appreciate taking my questions.
Thanks, Dan.
And our next question is a follow up from Scott Siefers from Piper Sandler. Please go with your follow up.
Hi, guys. Thanks for taking the follow up.
I just wanted to ask a question probably on loan.
Loan growth you know, there's been indefinite bifurcation in the industry between the real evaporation in demand that the large banks as I've seen in some of the Conversely, some of the growth that smaller names that seen I've I've always thought about FCC as kind of playing in a middle ground, where you sort of kind of.
Kind of punch above your weight class in terms of customers.
At times I guess.
I guess, just curious broadly what you're seeing and what sort of opportunities factor into the the low single digit are you able to take market share from some of the bigger guidance or what are the main dynamics at play.
Yes, Scott this Archie.
Maybe talk me talk about a couple of areas first just a we've seen is this your very much though.
On the consumer side, not just mortgage water consumer volume we're having.
Really.
Hi, Hi, consumer origination volumes through.
Three through this window now we're not getting the growth there because the refinance market has been strong enough to.
Also in the mortgage wasn't paying all consumer balances, but we are seeing good work. There we are seeing increasing momentum and feel like that will continue to do well there.
On the commercial side, we're having a little bit to slow down on the IC a re side so.
Some of that is a little bit.
A little bit intentional on purpose, we're up we're trying to.
I guess, maybe a little more intentional about the areas, where we're wanting to grow and.
Slowing down areas that we think we've got enough on the books. So that's you'll see probably a little bit on this I series side it was slowing.
Occurring, but really our opportunity things on the commercial banking side.
We are seeing in pockets is not I would say, it's coming wave of pockets of nice nice new clients coming to the bank and in many cases I'd say a majority of the situations, we're taking market share.
It's typically coming from [noise] from one of the Super Regionals here in the marketplace, We've got Ses team.
A strong reputation in the business as you said with the level of sophistication may be greater than side or size in that so that's.
Creating a bit of a winning formula that we think we can build off of.
Okay perfect. Thank you.
Yes.
And ladies and gentlemen, im showing no additional questions. We'll end today's question and answer session I'd like to turn the conference call back over to the management team for any closing remarks.
Thank you Jamie just.
Just thanks, everybody for joining us we're proud of the quarter. We look forward to talk to get next next quarter have a nice day.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.