Q3 2020 SmartFinancial Inc Earnings Call
Good morning, everyone and welcome to the Smart financial third quarter 2020 earnings Conference call.
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At this time I'd like to turn the conference call over to other Wellbore. Sir. Please go ahead.
Thanks, Jamie good morning, and thanks to each of you for joining US. This morning for our Q3 2020 earnings call. It's always a pleasure to visit about smart bike and talk about our company joining me on the call today are Billy Carroll, our president and CEO.
Rod Grzebinski, our CFO and Rick Jordan, our Chief Credit Officer.
Before we get started I'd like to refer you all to page two of our deck for the normal and customary disclaimers and forward looking statements comments. Please take a minute to review the news.
First I know that many parts of our country are still suffering from the effects of coated I do want to say that I hope that all parts of the U.S. recover quickly.
We're fortunate that our southeastern markets are all open for business and for the most part our markets are very busy we must remain diligent to protect the health of all of our clients friends team members and family members I do appreciate the efforts being made by our smart bike team members to serve our class well during this trying time.
We finished third quarter really strong and improved most all of our metrics, we continued to execute our strategic plan very well.
In order to become a top tier performance a couple of highlights for Q3.
Net income of 6.4 million in operating earnings of 6.6 million.
Tangible book value increased seven to $17.27, that's up 5.5% year over year increase our.
Our deposits grew tremendously from year end 2019, so far they've risen $604 million for the year or 29.5%.
Our cobot modified loans decreased during the third quarter, Bob 62%.
<unk> decreased by 62% our total in P.A.'s improved to just 18 Bips down from 28, Bips just a quarter in Q2.
We're extremely happy and comfortable with where our back years in our loan portfolio, yes, as we sit here today. Our team has done an in depth scrub of our book and we feel very strongly about where we stand with that I will turn it over to Billy let him jump into some of the details.
I just don't work, we again had a it's not actually had another really solid quarter really steady given the current environment, where we'll operate I'm going to hit on a couple of areas as I'm afraid I would want to dive into financials and then on over the rest to jump into credit.
First is mill or what do you do obviously, we're continuing to deal with pandemic and all those challenges, but we've seen.
Most of our markets performing really well I won't spend a lot of time on that but you'll note on page five of the data we continue to keep the situation in front of my eye that said were working to minimize those issues as we get back home office.
A few of the highlights for the quarter total net revenue continues to climb exceeding $30 million for the period, we had another quarter of stellar deposit growth.
Increasing over $112 million clients continue to hold cash and we've utilized it's time to work on moving core relationships, we picked up through the PPP process.
Rob will speak to this a little more in a moment, but as we have communicated in anticipated <unk> modifications have drops it drops significantly and we're seeing no concern on the credit front. This is evidenced by our nonperforming asset ratio dropping to 0.18% Oh.
Oh, we also know that progressive bank deal that closed earlier in the year is now fully integrated and bugs and just really all of those cost savings have been realized oh and were on target.
Jumping into financials, you'll see in the quarterly highlights on page seven of the deck <unk> net income for the quarter was $6.4 million from a GAAP standpoint operating net income of 6.6.
44 cents a quarter that made to 44 cents per share operating core even with the continued reserve build up $2.6 million due to the market and <unk> market.
Markets did tighten our margins did tighten as we expected and that was influenced by heavy liquidity at BBB ones, but loan balances core remain fairly stable, which was a nice way and given the current climate.
We reported a solid pre tax pre provision quarter coming in at $11.3 billion, that's a pre tax pre provision or away of 1.35% annualized. This earnings trajectory I has a nice trend line any shown on slide eight of the deck.
We also had record non interest income for the quarter coming in at over $4.1 million was going to touch on this more in a moment, but this is a focus area for us where we're starting to see real results. Another really good trend line there.
Got a few other comments as to what I expect as we move into the last quarter of the year, but again steady results from SMB came this quarter, let me turn it over to wrong for financials, and then rest for portfolio on credit and then I'll close with those comments Ron.
Billy and good morning, everyone, let's start with slide nine performance trends, we have experienced continuous growth over the last eight quarters, but during 2020, our growth was stimulated by the excess liquidity that entered the market as well as completing an acquisition.
The current quarter as loan balances remained stable our liquid cash increased over 142 million. This was primarily driven from the liability side of the balance sheet, where we had deposits grew over 112 million.
Moving on to Slide 10. This is an interesting slide the Green line represents our operating pretax pre provision returns and for the most part had been directionally consistent we are sustaining profitability.
Our operating our away make our operating metrics have been a little more volatile due to our continued reserve build both metrics are feeling the effects of our temporary asset inflation and headwinds caused by a margin compression.
Turning to slide 11, as Miller indicated we have continued our consistent trends of value creation for their book Die, even tangible book value growth.
On the lower graph, our operating efficiency ratio was at 62% as we have consistently maintained the low 60 range.
Turning to slide 12, net interest income for the <unk>.
For the quarter, our net interest income increased 297000 to $26 million when compared to the prior linked quarter as our interest income remained relatively stable with increased earning asset volume being offset by declining yields we experienced decreases in our interest expense with growth in our interest bearing.
The liabilities that reduced the funding levels, our tax equivalent net interest margin for the quarter was 3.39% a decline of 24 basis points when compared to the prior quarter.
Our yield on loans for the current quarter was 4.71% compared to 4.7% for the prior quarter.
Included in that loan yield for the current quarter was 960000 of loan discount accretion and we recorded a like level of PPP accretion, which totaled $1.8 million with our increased level of PPP accretion for the quarter. The overall effects of the PPP program has had very little effect to our margin.
Well, our interest bearing liabilities, we had a decrease of 12 basis points to 0.59% and our overall cost of deposits decreased 10 basis points to 0.44%.
For the fourth quarter, we still see some smaller opportunities for further rate reductions and our interest bearing deposits with over 15% of our time deposits maturing and repricing.
As you can see with our liquidity and funding sources at the bottom right of the slide during this call. The 19 time, we have continued to experience an elevated amount of excess liquidity, our cash at the fed and correspondent banks experienced an average growth of 141 million for the current quarter. This liquidity build had negatively impact.
But our margin by 15 basis points.
What all this excess liquidity in early October we decided to pay down the feds PPP Lf funding facility and the amount of 238 million. This will provide some ongoing really for our margin looking.
Looking forward, we are forecasting a fourth quarter margin in a range of 3.50%, which includes a minimal level of PPP forgiveness were estimated to have loan accretion of approximately 630000, an estimated PPP lumpy accretion of 1.8 million.
Moving on to slide 13, operating noninterest income.
Now this is a very unique energizing slide for US we had another great quarter of operating non interest income we achieved increases of over 18% from the prior quarter and over 88% increase when compared to the same prior year quarter our.
Our service charges increased 183000 as this quarter represented a more normalized level of consumer activity.
I'm going to change fees increased 360000, but did include a vendor credit of 130000 barrel.
For our mortgage banking team, we had another strong production quarter, our mortgage banking revenue reached over $1 million, an increase of over 10% from the prior quarter as we still have a strong pipeline will be estimating slightly lower levels of production looking forward into Q4.
Our team will continue to focus on increasing and diversifying our noninterest income revenue streams looking forward our forecast for the fourth quarter savvy noninterest income of 3.8 million.
Turning to slide 14, you'll find our operating non interest expenses.
We continue to find opportunities for expense control in comparison with the prior quarter. Our expenses were slightly elevated with many of these increases expected.
When comparing our operating expenses with the prior quarter, our salary and employee benefit expense increases were related to the lower reported amounts for the second quarter relating to salary deferrals from the PPP loan originations. We did see an increase of FDIC insurance, primarily from our overall asset growth during the quarter and look forward to having some expense relief for the fourth call.
From a decrease in assets related to the payment of the PPL left.
Our other real <unk> other real estate and loan related expenses, we did have increased loan related activity, but the majority of the increase was from a new outsource appraisal program and we realize timing differences of expensing versus reimbursement, we should see those expenses come back in line going forward looking for.
Looking forward our forecast for the fourth quarter savvy noninterest expenses remained relatively flat, which salary and benefit expense approximately 11.1 million also.
Also well lets touch base on taxes. In addition, our income taxes for the current quarter reported an effective tax rate of 23.5% and we are forecasting that same rate for the fourth quarter of 2020.
Our next slide 15 gives details our deposits, but at this stage doesn't give justice to what our team has accomplished during 2020 on the bar chart to the right you will see that our growth in deposits, which were up over 29% since year end. In addition, since year end, our noninterest bearing deposits increased over 300 million.
Over 83% now let's focus on the current quarter, we had a huge core deposit growth quarter. Our overall net deposit growth for the quarter was 112 million. Let me explain that further during the quarter, we decreased our broker deposits by 78 million. So our actual core deposit growth was 190 million there.
The big funding quarter.
At year end 2019, our broker deposits comprised 13% of our total deposits fast forward to September Thirtyth, we were at 3% of total deposits. Our team is very excited that we were able to reduce our reliance on brokered deposits in such a short period of time.
The lower left graph gives a good depiction of our continued efforts in reducing our deposit cost towards towards the fed funds rate with that.
With that said I'm handing over the slides Tourette, Jordan, our chief credit officer to go alone and credit related info Brett.
Thank you Ron and good morning.
Our loan portfolio maintained a very consistent overall profile to second quarter results with outstanding balances relatively flat and the overall portfolio mix being practically identical and segmentation to second quarter overall, the banks, all very minimal $4 million or <unk>, 0.16% decline in outstanding balances at quarter end.
While growth in balances was flat as noted loan demand has begun to recover strongly across our entire footprint as our markets are open and our cobot related restrictions are minimal and continuing to ease across the banks geography.
Tourism markets, so very strong demand throughout the summer months and our overall portfolio has continued to demonstrate stable and steady operating results for the quarter. All in all a nice quarter was stable performance in the loan book.
Our overall credit quality metrics continued to perform extremely well for the third quarter.
Nonperforming asset ratio declined <unk> 0.10 per cent to its lowest level in the last several years at 0.18% of total assets as Billy mentioned earlier. This was achieved through <unk> reductions are across each segment of the N.P.A. asset base and other real estate past dues and non accrual loans.
Charge offs for the quarter were <unk> 0.01 per cent and continued to track below peer group averages the overtime.
The over 30 day past due ratio so its lowest point since 2017 at 0.25% of total loans also during the quarter.
We performed at credit review of every loan transaction over a million dollars in the portfolio and came away with an even stronger positive outlook on the soundness of our loan book overall, our asset quality continued to demonstrate very strong metrics and maintain a continual improving trend.
As you'll see on slide 18, probably the most significant positive change we saw in the quarter was the downward progression of our modified loan portfolio as you.
As you may recall at the end of second quarter, approximately 25% of our overall portfolio or 615 million in outstanding balances had received and we're in some stage of a modified payment structure due to the cobot event.
That was very near our peak of modified loans and we have seen a continual decline in net figure since then culminating with a September thirtyth outstanding modified portfolio balance of $232 million or 9.7% of the portfolio down nearly 400 million imbalances and a little over 15% of the total loan portfolio. This.
This progression was inline with our forecast from second quarter for modification expirations in it.
In addition, we finished third quarter with only five and a half million in outstanding balances for loans, where the modification was extended beyond the originally requested period and we carry less than 50000 end balances of loans were full payments are still being deferred due to coke. We expect this trend to continue into fourth quarter, much and our overall modify portfolio.
We'll follow the forecasted maturity schedule that as noted in the deck.
Slides 19, and 20 show that our hospitality and restaurant bar exposures continued to be the larger segments of our modified portfolio, but those are down 61% and 56% respectively from the June 30 quarter end totals. They are forecast to produce another 67 million by the end of this month as well much of the success has been driven by strong market demand in our.
Core geographic footprint as our markets have been reopened since memorial day with minimal restrictions and clients are reporting steady traffic in their establishment or hospitality Clos are indicating performance metric still slightly below the 2019 year to date results, but the overall gap in year over year metrics is much smaller than where many had feared they would be.
Average reported occupancy rates for the summer months were approximately 61% in 2020 versus 78% for same period 2019 with year over year average 80 yard nearly flat for there's much a great trend. While this led to a revpar decline of about 27% year over year for the summer period. The overall cash flows for the majority of our operators or some.
Fisher to cover operating expenses and debt service due primarily to manageable leverage positions held across the portfolio again 2020, not quite as strong as 2019 year to date hospitality space, but all things considered has been much better today than expected.
Restaurant and food service costs are indicating a similar trend in that reduced capacity restrictions in some markets do still have a negative effect on revenue, but their dining traffic has still provided for adequate cash flow support quick service launch reporting solid results. Some even up year to date over 2019 levels in revenues and profitability due to strong demand for product and we are.
<unk> operating cost as they have predominantly been dropped through only service since March in most of our markets casual dining concepts supplemented reduce capacity restriction with a more streamlined curbside touchless takeout set up while still seeing demand for in location service with many reporting waitlist for tables and minimal year to date reductions in topline revenue. So.
LMR, even reporting improved year over year revenues through the last months.
As with hospitality, most are reporting revenue and profitability levels down moderately from same timeframe in 2019, but significantly better than expected back in March and April and most importantly sufficient to fund their operations.
On slide 21, we cover our PPP loans Weve.
We booked 157, new transactions for an additional 7.7 million in PPP loan fundings in third quarter. Prior to the end of the program availability. This brought our total originations under the program to just over 2900 loans totaling slightly over 300 million imbalances 1877, or approximately 63% of our total PPP loan transactions.
Will fall into the SP, a streamline forgiveness process through use of the form 30 federally test process. This will be a significant benefit to resource allocation in the forgiveness and allow us to more rapidly move through these requests as borrowers with larger loan amounts begin to submit their applications over the coming weeks.
Roughly 98% of our PPP loan originations will have met their 24 week covered period by December 31st. So we do anticipate an increase in forgiveness applications in the near term, but we are prepared to accept applications presently and will move through the forgiveness process expedition expeditiously as those are submitted.
Now I'll turn it back over to Ron to walk you through our allowance results for the quarter Ron.
Thank you Brad for all the detail on our loan portfolio well, let's move forward to slide 22, our loan loss reserve.
As Red had indicated our credit quality continues to be very strong. We continued our reserve build during this quarter with our allowance for loan losses, increasing by 2.6 million from the prior linked quarter since year end, our overall allowance had increased over 80% or 8.5 million with almost all these increases by being directly associated with.
The economic qualitative factors caused by the COVID-19 pandemic on this.
On the shaded areas of the slide I wanted to point out on the right hand column that for the third quarter of 2021, our allowance to originated loans less pp p. loans increased to 1% and two armed our total reserves to total loans less PPP loans increased to 1.61 at quarter end.
We feel our overall allowance reserve coverage is that reasonable levels going forward, we will continue to assess the allowance and adequacy thereof, as credit conditions change every corporate vision amounts as needed.
Slide 23 gives us information on our current capital position very good trending information our.
Our tangible common equity tangible asset ratio and leverage ratio are temporarily impacted by the significant increase in assets and we anticipate these ratios to start trending upward over the next few quarters.
Our C.T., one and total risk based ratios are back to near pre called levels. All of our ratios are well above the well capitalized benchmark, but that said I will turn it back over to Billy Thanks, Ron and Beth.
That's correct I'll give a little more color from my standpoint.
As you heard Rick discussed we understand their loan book really well, we have made a scrub of the really see it in the portfolio with everything over a million dollars in.
And we feel really really good about where the spread is and their company.
He also spoke to spoke about we continue to watch and talk with their clients and those relationship managers.
But again feel very good about where we are as indicated by also noting that the npis dropped $3 million for the period.
Our markets are all performing well given the environment as I mentioned before our smaller MSC model is well positioned for these current challenges with very few exceptions. Our markets are operating near normal levels. We are deep into our 2021 plenti or near term focus will be continued revenue growth and expense control.
And we are back playing offense I'll add we continue to have success in converting a number of our new Clos, we picked up three PDP into core smart my clients loan pipelines are building back I had a great call with our Rps. The other day I'm really excited to see our pipeline starting to grow I do think we.
We'll see organic growth in loan balances in the coming months and we're still targeting those low to mid single digits annualized number.
I feel like we are positioned to handle the growth with minimal increases on the expense side, we'll continue to make strategic investment in staff that will grow the revenue line, but not a lot in other places other than just a few key technology investments.
Believe we're sitting in a really nice position given the environment. The energy in this company is as good as it's ever been and our team is focused on taking advantage of the opportunities that will be we will have coming out of this cycle. We've built the 3 billion dollar bank platform with strong loan book or non interest income sectors, beginning to scale nicely and diversify nicely.
Thats going to continue to be a big focus we've built their loan reserves for this uncertainty period and we feel like we're adequately covered on that front and we continue to build capital through earnings story, It's an exciting time to be part of this company and we are well positioned to be opportunistic in the future. So I'll stop there and well open it up for comp.
Yes.
And ladies and gentlemen at this time well begin the question and answer session. If you would.
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At this time, we will pause momentarily to assemble the roster.
And our first question today comes from Brett Rabatin from Hockey. Her. Please go ahead with your question.
Hey, good morning, everyone.
Good morning.
I wanted to first I guess talk about the margin guidance for the fourth quarter can you walk walk me back through the dynamics in terms of the expansion linked quarter in terms of what you're expecting from a a cost.
The cost of funds perspective, Slash live I know part of its probably liquidity going down somewhat can you talk me back through the margin guidance in the fourth quarter relative to Threeq you should.
Sure Oh, the majority the majority of the the uptick was from the paying off the peak DLF not all will repaying 35 basis points for the funding, but we were getting you know 10 or less than 10 basis points on the excess liquidity and we're talking pretty large balances and it really.
The needle even though net net the net result dollar wise wasn't that great, but the balance is really skewed the margin favourably all for us and there does that does that and going forward. So in the bar, where we are looking probably around five to seven basis points more.
Of deposit cost cutting off from our Somar, our 15% of our time deposits being reset so its combination but the majority of the move will is stemming from and stemming from reducing some of this excess liquidity on the balance sheet.
Okay. That's a that's perfect and then I wanted to make sure you made a lot of commentary about the modifications. We wanted to make sure I'm you know just looking at slides 19, and and 18 in particular, the second modifications are pretty minimal relative to the current.
Modification, so you've got the ball.
The bulk of the maturities coming up here. This month I wanted to see if you had an estimate of the people that you for or per se.
Percent of.
Companies that you've talked to that are having.
Their modification expire this month can you give us any color on you know that does that 4 million number.
Have any potential movement, a potential upward movement as you get through the end of this month or can you give us some color around the modifications XP expiration.
Yeah, right you want to you want to take that one sure I can't yet Brett I would say that the Oh, we are as I mentioned I think in previous calls I mean, we were touching of each of these clients on a monthly basis as we go as we continue to to go through the balance of the year you know the conversations we're having.
Oh and I'm only a majority of these customers is that they do not anticipate having any.
Having any issue with the with their modifications expiring and going back on payments. We do we may have a a client here are there that that debt.
Good request, a you know another interest only period or something to that effect. You know we did have a couple of our clients that that weren't impacted by.
By the though the late season Hurricane event, Oh down on the coast. So there may be a couple but the total dollar amount is going to be a minimal only impact. So we really don't see a.
Significant move in in these forecasts from the standpoint of dollar figures or modifications as we go through the balance of the year expectation steel or certainly by the end of the deal by the end of the calendar year to be at or below that 0.2, or 3% number we're forecasting for December.
Okay. That's great. Thanks for the color.
Thanks, Brett.
Our next question comes from pretty strict one from Janney. Please go ahead with your question.
Hey, good morning, guys.
Got it.
So thanks to the breakout on the PPP loan size in the deck I know, we discussed last quarter, the expectation that a significant number of yells BPP loans.
Could the audit forgiving if congress passes that PDP forget this legislation we've been looking for for a while now.
Where are you today on the forgiveness process, what's your best guess somewhere.
Where when forgiveness could occur in the absence of any legislation.
Rich you want to you want to jump on that one first sure Barry I would say as far as where we are we are we are prepared to accept and know and go through the process for forgiveness applications for any of our borrowers we have the oh the infrastructure all set up to be able to accept applications.
Processors application submit them to the U.S.B.A., a we have I think right now we probably got 85 to two somewhere between 85 to 100, Oh applications that we have received that are in some stage of a validation for lack of a better word through the forget this process I'm sure as you've heard from others, though the forgiveness.
<unk> mechanism is it requires a little more Rob information to be provided by the borrower than the than the origination of alone did Oh. So we are working through a handful of applications now certainly expect as we get into the fourth quarter that that those application processors application numbers will.
Increase as though as I mentioned, a good portion of our applicants or going to be expiring their 24 week period in fourth quarter. So we do anticipate those numbers to to increase of course as you mentioned to the Oh the of the 50000 dollar lists a figure is a signal.
Get dealt to US interior it just infrastructure wise and also in the process you have to go through for the forgiveness of their smaller role so that will help tremendously.
But certainly expect that number to increase and will certainly carry over into Oh first couple of quarters of next year.
Hey, how are you. This is this is Ron I just want to you know what we're forecasting.
I apologize if this has been such a bouncing ball over the last few quarters, but we're looking for Q4 for about 10% of the portfolio being forgiven owns about 30 35 million.
Q1 about 50%. So that's the 150 million in Q2 120 million silicone IOL or the remainder in Q2. So we're we're kind of pushing this.
Pushing this down the road, but that's kinda.
That's kind of where our modeling is coming in so we're looking we're still looking at Q1 to be a heavy forgiveness quarter.
Based on I hate to say guess, but that's what we're working from a balance data allowance circling a lot of the work will start this quarter sure through the end of the year than a lot of the dollars will be forgetting the remaining fee recognition, yes, there'll be a defense yep.
Got it awesome. Thanks, Scot that's exactly what I was looking for and then I guess, just one follow up to that real quick you know I I've kind of been thinking about as the TPP forgiveness roles and you know those dollars flowing into and supervision into reserve, but it kind of sounds like from your.
Comment that you guys are pretty comfortable with where your reserve level is now given the classified stable mph down so should we expect a lower level of reserve build in the fourth quarter and.
Going forward unless something changes on the credit front.
Yeah, they were continuing to monitor that but but I think your thought is pretty much where I don't you know when you.
When you look at where we are from a credit standpoint.
Right and I, both mentioned, we have gone through and touched every loan in our portfolio of any size. We just don't see a lot of concern I like where we are I think we've got a good bill, but don't see a lot of need to add much to that.
Got it thanks, so much for taking my questions guys.
Okay.
Our next question comes from Kevin Fitzsimmons from D.A. Davidson. Please go ahead with your question.
Hey, guys good morning.
Hi, good morning.
Just I definitely recognize the the sizable ramp down in deferrals or modifications I'm just wondering.
Within in terms of the internal classification process at the bank are well, though why we'll probably be using the word deferral or modification less often or some of these loans, particularly up the hospitality or some of them going into special mention or if they already.
I wanted to special mention I'm, just wondering what I saw in your deck. The classified levels. You said remained fairly flat, but if we look at something I'm just.
Just just you know both either low lowest grade a pass or may be special mention or are some of these loans getting funneled into there.
Or they or have they already thanks, Yeah right right you want to walk through kind of the Grady process and how we're viewing some of these as as they as those modifications expire sure Bill Yes, Kevin what we did as our as we entered a modification with a client we transition to that client into our.
Or a watch classification internally, which is a pass grade classification, but but one that is almost sort of like a holding a sale for lack of a better word on a on a credit profile a as we kind of keep a close watch on it for a six month or so period, we moved any bar, where they had done a modification.
Into that watch classification and as their modifications expire we have been as I mentioned contacting these class staying in touch with them about how their performance or getting getting updated financial information and when when and where those profiles identify that we feel comfortable and their ability to to come out of this so this model.
Occasion cycle continue their payments the company is performing well, we're transitioning them back to a non watch category. We've had very very little creep out of watch into a worsened classification classified grade or a yard or criticized grade a in our portfolio.
Oh, the vast majority of our clients are or improving throughout the course of the year and so they're they're going off the watch list back into a high pass grade and that's why as I mentioned earlier, we're just we're just not seeing that creep.
Point into a a a deteriorating credit risk profile.
Okay. That's helpful. Thanks, and just to drill.
You know another another direction on this.
Some companies have.
Reported the same thing as you guys that deferrals are going down, but then there's almost a new category that were loans have they're not on p., an IDE deferral anymore, so not reporting them that way, but yet we're taking some subset of these loans and doing something in the middle like interest on.
So are there is there another layer of modification beyond the reported deferrals that that isn't necessarily apparent that.
We should know about in terms of knowing what loans are paid.
Paying fully on original terms and which ones aren't you.
Yeah, I would I would answer that to say that if you look at where we are as of quarter end going into October.
That that 9.7% modified number really all but about I think it's about $50000 in balances are at least paying interest today and have been a in recent months I'm pretty much our our payment deferral structures, where.
The bars for bars are basically paying no principal at all.
The significant majority of those had expired almost through the the July month, so right now the money.
Our modified payment structures are paying at least interest only and that's what mostly is rolling off in the month of October and we'll be going back to pan out payments.
In November that's that that 78.5% or number of modified loans that are maturing. This month, a those are interest only payment structure.
Okay, Great. That's helpful. So the bulk of your modifications were still saying something yes, that's correct and they have been now for the past couple of months.
Great. Okay. That's helpful. Just switching gears, a little odd billion I know you talked about getting back on all fronts. The the stock currency probably doesn't support it at the moment, but I'm just curious what kind of.
Kind of conversations are going on behind the scenes, but one CEO mentioned that well.
Maybe M&A doesn't happen in the near term, but he can't remember a time when so many bankers are talking to each other just because of the common pain, that's out there and just wondering or.
Are those kind of conversations happening and do you think any of them yield.
Opportunities to combine which could provide.
Some some well time cost savings at a time when the revenue environment is challenging thanks, Hi, Gavin that and that's really I think it's a good way to put it I think we're all looking to console each other during that time.
Well this but it's yeah really.
And I'll, let miller speak to it as well, but yes. We think we're you know over the years you build relationships with a lot of bankers and so yes, I think we're all kind of checking in with each other and in talking about what's going on in their particular zones and so its age. Your question I think yeah. There's I'm, obviously just conversations going on that we're we're current.
He levels are today, obviously, you probably don't need to anticipate you know here in the near term, but at the same time, yeah, you get a little bit of left and and I think there could be some some opportunities to do some to do some some some deals that make sense for both parties I again, probably yet to be determined.
But but we feel good if we could get a little bit of lift I think we will be ready if Bob if currency helps I don't Miller.
That's a great analogy that are probably more conversations now and it's just general conversations catch up what do you see and how you know what how do you feel so to speak but yeah I think.
Yeah, I think it would be a pretty active market we have continued.
Continued to build those relationships deepen those relationships explore relationships and not I'm I'm relatively optimistic that if the market comes back to us any you'll see it.
You'll see a pretty active.
21 for the industry.
That helps.
Yeah, that's great Miller and just.
On M&A broadly do you guys feel any differently about it just with all the talk of.
About.
The technology utilization of technology in branches being less necessary is it.
Is it less no.
Needed to get those dots on the map and where you could go out and just hire a team are you thinking about that opportunity.
Thanks, Yeah, I will say for the most part over the last couple of years. Our M&A has been a more scale focused and just trying to get to a certain size and have a little bit of density.
Going forward it will be certainly more earnings focused and does it move the needle metrics, realizing and technology and we'll certainly be important to us believe yeah, no I mean.
Bill I think you hit the nail on the head Kevin you know from from our standpoint, he's right and that's been our goal yet we got to this $3 billion platform. This is what's kind of an interim goal for us to get to hear now I really do think would work that we've got Ron finance, we're doing there's so many other groups doing in our company.
We're we're really hard pivot toward moving the financial metrics in the right direction, and that's where that's where our focus is again revenue growth and expense control.
Yes so.
Future acquisition I don't think it is I don't think I think nor I, probably feel less price out we never did feel pressure, but I think we feel probably less pressure now than we've ever felt to really do the deals. If the deals are right. They make sense and they help those metrics. Then we would we would look at to your point on technology.
I agree I think yes, I think.
Yes, I think you do look at deals with.
Deals with heavier branch networks for example, probably are little less attractive.
You would want to have some you definitely want to have some say scaling your branches to justified today, because I do think the tech side is going to become more and more critical for companies like ours moving forward. That's one of the reasons, we put a big emphasis on it this year.
Okay, great. Thanks, guys.
Thanks, Kevin.
Our next question comes from Amar <unk> from Raymond James. Please go ahead with your question.
Hey, good morning, guys.
Moreover, our.
Hey, Ron maybe a quick modeling question for you last quarter, you had the $1.9 million fee accretion and PPP plus about half a million spread revenue do you have that spread revenue component this quarter.
Oh I do I do.
I do.
We all in all in for the quarter, including the 1.8 million were at 3.29%.
So you know were basically is de Minimis on really on the margin. If that's the margin. It will go down it will go down next quarter, but dawn so I think the pie.
I think the prior quarter, we were were in the mid fours. So all in that's that's where we're at.
Okay, and then the 350.
Arjun guidance that was on a reported basis off the 339 this quarter.
The 350.
Yes.
Starting from the 339 base that had all the PPP and accretion in there correct.
For fourth quarter I don't I don't have the number for exactly what what it's going to do because of the payment of the PPL and but it will go down it will go down considerably and I can I can get with you offline to get in the D.
In the details I don't have that really in front of me at this point okay.
Okay No I appreciate it.
Maybe a bigger picture question, we talked about the reserve quite a bit.
As management modeling any additional government stimulus and should we get another round is there a world where you can actually release reserves quicker than you may have anticipated.
Oh, Yes, I don't I don't really know about release I think we're probably in a in our thinking Amar probably thinking about just growing into them.
Is probably where were lean would be today, yes.
I think we're we've done a nice job of building at this point, we do anticipate growing and so I think our thought would be just to kind of grow into any excess that we see in the coming quarters.
Okay now that makes sense.
From you guys.
All right that's great.
Once again, if he would like to ask a question. Please press Star then one our next question comes from Stuart locks from KBW. Please go ahead with your question.
Hey, guys good morning.
What is done.
Maybe one more question I realize we're we're running pretty long here, but right. If we could go back to your expense guidance.
This quarter, if we back out some of the.
Some of the merger charges as well as the kind of elevated Oreo expense.
I think you mentioned that you were expecting kind of flat expenses next quarter is that if we if we net out the kind of two onetime items, where you shaking out like around each and half million.
No. We're still we're still going to shake out probably around the 18 18 89 range.
You know, we we did have a quarter of kind of reduced professional fees and fourth quarter, usually ramps up for starting the year end reporting process and our data processing into our our level, our thresholds and our contract we will see a little uptick on that so we have all we have a lot of variability from line to line item there is nothing.
Really specific but so we are targeting 18 89 range. So really again flat with what we saw this onto this quarter third quarter.
Got it and maybe.
Maybe just one housekeeping question election, coming up and I think we're starting to build out more scenario analysis, where if we do get a tax increase.
Increase obviously, you guys benefit from being in Tennessee stay with no state income tax how are you thinking about potential, but you know where you were a new tax rate can shake out next year, if we do in fact.
Get up get a higher tax rate.
Oh, yes.
Yes.
We don't hire what would be at Rod you given any thought about.
Yeah, we talked about it's not going to be good if it goes up but no we have not.
We've not modeled that that scenario and that's a that's a good point, obviously, we'll know the well well know our modeling for next our next earnings release, and what we're going to model for but no I'm sorry, we didn't we didn't go to that extent at this point.
All right no worries.
Yeah right.
Yeah the hypothetical.
Great well that answers all my questions. Thanks for your time, yes.
Thanks.
And our next question is a follow up from Bret rabbits in from Hockey Group. Please go ahead with your follow up.
Hey, Thanks, just one follow up on expenses just thinking about this year you know, it's probably a bit early to ask you about your budget for 2021, but if I'm thinking about the environment. You know a lot of banks are thinking more about slower expense growth and and operating leverage and trying to manage expenses tied.
Tighter I I'm, just curious how you're thinking about you know kind of the next few quarters in terms of do you want to continue to add lenders and and play offense. So to speak in terms of potentially growing the franchise or do you think youve managed more more.
More towards trying to improve profitability and and going with the team you have so to speak.
Yes, it's a good question right.
It's probably a little bit of Bose.
I think at the end of the day.
We feel really good about the markets and the zones were any kind of when we said so opportunities to add revenue producers I think we would take them.
Yeah, and so yeah, we will probably continue to explore like we always have a two where we can add revenue producers in any of their zones from.
From from that standpoint, but that said there.
There is a real strong focus on expense controls and our company right now I think it's we started it this year, we really done a nice job of the work that that the work that we've done I think he is yet to be seen is as we get through renegotiations of contracts and again keeping that non.
Interest expense line at a very very level spot moving forward and so on I think it's a little bit of both.
I know some banks are probably shifting to a little more of a defensive posture. That's not US yes, we're going to we want to stay on off assets, but with a keen focus on expense control. So I don't know if that answers your question, but it's probably a little bit of both sides.
Okay. No. That's helpful. And then one other one this problem I guess I'm on the phone.
And I know the goal is kind of low to mid single digit loan growth and and you know obviously the demand has been probably the.
Probably a little tepid can you maybe just give us a little color around pipeline versus payoffs. So we can maybe get a better flavor for what you are currently seeing in terms of the portfolio.
Yeah, I think just kind of looking on a net basis factoring in it.
Factoring in anticipated payoffs and pay downs.
We're again berries, but you know I think I think we could potentially see somewhere in that you know wind up in the $20 million give or take range as far as net balance growth over the next few months I think that's probably reasonable I think I would we look at it.
When we look at it we try to run air Air pipeline with probability of closing compared against payoff projected payoffs and pay downs when we run that number today, we feel pretty good that we've got some balance growth coming over the next several months and yeah, you can always get surprised with the pay off or something like that but.
That did you step back from <unk>, what we're seeing now yeah, I think we could probably pick up somewhere in the neighborhood of $20 million give or take in that balance.
Okay great.
Great. Thanks additional color.
Thank you thanks.
And we do have an additional follow up from that he stricklin from Janney. Please go with your question.
Thanks, Sorry, I know, we're running late so I'll be quick.
Just wondering I know fee income was really good this quarter.
Mainly to the mortgage but also due to interchange fees.
I guess, just how is mortgage looking so far and there were only a month and then is there any kind of seasonality and there's interchange fees or I guess any other component of fee income.
Ron can get dive in a little bit deeper petty, but yeah, I think I think mortgages and talking with our mortgage production team prior to the call I think we feel like we'll have another solid quarter based on pipelines you know so so I think it would be comparable.
To where we are mapping bronze modeling slightly lower just in a in a tough revenue on that in that division, but but but not much I think it should be pretty steady.
Interchange and Ron I'll, let you take it out that we had a little bit of a vendor credit in there, but I also think what we're saying is you know the inflow of a lot of good consumer accounts offer last acquisitions, the progressive acquisition, a yield and a lot of really good consumer account for us those folks are spending and.
And that was interchange fees that volume is driving so while I'm, probably a little elevated for that one time this quarter I think our friends should be higher overall, yeah. I think we probably will have some seasonality to it but I think.
Come off the holiday season that will bring us into January January should still be elevated February March maybe slow down a little bit, but net net we're probably looking at or close to you know up and down you know we're looking we're probably looking at.
For what we had from third quarter last a 130000. So I think were in the 700000 range for the fee income going forward in this line item. So even though we have seasonality, but I think it is offset by the highs and lows and then March 2nd quarter picks up the busy seasons again, but as Bill indicated you know our last acquisition.
And brought a lot of sustainable interchange revenue because there were more retail base, so that really that really pushed to the seasonality to the side a little bit and we have more of a core repeatable process for the revenue generation there.
Great. Thanks, guys.
Thanks.
And ladies and gentlemen at this time Im showing no additional questions I'd like to turn the conference call back over for any closing remarks.
In closing, let me say, thanks again for your time today and for your interest in smart bike.
You know as well that we're working everyday to increase shareholder value and we appreciate you being part of the process have a great rest your week. Thanks.
And ladies and gentlemen, with that we'll conclude our conference call. Today. We do thank you for attending you may now disconnect your line.