Q3 2020 Renasant Corp Earnings Call
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Good morning, and thank you for joining us for Renaissance corporations, 2023rd quarter webcast and conference call participating in this call today are members of Renaissance Executive management team before we begin. Please note that many of our comments during this call will be forward looking statements, which involve risk and uncertainty.
There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward looking statements.
Obviously, they continue the impact of the K did 19 pandemic the federal state and local measures taken to arrest the virus as well as all of the follow on effects from this pandemic situation are the most significant factors that will impact our future financial condition and operating results. Other factors include but are not limited to and just.
Great fluctuation regulatory changes portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site Renaissance Dot com under the Investor Relations tab, and the news and market data section. Furthermore, the case.
19, pandemic has magnified and likely will continue to magnify the impact of these factors on <unk>, we undertake no obligation and we specifically disclaim any obligation to update or revise forward looking statements to reflect changed assumptions the occurrence of unanticipated events or changes to future operating.
Result overtime. In addition, some other financial measures that we may discuss this morning, maybe non-GAAP financial measures a reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release and now I will turn the call over to our President and Chief Executive Officer, Mitch Waycaster. Thank you Ken.
Good morning, and thank you for joining us today before.
Before Kevin and Jim discuss our results for the third quarter I want to offer a few comments regarding our markets and employees throughout our region, which broadly runs from the Mississippi River to the Atlantic Coast and the southeast economic activity continues to slowly improve the weather.
Uneven pace businesses are adjusting and while certain sectors remain fragile companies are for the most part cautiously optimistic the consumer came into this recession in relatively good shape and while still hurting is persevering overall the pace of economic.
Opening varies across our markets, but remains on a gradual uptrend.
Hi, I'm very proud of our employees for their extraordinary efforts. During this period. Despite the physical separation, we have in many ways grown closer and stronger as a team.
Economically speaking we have been among the first responders. It was only a few months ago that we facilitated over 11000 triple p. loans for bars in excess of $1.3 billion and now we are guiding our clients through the forgiveness process.
Likewise on long deferrals, we are actively engaged with our clients to find the best plan for them and the bank and have seen the level of deferrals decline dramatically.
We always seek to provide high levels of service and I believe our team has responded brilliantly during the pandemic now I'll turn it over to Kevin.
Thanks, Mitch and good morning, we're pleased to report third quarter earnings of $30 million or 53 cents per diluted share the quarter was highlighted by loan and deposit growth strong levels of fee income, particularly by mortgage banking improved capital strength and a meaningful build in our allowance for credit losses, while all credit metrics remain stable or sorry.
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And then it highlighted the need to deliver our services more conveniently and efficiently we made significant technological investments before the pandemic and our clients and employees are benefiting from those investments.
After being closed to regular traffic since mid March we completed the phase reopening of our branch lobbies in mid October were for consideration of CBC health and safety guidelines and we are proud to be serving our clients across all of our delivery channels. Once again as we reopened our branches. We continue to see adoption of our technology offerings by our customers.
As almost every digital mobile or online loan application offerings increased significantly since the onset of the pandemic. We expect continued investment in new products and intentional efforts to encourage utilization will lead to further increases in our future adoption rights.
Has the pandemic and any related economic impact continue to evolve.
We are constantly reviewing our expense base for opportunities for cost elimination and efficiency gains.
Through the first nine months of this year, we have tightly monitored our expense run rate, but recognize we must reduce expenses further in future periods and we are taking action to do so.
However to maximize operating leverage we must grow into some of our investments while at the same time, reducing expenses, we believe our loan growth and production in the quarter, coupled with continued reductions in expenses provide a roadmap on how we plan to improve operating leverage in future quarters.
I'll now turn it over to Jim who will further discuss the quarter. Thank you Kevin I will refer to the earnings deck, while commenting on key themes for the quarter, we prioritize core funding asset quality and capital strength and our decision, making so I will start with a review of the balance sheet deposits contagious.
The growth in the quarter and were up $88 million or 2.9% annualized for the year total deposits are up $1.7 billion.
Most of that growth has been a non interest bearing accounts, 96% of deposits are core and the company has virtually no wholesale funding during the quarter loans grew to $11.1 billion, excluding triple pay loans were up 2.2% annualized for the quarter and 1.2%.
Annualized for the year future quarters are likely to see declines in triple payloads and result, and the associated deferred income to be recognized on an accelerated basis.
Asset quality measures are reflected on slides 13 through 15, nonperforming assets, which remain at low levels represented 40 basis points of total assets, excluding triple pay and were essentially unchanged from the second quarter.
Loans 30 to 89 days past due represented 17 basis points of loans, excluding triple play and were up modestly compared to the previous quarter. Additionally, loan deferrals continued to decline and as of October 23rd represent 2.9% of loans outstanding excluding triple pay for.
Forecast for sluggish GDP growth relatively high unemployment levels, the prospect of a prolonged recovery and general economic uncertainty led to an increase to the allowance for credit losses, the allowance for credit losses as a percent of loans, excluding triple Pete Rose 22 basis points from the second.
Quarter to 1.72% at the end of the third quarter for the quarter return on average assets and return on tangible equity were 0.8% and 10.9% respectively. Net interest income for the quarter was $106 million and was up marginally from the second quarter.
This was driven by an increase in earning assets, which was somewhat offset by decline in net interest margin reported margin in the third quarter was 3.29% as compared to 3.38% for the second quarter as seen on slide 21, non interest income increased six point.
$8 million from the previous quarter and was largely driven by continued strength in mortgage. Additionally, wealth insurance and service charges also showed gains quarter over quarter non interest expenses were down 1.8 million to $116.5 million a 5.7.
$1 million reduction encoded related expenses somewhat offset increases in expenses in our mortgage division, which were tied to production the core efficiency ratio for the quarter was 63% and was up from the second quarter. While there are signs of improvement as Kevin noted efficiency as an area of focus.
For the company I will now turn the call back over to Mitch. Thank you Jim in closing the uncertainty that has clouded much of 2020 remains as we began the fourth quarter. We are unable to accurately predict the long term impact of the pandemic and the continuing the limitations on economic activity well.
Telephone our stakeholders, but our commitment to the safety and security of our employees to understand and then meet the needs of our clients and to being a good citizen and our communities will support our success through this cycle and we will continue to provide value to our shareholders.
And now I'll turn the call over to the operator for Q and a yes. Thank you. We will now begin the question and answer session to ask a question you May Press Star then one on your car start to fall here.
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Well your question. Please press Star then to this.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Jennifer Demba Trust preferred securities.
Thank you.
Mitch you said that the.
In Canada.
Better operating leverage is is through loan growth in expenses. So can you just talk about that.
Near term outlook for both.
Mm Hmm.
Sure the morning, Jim from me, let Mitch talk about loan growth first and then I'll follow up with express.
Yes, Jennifer.
Just as we reflect on production and the third quarter I'll go back to the third quarter and as we discussed on this call last quarter. We were then looking at the pipeline going into Threeq, you have 229 million.
And similar today, not a lot changed 290 million dollar pipeline.
As we go in the quarter. So we continued to see.
Good, but I would say cautious deal flow and pipeline.
Across our markets and business lines and we we continued to hit on multiple cylinders as I look at that pipeline, 24% is in Tennessee, 16% in Alabama, and the Florida Panhandle, 18% in Georgia in Central Florida 14 per se.
Send in Mississippi, and 28% and our core corporate and our commercial business lines. So the pipeline to back to your your question the pipeline of 219 million.
We would expect about 65 million.
Growth in non purchase.
And that.
That would indicate a production for the quarter or somewhere in that 550 $625 million range. We just ended the third quarter was 636 million with.
With production, which.
Compared to 521 million in the prior quarter so.
We continue to see good deal flow.
As I mentioned.
Only in various lines of business and geography.
From those that joined the company in.
In the prior quarters, particularly and my team and earlier this year about 25% of our production.
Continues to come from that team so.
Again broadly across the footprint and in various business lines I would add this and just relative to pay offs. We didnt see payoffs a increase about 45 million. They were 578 million. This prior quarter versus an average about 533 million.
So.
Payoffs as a bearable and of course until we see a sustained resolution of the pandemic is somewhat difficult to.
Gilbert clear picture on.
On the net results of the production Kevin sure. So Jennifer just on the expense side and as you know over the last big.
Beginning last year.
Enacted initiatives to help bring down expenses.
That was before we started to experience revenue headwinds.
This year, just highlighted the need to increase those initiatives and as we look at what 2021 looks like.
With.
With overall, just macro what could be macro headwinds, we still think there's ways to be opportunistic and in five wins, along the way, but at the same time, we're going to have to be very focused on the expenses.
Ensuring that the accountability measures that we have in place.
Whether that's on the branch whether that's on the employee on the lender on the vendor all of those are aligned with.
Some of the headwinds we mix on the revenue side I know, we talk a lot about the hiring weve done and we will continue to be very selective in our hiring but actually this year I believe were down seven producers. This year, just as a result of accountability measures Im.
And so our growth that we're experiencing is actually occurring with less.
Less production managers.
At the same time and those types of initiatives I'll need to carry 2021.
Jennifer just although kevins comments relative to the relationship managers and as we were opportunistic last year and adding some 50 or so relationship managers, we as Kevin said, we've continued to be opportunistic this year with 24 additions we've had 31 exit so it speaks to our county.
Bill do you given our focus on those measures that Kevin just mentioned and back to the points on production, we were able to do that while we continue to drive growth in our production and net loan growth.
And so on expenses is the goal to keep those expenses flat over the next few quarters or what is.
Specifically the goal as you look.
And is the third quarter rate a good run rate.
The the our intention would be that.
But really to focus on efficiency and driving meaningful improvement in sessions.
Knowing that some of that will come on the revenue side revenue enhancement, where we can.
But we also have to be mindful and have expectations that expense run rate will be coming down.
Okay. Thank you.
Thank you Jennifer Thank you and the next question comes from Michael Rose with Raymond James.
Hey, guys. Thanks for taking my questions.
So I understand the the reserve build this quarter, but it but it is a little bit higher than what we've seen it at other banks is the way to read that just kind of an abundance of caution because we don't know exactly what's going to happen in the future are you actually seeing anything in your portfolio that you would give you some sort of indication.
And that you needed to build reserves again this quarter when most others.
And then just as a follow up to that you know when I look at your slide deck. This quarter. It does look like you removed to the categories from the at risk.
Portfolios going I think you remove entertainment and then retail trade.
It was a little interesting.
You know I guess because.
Health care still in there, but you know you removed I guess restaurants, so how do we kind.
It kind of just east.
He tried to put that altogether for us because I think that's the biggest question out there right now thanks.
Good morning, Michael It's Jim May Brian and I'll start and then ask David Meredith.
To answer your questions on sort of impacted industries, and how we look at those but as it relates to the provision expense I would.
I'd say generally we feel good with the credit metrics and I think as you saw in the slides that generally they're tracking well and and very favorable and again, Dave will comment.
More on that but I would say that that data suggest and the things that we're seeing suggests that losses will be considerably considerably less than what the industry thought a few months ago.
That being said and well things are improving its still an uncertain period.
And and as the seasonal model that were that we use as both quantitative and qualitative inputs and on the quantitative side, we did make some adjustments from Q2 to Q3, but I would characterize them.
As generally having a modest impact on the calculation for a.
Allowance the qualitative overlay continues to have the biggest impact on the model.
And I would think assuming that the credit outlook continues to improve it would suggest that for us anyway. The heavy lifting would be behind us in terms of provisioning and that bodes well for a meaningful decline in future provision expenses from here and hopefully leads to reductions and the ace.
Well down the road David.
Thank you Jim.
On the on the deferral conversation. So we look at where we are as of October 23rd and those industries that you.
That you mentioned, so we pulled out of a few into <unk> Arts Entertainment, we pulled out just from a dollar size or deferrals that still remain in that bucket and how we've seen that intra rebound.
We're we're down just from a dollar standpoint $8 million in deferral, so not a meaning what dollar amount restaurants were down 2.8% of that portfolio $2 million in restaurants, and retail were down 2.9% or.
Under $7 million and total and that sort of we felt those dollar declines.
Subsided us bring those out of the deferral bucket it just says.
As a reminder, when we pull something out of our deferral bucket is because the loan had resumed normal contractual payments. So it wasn't that it matured from the deferral bucket and therefore, we took it out they had to make their first normally scheduled contractual payment rent come out of that deferral buckets, we feel very confident.
And then in the direction of those loans that have come out and also as a follow up on the asset called standpoint, and we continue to do our monthly monitoring what we called our hats monitoring all those loans that are in deferral I saw the recognition of assets that need to be migrated to a different risk writing, particularly classified and so forth there may be an indicator of our.
That color they continue to do that monthly enhance market on those bonds. So we have real time risk rating of those assets and it's not something that's deferred until the end of a deferral period. So that's more real time prescribing.
Okay. That's helpful. So I guess put it all together it does seem like you know. This is you guys are cautiously optimistic you know most of the credit trends and the deferral update and everything everything seems to be moving in the right direction. So I guess that's the.
The way to read it.
I think Thats fair again, we would hope that in future quarters. The provisioning level is meaningfully less than what you saw.
In prior quarters, and again, assuming no changes to the outlook.
Thank all signs point in that direction.
Okay, great. Thanks for that color and then maybe just one follow up question.
Relates to the mortgage banking business can you just give us some color.
On what gain on sale margin was this quarter expectations, you know in the nearer term I'd be a data looks.
Pretty good you guys have obviously added some some lenders over the years picked up a team from another bank, yeah, just a sort of a year.
Our data.
Color you can give us would be helpful. Thanks.
Sure I'll start this is Jim and ask others to to add to it but.
Clearly, we're very pleased with what we've seen out of the mortgage division that's been quite strong much like you know the rest of the industry and we've seen.
Good margins, there and really good volume and I would say you know early in the fourth quarter. Those trends continue but we also appreciate that we're going to enter a period here in in Q4, where we're going to have a seasonally slower period of time and you know historically much like others that the peak of our businesses Q2 and Q3.
And so it's I think it's natural to expect some slowdown in the mortgage business as we get further in the quarter and that will bleed over into the end of the first quarter for the at least the first part of it. So in terms of volume I think thats a reasonable expectation number.
The margins have held up well.
You know for this year given.
Having having above that number on had led to really outsized results in mortgage.
And I would say that.
As volumes come down. It's it's also likely that we will see some decline in those margins hard to predict where they'll go but it would be natural and typical in the business to see margins compressed somewhat as volumes decline in that business.
I would add to the Jim's comment and to add to your point in your club in your question I think Renaissance ability over time to be a consistent performer and mortgage also to have the appreciation of that financial service and overtime consistently recruit and build a platform.
That that serves our market because we do believe that is a core financial service that's paying off for US. We've also proved over time that we can manage expense and that business line way, while consistently offering that product. So we've.
We've built a strong team and certainly they are putting up strong performance and to Jims comment feel good about that.
Business line going forward.
Thanks for taking my questions.
Thank you Michael.
Thank you and last question comes from Kevin Fitzsimmons with da Davidson.
Hey, good morning, everyone.
Maybe maybe just a follow on to that point Mitch that you just made about.
Proving you can manage the expenses in the mortgage business. If you can maybe drill into that a little more and give us a little color on how we should think about that because I think obviously the good news is how well mortgage is doing right now, but the not so much bad news, but the uncertainty is looking ahead and sales.
All right. This is this is probably as good as we're going to see an eventually not just seasonal maybe you're dealing with a seasonal slowdown, but we're going to have maybe more of a normalization trend does.
There's limited folks left to re Fi and maybe rates eventually start.
Start creeping up but just how to think about that that accompanying decline in expenses with an accompanying.
That would accompany a decline in revenues. Thanks.
Yeah, absolutely Kevin again, a good question and it's much back to Kevin's comment earlier about how we're focused on growing revenue and building out our teams in every business line and I would start that discussion Bob good morning.
The consistency of how we've stayed in the business recruiting the right teams.
We have very strong leadership in that part of our company and what they do is they continually bear build in.
The support, particularly where some of that is somewhat variable and monitor that within that line of business and what I was referring to we've been able to demonstrate in the past and while it's it's hard to predict.
Of mortgage and how that will vary going forward than what I was referencing as our ability in the past as that volume changes to manage through that it's not not not unlike the way we built our business model. So.
I think we're well positioned as we've demonstrated that in the past it's hard to predict at this point, but we've proven our ability to do that.
Kevin Jim anything else you want to add.
Kevin I would just add and Mitch mentioned that one nice thing about mortgage on it is volatile it goes up and down and we're all predicting when it's not going to be beneficial.
But the one thing that is constantly mortgage expenses are predominantly variable and so.
But the but as revenues ebbs and flows so we'll expenses.
Just how the mortgage business and build is that there's a tight correlation on the expenses and the variability to the revenue.
Kevin ill that point can you just give us a sense for where the efficiency ratio is today on mortgage and how will you.
When when we see that the revenues go down where we should think of the efficiency ratio.
What kind of band it would stay within.
Yes, so so right now our historically our mortgage company their efficiency ratio tend to weigh on the corporate efficiency by two or three points.
They typically ran in the high Sixtys low seventys right now what the volume they have in the mortgage they have it's actually it's actually flipped. It's it's contributing a base a percentage point or two to the to the efficiency. So their proficiency today isn't it.
It probably has a 50 handle on it.
Hi, Hi, 50.
But that's just.
No. That's just a result of just the but the volumes and the spread but the revenue we're experiencing as it reverts back to normal.
We we we think that the mortgage efficiency lands back where historically has been in the high Sixtys low.
Low sevens.
Great. That's very helpful kept thanks, just one follow up on capital and capital deployment. It seems like the capital is.
It's strong and you guys took the step of racing sub notes or sub debt and took the habit. The total risk base upward is you.
You guys made the comment that you have the buyback approved but don't intend to use it can you just give us a sense on.
Is that due to just getting better visibility or is that due to wanting to get the Tc ratio up to a certain point or is it just more of a regulatory.
You know issue, where where you don't want to be seen buying back right now thanks.
Kevin This is Jim I would say, it's all those things plus a few more [laughter] at me at the top of the house is as we think about it. It's really it you know the buybacks are part of a capital allocation.
Thought process and we've got a number of levers there and putting a buyback in place so.
Seemed to make just good.
Good practice, good sense to us.
And as you point out we've got we've got.
No correct.
Intentions to act upon that but the way we think about capital is we we want to have capital such that we're in a position we have optionality and flexibility.
And we think we've got that you referenced the.
US accessing the markets for the debt in the quarter and that only in our opinion added to our flexibility in terms of capital so whether its buybacks or accommodating loan growth or future M&A, we feel like we're well positioned.
On the capital front and that's again, there's no one measure now one thing we look at but it's something we constantly think about and evaluate but we like where we stand.
Alright, thanks, Jim Thanks, Thanks, everyone.
Thank you and the next question comes from Brad Milsaps with Piper Sandler.
Hey.
<unk>.
HM I hate to belabor that the mortgage point, but I was just curious if you had a the amount of loans that you sold during the quarter, just again trying to back into that gain on loan sale margin.
If you give me a minute I'll have that number for you.
Okay.
And then and then what why you're looking for that just just back to the efficiency discussion in mortgage I mean, you know your revenues are up.
More than three 300% year over year, yet you know up personnel expense.
<unk> is maybe up a third of that.
You know 10 million or so versus the $30 million increase in mortgage revenue as revenue comes down is that relationship.
You know sort of hold on the way down or are there other cost that we need to be thinking about that could also come out as much as.
Revenue I, just whether be seasonally or because the gain on loan sale margin.
Yes. So it is predominantly in the salaries and employee benefits line item, but that's where the majority of the cost of the mortgage is there some operating costs closing calls, but but the vast majority.
Isn't that isn't that salaries employee benefits line item.
Imagine largely mortgage producers they are there.
They are paid on what they what they originated close or not originate in closing what drives the revenue there and I didn't pay.
There is a little bit of an outsized benefit right now you've kind of hit a little bit of an inflection point there are some.
Outsized impact on the revenue side, so as revenue comes down.
Probably not going to see a dollar for dollar decrease on the expense side, but but again it is variable and you will see relief on the expense side.
And just just going back to your two question about loans that were sold we sold approximately 1.1 to 1.2 billion during.
During the quarter and that margin maintained in that mid 3% range, which I think is pretty close it came down a couple of maybe a quarter point in Q3 compared to Q4 so.
Tighten just a little bit, but still much wider than what we saw.
Any point in time last year.
Okay, Great and Kevin I apologize I joined a few minutes late but just kind of curious if you could just kind of update us on you know kind of how you're thinking about the net interest margin.
Obviously, you talked a lot about revenue headwinds, that's that's a part of it but.
Just any additional color there would be helpful.
Sure. So just as we look at margin.
We think that there's going to be headwinds and pressure on the margin just as a result of environment than.
But we feel that we're we're stabilizing and.
And so the core margin that you see we feel that that's that's somewhat stabilized.
As we look at new and renewed pricing, there's some there's a little bit of pressure on just new and renewed pricing compared to what the yield portfolio loan yield is but.
But as we look at offsets on on on interest expense on deposits. We still think that we have several quarters several more quarters of relief that's coming on.
On the interest expense side.
And I would just add Brad what we what Kevin said I think Directionally. If you look at the last.
Few quarters in terms of core margin they tell until they tell the story I think because in Q1. We were at 356 in Q2 went to 326 and the Q3. We're at 323. So I think I think that tells the story in terms of Directionally, where that they had and that's that's frankly the best predictor. We've got right now as we look at March.
And so I think that's a that's a helpful guide to have people trying to interpret that direction up margin from here.
Okay, great. Thank you.
Thank you Brad.
Thank you and then last question kind of Catherine Mealor with KBW.
Hey, good morning.
Okay.
I think this is a follow up on that last point you made Jan on the margin.
Continuing to come down how do you think about the impact of excess liquidity.
In the next couple of quarters, particularly as PPP forgetting that starts to flow at summer and banks are looking at.
Liquidity actually building as we start thinking about forgiveness, and just curious how youre thinking about that.
Well, a couple things I'll ask Kevin or Mitch to chime in but again, we we will.
We look at it we look at core margin, so I tend to get isolate triple b in excess cash in accretable yield the push for Accretable yield that continues to come down first generally and so as we look at core margin and think about liquidity going forward I.
I think on liquidity.
The great thing about all this liquidity in excess liquidity is it's it's it's forced us to be more aggressive on a couple of fronts. One is on deposit pricing, which we've had meaningful progress and I think there's more there to be had and then and then as it relates to other sort of non core funding. We we took out much like everybody else at the beginning of this.
We took out some advances to bolster our liquidity position. We've the last two quarters pay down a few hundred million dollars and advances at this point I think we've got roughly a little over $100 million left in advances so it's.
That liquidity in the thought of future liquidities enable us to be pretty aggressive in terms of how we how we manage the balance sheet that being said and as we go forward I mean, we want to be itself, we will be thoughtful about it because.
It's not that exciting to take this liquidity put to work at 1% or less and so as we think about it we certainly would love to have the loan growth to put that liquidity to work, but I would say were and Weve got room on the balance sheet for a larger investment portfolio, but I would say, we're going to be cautious there but.
Because it just doesn't feel like it's the right time to put a lot of that liquidity and securities at a at a spread of less than 1%. So we'll see what the where we go from here, but hope that we've got some ability to put to work on the loan side and 21, So we'll see how that unfolds.
Okay, that's really helpful and then M&A.
Your thoughts on just 20 in conversations or start to pick up and be ready for another another deal.
Yes, Catherine just a few thoughts and and it's a good thought and while were clearly focused today on the challenges and I would say the opportunities and the pandemic.
And Edwin as we've consistently done in our past the big opportunistic whether that's tower, new talent new markets, but to your point a M&A partners. We're certainly continuing to evaluate those opportunities that drive shareholder value and as always beginning with call Sir.
Business model, making sure the alignment exist really to answer the question are we better together and if you. If you give thought to that what better time that during the pandemic that we're all walking through to have those conversations about alignment.
In business model at risk appetite so.
Certainly during the pandemic those conversations continue and we continue to evaluate opportunities and that will drive shareholder value. So I.
I think that the timing is somewhat hard to define I think the opportunities, though are certainly evident.
Great very helpful. Thanks.
Thank you Catherine.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from Matt Olney with Stephens.
Hey, Thanks, Good morning, guys. Thanks good.
Good morning, Matt.
On the hotel portfolio it looks like hotel deferrals came down quite a bit in recent weeks any any commentary you can provide for us on that and any commentary on the occupancy levels, you've seen more recently and that book. Thanks.
Sure Matt Good morning. This is David Meredith this.
This year, our hospitality numbers have continued to see improvement there.
At October 23rd we're continuing to see improvement since since quarter end down to about 29% of that book of business hundred and $2 million. So we continue to see positive migration, even <unk>, even subsequent to month to month in.
From a from a look at our hotel portfolio again, while we still have some some headwinds in front of US we've seen improvements in occupancy levels, we have only a.
Less than a dozen hotels that have occupancy below 50% at this point.
Other ones are are above 50%, we only have four properties that are not at a breakeven in Hawaii. This points. So we feel very comfortable that the number of the why the hotels have have responded with only have or not.
Not breakeven in a while so theres still a ways to go and that but we continue to see month over month as we continue to monitor through our enhanced monitoring those those improved metrics on a hotel. Although again, we'll continue to have some some headwinds there, but we're seeing some positive migration.
Okay, Great. That's that's helpful. And then on sticking on credit I think you disclose the classified loan levels.
Ticked up a little bit any change in the overall level of criticized loan buckets, just trying to appreciate there with additional migration into into special mention thanks.
Sure. We we did have some migration as we as we laid out back in in Q2.
With our second phase of deferral that we would migrate loans that request a second phase deferral likely into a special mention or criticized classified category just because I've asked for that second phase deferral and so we did see some migration and our criticized loan pools.
They're up from I guess from.
Up by about 88 or $75 million of of an increased due to our hotel portfolio again, just putting those those assets at our criticized category and the residual change was about 10 million in our entertainment book that made up that made up the change our criticized book of business. So again those loans that are on deferral that we had that we had to kind of forecasted in Q2.
That if they ask for a second phase before we would migrate those loans to a proper risk rated category. So it that it migrate up into the 75 main hotel about 10 million and entertainment.
Okay, great that makes sense. Thanks for your help.
Thank you Matt.
Thank you and this concludes our question and answer session I would like to turn the conference back over to Mitch Waycaster for any closing comments.
Thank you Keith and to each of you who joined this morning. We appreciate your time your interest in Renaissance Corporation, and we look forward to speaking with each of you again soon thank you.
Thank you. The conference has concluded. Thank you for attending today's presentation, you may now to centralize.