Q3 2020 CapStar Financial Holdings Inc Earnings Call
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[music].
Good thing to call today.
18 schools, President and Chief Executive Officer, Dennis Duncan, Chief Financial Officer, and Keith Chief Credit Officer.
Please note that today's call is being recorded and will be made available for replay on capstar subside.
We never did Capsters earnings release.
Yes, and teaching materials that will be afraid to in this call and the form 8-K. It caps are filed with the FCC and available but he asked he sees that site www dot that's easy comps.
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Under the Investor Relations page of capture some site Www Dot <unk> art capture bank dotcom.
Oh, so drink he presentation can certainly make certain comments that constitute forward looking statements within the meaning of the federal securities.
Forward looking statements reflect capture experience.
With respect to among other things Petri events and its financial performance.
Forward looking statements are not historical facts and are based upon past starts expectations.
Smith and projections as of today.
Accordingly forward looking statements are not guarantees of future performance and are subject to risks.
Assumptions and uncertainties, many of which are difficult to predict and be a cat source control.
Actual results may prove to be materially different from the results expressed or implied by the forward anything.
You are cautioned not to place undue reliance on forward looking statements, which only speak as of today.
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In addition, this presentation may include certain non G.P. financial metrics David.
Assumptions and uncertainties impacting forward looking statements and especially the teaching of knowing GE financial measures any big concentration on the non GP net [laughter] most directly comparable G. If you measure are included in the earnings see these inefficiencies and materials referred to in this call.
Finally, kastari is not responsible for and does not eddie's nor guarantee the accuracy of its earnings teleconference. The scrip transcripts provided by third parties.
On the off to rightsize and archived webcast and transcripts are located on cap star subside.
With that I'm now going to turn the presentation over 15 schools, Capsters assessments and Chief Executive Officer.
Good morning, and thank you everybody for participating on our call we had an outstanding quarter and we appreciate the opportunity to review it with you if everyone will begin on page three.
Discuss the highlights of our quarter, Dennis and Chris will then briefly cover key trends and thereafter.
I will close by providing an overview of an exciting formal initiative, we are embarking on to improve our operational and financial performance.
In third quarter, we reported operating earnings per share or 43 cents pre tax pre provision to assets up 1.86%.
Turn on average tangible common equity of 13.76%.
This quarter, we had two sizable items, which we do not expect to recur on a frequent basis first a 1.99 million dollar expense related to previously terminated swaps piece.
These swaps were terminated at a lost several years ago and the expense has been amortized overtime as they related hedged funding remained in place.
A significant portion of the funding matured since June 30, and the remaining funding will be maturing over the next nine months.
Made in funding 'cause above current market rates and no longer needed with our excess liquidity, thereby we have made the decision that we will not raise the funding as it will save capstar approximately $100000 a year.
This decision will eliminate the non cash amortization expense that was occurring and move the company to its core underlying earnings run rate. So.
Second we sold two branches at a gain to book value that came with the Athens Federal acquisition, which were not operating at the time of that transaction.
Adjusting for these two items our earnings per share was 48 cents pre tax pre provision to assets, 2.06% and return on average tangible common equity 15.49%.
Like all banks this quarter had a number of new launches such as our mortgage results PTT excess deposits and the effect of our FCB acquisition that affects our certain common performance ratios.
We have a tremendous mortgage operation and while we are very proud of their results. We also are proud of the continued improvements across the underlying core bank.
No mortgage how sustainable at the current level long term as this quarter. They contributed an unbelievable 16 cents per share to our earnings [noise].
However, our mortgage business is still on purchase money transactions and that combined with the strength of Nashville should allow them to continue to be a meaningful contributor into the future.
Subtracting 100% of mortgage from the 48 cents of the adjusted operating earnings per share I, just referenced places the core banks contribution at 32 cents per share that.
That is with eight cents a provision expense.
Equates to a pretax pre provision to assets of 1.65% and an efficiency ratio of 55.6%.
We're pleased with this result, as historically cap stars consolidated pre tax pre provision to assets has been won 40% to 150%.
And efficiency ratio of 60% to 65%.
As I will discuss in closing overtime, we strive long term for these to be 1.8% plus and 55% or lower.
From a growth standpoint, we were also pleased with the increases in revenue per share with them without mortgage we had growth in deposits and late period growth in loan loss.
Line utilization is down nearly 50 million since March 31. Additionally, we continue to lower our shared national credits, which are down to about 75 million or 4% of total loans from a high of 22% just a few years ago, creating a higher quality balance sheet.
In addition to mortgage we had a nice pick income contribution from growth in deposit service charges or S.P. 18 and FCB.
Through expense discipline strong operating leverage led to improvement in our efficiency ratio.
Chris is going to provide insights into our credit metrics and outlook, but I will point out our past dues classified assets and net charge offs remain at very low levels and we continue to see gradual improvements in economic activity.
Of note a key metric, we and others are monitoring during this period is deferral percentage as key.
As Chris will discuss further we have worked closely with our customers more often than not strengthening our position as we agreed a deferrals.
One thing we've noted this quarter as other banks have released earnings is deferrals are being reported differently.
Our definition of a deferral is where we have agreed to allow a borrower to not pay principal or not pay principal and interest regardless. If we receive concessions. This does not appear to be a consistent application across other banks I mention this as I know it is not.
His role to compare ratios among banks with that I'll turn it over to Dennis.
Thank you Tim and good morning, everyone on slide seven.
Our debt our net interest income of 19.7 million for the quarter reflects a continued increase over the past three quarters.
We closed the.
FCB acquisition on July 1st which accounted for some of this increase the net.
The net interest margin was 2.72% for the quarter and was impacted by several items in the quarter, which Tim has mentioned first we continued the whole excess deposits on our balance sheet, which adversely affected the net interest margin by 42 basis points in the core in addition, we recognized one.
1.9 million of expense related to the swaps, which.
Which impacted the quarter.
Net interest margin by 26 basis points finally, our second for sub debt issuance, while improving our capital ratios lowered the net interest margin by five basis points adjusting for these items, our net interest margin for the third quarter was 3.4% relatively stable.
From the past couple of quarters.
On slide eight.
Deposits increased 617 million over the second quarter four.
442 million of balances came over with the acquisition of FCB well legacy deposits grew by approximately 174 million for the quarter.
Our deposit costs declined.
20 basis points, excluding the acceleration of the swap loss.
We further lowered lower deposit rates across the board late in the third quarter, which will provide benefit.
In the fourth quarter.
Our excess balances are being strategically address through.
A four pronged strategy.
Including continued pricing opportunities focus on loan growth.
Purchases within our investment portfolio and the potential run off of higher priced deposits.
On slide nine.
Our average loans were 2.1 billion for the quarter, an increase of 326 million 289 million of those balances came over with the acquisition of FCB, but we all.
But we also saw line utilization declined during the quarter to 45.8%.
In our ending period loans increased 17.5 million or roughly 3.7 annualized.
We are working diligently within capstar to improve our capabilities regarding loan growth with a new Knoxville team expansion into Rutherford and Williamson County, with the FCB acquisition significant wins with PPP non customers and strong and continuing growing loan pipeline.
Yes.
Our loan yield for the quarter was 4.47% relatively stable with the prior four.
On slide 10, our net in our non interest income continued to be strong for the quarter record levels of revenue and mortgage and SB.
Combination with FCB provided increased deposit service charges of over $400000 for the quarter.
As we discussed previously recorded a gain of 394000 in connection with the sale to dormant branches acquired back in 2018 with the Athens Federal acquisition.
On slide 11, we provide additional information regarding the record quarter in our mortgage business increased volumes and margins drove the increase in revenue for the quarter.
On slide 12, our operating non interest expenses were 20.2 million for the quarter, which resulted in an improved ratio as Tim mentioned due to improved efficiency ratio, which Tim mentioned due to our strong mortgage results and the benefit of the FCB acquisition.
Examining our core banking results, excluding mortgage and the swap loss, we experienced strong operating leverage for the quarter with revenues growing over three times our expenses.
With that I will turn it over to Chris Teets, who will drill down a bit more into our credit position.
Thank you Dennis turning to page 14, we operate in good markets in a pro business state. So we believe we have a good operating environment and a strong foundation for quality growth I draw your attention to some highlights our portfolio continues to be well diversified with considerable enhancement in recent quarters, resulting from our mergers.
We remain committed to proactive portfolio oversight continuing with forward looking asset quality review on a regular basis, our low our goal is to achieve early identification all than early engagement into special situations. So that we can impact them early we continue to be committed to a robust and independent loan review process.
With our external vendor recently completing the second of three loan reviews for 2020, and finally as we have highlighted in previous presentations. We continue in our commitment to robust stress testing and believe that our portfolios quality attributes combined with strong capital levels allow us substantial flexibility even in.
Scenarios worse than what our economy has experienced in the course of 2020.
With that said, let's focus on COVID-19 to see.
Despite the impact that this disease has had on the economy. We remain cautiously optimistic we continue to experience low delinquencies low classified asset levels and virtually no net charge offs.
As I will expand on in a few minutes payment deferrals and modifications remain at low levels, but we remain vigilant and committed to regular oversight in pandemic sensitive sectors. So we can be proactive in responding to special situations that may arise.
We have created and we find a simple pandemic rating system that adds a second dimension to our incumbent risk rating system over the last six months, we have had more upgrades in pandemic risk measures. Then downgrades for example, ambulatory medical providers and dental practices were severely impacted in the early weeks of the pandemic.
As patient traffic slowed to a fraction of pre pandemic levels no patient activity is normalizing in many practices are seeing record revenues as patients catch up on deferred procedures. However, this was not the case across all industries and some have sought accommodation to reduce fixed charges.
In prior periods, we have focused on four industry sectors traditionally viewed as having outsized potential impact from the pandemic as we reported last quarter Capstar was experiencing minimal impact in three of those previously reported categories that included retail senior living and restaurants. So this quarter.
We're going to focus on the loans with deferrals and payment modifications. Since this is the best indicator of where our portfolio is experiencing pandemic impact.
Let's turn to page 15 as.
As we all know sectors tied travel entertainment and events are experiencing the greatest impact and represent the sectors most likely to seek payment modification.
There are two points that I want to emphasize first as Tim indicated earlier, we believe that in recent months. The term deferral has become ambiguous and meaning why do I say that six months ago, we were describing deferrals as being accommodations, where we weigh both principal and interest for a period of three to six months generally with the.
Third amounts being added to the end of the amortization period.
At September Thirtyth, we have four loans totaling $15 million that are still in that kind of deferral in all four cases, those full payment deferrals expire in coming weeks using this definition as we benchmark we'd be reporting less than 1% of loans in deferral, but we also have 76 million.
Collars and loans, where we have temporarily modified the repayment terms such the borrowers paying interest only for periods ranging from two to 15 months.
Perhaps we are being conservative in representing the situation, but in the interest of transparency. We are generally referring to a loan deferral as anything where we have modified the borrowers payment because their business was impacted by the pandemic. Thus when we state that we have loan deferrals of 4.7%. This includes what baby more accurate.
We refer to as a temporary payment modification tailored to the borrower situation.
In nearly every case the accommodation includes the continuation of interest payments and we are receiving something in return for the consideration granted we're comfortable doing this based on assessment of the borrower's liquidity. The recent resources of its owners and guarantors and its monthly cash flows what we receive in return.
Earn has included payment of previously deferred interest and or establishment of financial covenants gear to maintaining minimum levels of liquidity restricting distributions to owners enhancing financial reporting and in some cases enhancing guarantees the second point I want to emphasize on these deferrals is that there is no one size.
Fits all solution to these situations as examples we had a case, where a borrower sought only a one month deferral. We've had cases, where the borrower received deferrals in the past and decided they didn't need it and paid back the deferred amounts even though there was no penalties by doing so by not doing so well.
We've had a situation where we approved the deferral documented the change and the borrower unilaterally decided to keep paying according to the original terms.
I only give these details to show the nuances of the situation in hope that you will see that regardless of how we define it. It's a small number of borrowers in established relationships with generally good collateral positions and sufficient liquidity and staying power to meet short term needs through the downturn triggered by this pandemic.
If the borrowers did not have those qualitative characteristics, we would not view deferral as a solution best suited to their situation and would likely seek an alternative workout plan with a more onerous risk rating being applied.
As noted on page 15, the pool of modified loans is divided into three primary sectors hotels are the biggest sector with approximately $42 million of loans, having payment modification.
These this accounts for about 45% of our hotel exposure.
To me given the situation being basis or do you get the attention I'm sorry to me given the attention being paid to the sector is more meaningful that the other 55% is doing remarkably well.
The second major sector is entertainment events in restaurants. These consist of three primary borrower groups. The first subset consist of borrowers directly tied to support for the music industry, including concert venues and support services to touring artist groups. The second subsets consist of borrowers pay.
Regarding services to conventions and other events. This could include catering event planning event venues party rentals and so on these loans are mostly secured by real estate much of what is not secured by real estate is generally secured by tangible assets like vehicles.
Finally, the server the third subset in this group.
His restaurants, where we have a small amount of exposure the restaurants in this subset or impacted by diminished tourism traffic in downtown Nashville, The third.
The third category I'll draw your attention to is a diverse pool of real estate secured borrowers that include churches parking lot operators, some residential properties and owner occupied commercial real estate. Many of these loans are directly impacted by diminished tourism traffic in downtown Nashville.
Turning to page 16, well.
Well I spoke earlier about the resilience of most of our hotel borrowers I also know it's a key point of interest to you. So here's a broad overview of the portfolio by market by flag and by deferral status. I also acknowledge that there was a lot of discussion, particularly in the C. M. B S space about potential stressors on valuations for her.
Hotels in monitoring publications. This topic the general observations I note are that the greater value shock adjustments should be applied to more recent valuations on newer properties and that value shock adjustments would decline on older vintage loans and appraisals.
Without expressing an opinion on these discussions I simply provide this so that you can see that our newer vintage originations are at low loan to value ratios, reflecting our high cash equity underwriting expectations, while we acknowledge that the values stress, but while we acknowledge that value stress may emerge in coming quarters. It requires an enormous we.
Reduction in value to put these projects at risk of loss given a potential future default while the.
Well, the 2016 and 2017 originations are at higher loan to value ratios than our average these are acquired transactions and not underwritten against our high cash equity template. Nonetheless. These properties are generally in east, Tennessee, along the Interstate corridors that have fared better in the pandemic, then theyre urban and convention driven.
Counterparts.
So having taken a deep dive into payment modifications and hotels, let's step back and look at the big picture of our portfolios quality.
Turning to page 17 past dues are very low and stable actually showing incremental improvement through the pandemic classified loans and non performing assets are at low levels offering us considerable operating flexibility to remain externally focused and net charge offs remained low averaging less than $200000 per quarter.
For the last several quarters frankly, if it wasn't for the pandemic. We would show you the slide and simply let it speak for itself.
Finally, continuing the theme of maintaining a conservative posture against the uncertainties of what the pandemic will bring next page 18 shows a couple of different views of the allowance for loan losses, adjusting for purchase money marks and or removing PPP loans, whether on a GAAP basis on an adjusted basis, we see that.
The range as conservatively bias in these uncertain times, regardless of how you choose to slice and with that I'll turn it to Tim to discuss our merger activities.
Thanks, Chris.
Our FCB transaction closed July one on page 20, you can see our expanded footprint.
Less than two years ago, Capstar had five Nashville based offices with heavy reliance on four key producers.
Today, we have a broader regional presence with the additions of Athens, Manchester in Waynesboro.
We have invested in a Knoxville de novo team and.
And in early fourth quarter, we have formalized a rather for Williamson county team to the South of Nashville, where Capstar has had little focus to date.
FCB is off to a great start with co that we worked together early to offer a PTP loans and their markets, which were not as available there.
The conversion of bank of Waynesboro occurs this weekend and first National Bank of Manchester occurs next month.
I'm happy to report our forecasted onetime expenses and cost saves are on track if not exceeding.
And through FCB strong performance in our mortgage results. We've earned back a significant portion of our initial tangible book value dilution.
We are already working with each of these markets on opportunities where relationships would have been too large for them prior to our partnership.
Moving to page 22.
As I've learned more about caps are over the past year I've shared my observations with you about the strength of our model and customer service.
Quality of our customers' strengths of our markets involvement in our communities in stellar standing with our regulators.
Ive also discussed our need and desire to improve our operating results in common stock performance. So that our efforts translate to a great investment for our shareholders.
I've had the benefit of working in established high performing organizations as.
As well as strong franchises that have opportunities to improve operating performance and through a focused concerted effort each of them achieved higher operating performance.
With our new management team in place we've worked over the summer to develop a three year strategic plan designed to generate operating results and compound annual returns to common shareholders that exceed industry and market averages.
Page 23, and 24 report our historical operating from common stock performance versus the broader industry.
Looking on page 23 at all banks nationally 500 million to 10 billion in assets.
Five star's net interest margin percentage has been lower and more volatile and efficiency ratio at or above peers.
This has led to a lower pre tax pre provision to assets and return on assets.
Combined with lower growth. It has led to common stock returns below the industry has outlined.
On page 24.
Bottom line this is unacceptable on.
On page 25, we lay out the objectives of a new project project, New Capstar too.
To keep it simple I see where we can clearly manage to a better long term NIM through greater focus on deposit gathering and deposit pricing.
Managed to a more stable NIM through improved NIM management.
[noise] manage our expenses more thoroughly via vendor management and workforce productivity metrics.
Enhance our growth by ensuring equal contribution from all sales personnel and a best in class sales process.
And lastly, manage our capital strategically.
We have a terrific company that we are very proud of competitive management team and strong and committed employee base working together in an orchestrated manner is I've done at American savings United Community in Highlands Union Bank, we're going to continuously improve our organization and achieve.
Our desired goal.
We're now happy to turn it over to the moderator for questions.
Thank you ladies and gentlemen, if you have a question at this time please.
That's fine then the number one you touched don't tell us that.
To your question has been answered or you wish to be moving south.
From the cash flow.
Yes. My first question comes from the line of Stephen Scouten from Piper Sandler. Your line is open. Please go ahead.
Hi, everyone. Good morning.
Hey, Stephen good morning.
Couple of questions, maybe first obviously loan to deposit ratio is down to I guess under 78%. Even if you include the held for sale, which is great I'm wondering what if anything kind of near term you might do to utilize the excess liquidity, whether it be additional investments allow uncertain.
Just a run off anything on the borrowings from et cetera, just talking about balance sheet management opportunities there.
Yes, so we were going to approach it in a multi faceted.
Gross.
We've got a lot of releases it seems like banks are taking different strategies I don't know if that's our side or the line, but sometimes they go in.
[laughter].
Thank you [laughter].
Are you hearing I can hear you.
I'm not hearing an echo I have it muted on airline, but I'm not sure that when we're getting we're getting bad distortion in here, so sorry, so anyway.
I don't know.
[laughter] what we're doing is you know if you read Jamie Diamond Jamie said, Jamie said he is not going to.
Go after low yielding 50 basis points investments is investing for the long term Suntrust Bank put on 500 million of mortgage backed securities we really.
Lot of smart people approaching a different way and so we're going to do a multiple approach.
You know just an XL you would love for the deposits to go away because they are under water you're investing at 10 basis points and they may be costing you 30 or 40, that's not reality, because it's really existing customers that have increased their balances and you don't want to risk a long term relationship.
So I'd say the approaches were taking their outlined on page eight but number one we're going to continue looking at pricing and we're going to look at Theres ways that we can price that you know the the higher balances at a lower rate, which would maybe encourage them to move the excess balances somewhere else and if not at least we would save.
Those balances.
We're going to look at some special loan programs, which I don't want to get into for competitive reasons, So that others don't do it.
We're going to look at some shorter term investments. So just multiple strategies and I think people thought these deposits would come in and leave but I think everybody is now feeling the nice to hear a little longer.
But we're focused on the long term and maintain.
Maintaining our customer relationships and we will try and offset the earnings drag the earnings drag I'd have to get it more exact but.
You know if we have 300 million now of excess liquidity, just say and where it's costing us underwater 20, or 30 basis points, that's probably an annualized 800 to 900000, a year, but it's costing and.
In addition to the denominator being bigger in your margin calculation.
[noise] things any update on plans around share buyback resumption there.
We were studying it actually reached out to Sandler and Keith probably two months ago. I guess it was the middle of August and just said what are you seeing and this was the trading desks and the feedback was most smaller to mid size banks had stopped after first.
After some kept going through.
And at that time in August you know banks were stepping back in and re initiating their plans. So we just completed our three year strategic plan, we actually presented it to the board yesterday, and we wanted to get to that but it is something were considering and we're modeling we think our stock has an outstanding value and it's really a measure of.
Balancing the growth opportunities, we have versus returning the capital but it is it is being studied.
And just last thing for me noticed.
That classified ratio did go up a bit Im wondering what was the driver of that or is that largely FCB merger.
Let me just add sensors can provide any details he wants but.
You know when the when the.
Contraction hit and say March and April right, we and other banks went ahead and were proactive in putting provisions and and that was really fore sight right. There have been no. There's been no migration of quantitative factors and I think anyone banks are also taking different approaches on this Steven I know one bank.
Moved 100% of all the deferrals into substandard just to be conservative. So we saw.
We certainly anticipated migration and Chris can walk through the method, we've taken but we've moved some of our deferrals down we've moved some of the pandemic categories down and some of it is is true my you know operating migration. Some of it is proactive conservatism, but Chris would you like to add.
Yes, we can some of it should come from the acquisition of FCB, a few million dollars. It would be single digits and we have some migration both up and out within our portfolio. So you know Stephen I think the the main key that I would focus on is that it's a dynamic pool, what we had.
At the end of the second quarter, we resolved about 25 or 30% all that in the course of this quarter, which was remarkably high ratio, having said that with the pandemic. We are conservative in our risk ratings and we don't look to payment deferrals or paid modifications as an excuse to not radar credit.
It's properly and Steve and let me just be clear it is not FCB. So I don't you think just because that closed this quarter that jumped a number on it is anticipated and expected migration and you note deferral loans or the pandemic categories.
Got it got it okay. Congrats on the quarter guys look forward to see mortgage and future okay.
Okay. Thanks for your help.
Yeah.
We have our next question comes from the line of Catherine Mealor from KBW. Your line is open. Please go ahead.
Thanks, Good morning.
Hey, good morning, Kevin.
I'm, Tim you're talking a lot about goals around pre tax pre provision earnings and you laid out a longer term target for over 1.8%.
This quarter, where it over to that mortgage is driving a lot of that is there a way to think about kind of a more near term target on where you think pre tax provision.
Our Lake our next year cannot as mortgage maybe normalizes a little data before you can really get longer term benefits from work in the margin higher thanks.
Well you know.
Having done this three times now, but I haven't done it in the middle of a crisis where rates have gone down. This much. So it's a little different because margins been taken from me.
So just all I would say is it's doable have.
I have done it.
Bear with us and it's a very difficult time to forecast and model and so I don't want to put a number out there and then lead to false expectations.
The way I would think about it this is just me.
Historically capstar if you look at that sheath that I think was page 23, our pre tax pre provision has been you know 140 to 145, which.
If you just go in XL banking is basic math, if you go in XL.
Pick your margin if you if you that page shows the industry average was about 360.
If you if you have that industry average margin of 360, and you want a 125 or away at current tax rates and you're going to have reasonable credit costs, you have to have about a 55% efficiency ratio.
So it's hard for.
It's hard for me to say right now with what's going on with margins and so forth, but we're just we're going to approve off this base I think that the immediate opportunity is probably on the efficiency side vendor management and productivity workforce metrics.
In time I do believe you know as the absolute curve goes up de da and equity are worth more in your NIM and I also think we can do a much better job on deposit gathering and deposit pricing. So I'm really excited.
Hi, Catherine this is Dan.
Catherine This is Dennis just one one thing to add on is as you know.
The mortgage environment out there continues to remain very strong.
And I'll leave it at that Yeah, and you know were not modeled that I'm just trying to get those strikes I want to get us.
I think for our size company, even without this cycle our mortgage company just kills it we have one of the best mortgage companies in any company I've worked in and.
So I think maybe our contribution even the last year or two has maybe been outsized for our size bank. So that's why I really want to focus on what is the bank only efficiency ratio what is the bank only pre tax pre provision.
We need to really make sure.
We understand we have our arms around that and where we can improve and the mortgage is just added value when it happens, but we'll give you more color as we move along give us a little bit of space, we're going to roll this out in fourth quarter and having done this three times a day.
A board is sort of the same way.
What are you going to give us every quarter, Tim It doesn't work that magically you know it at ASV. All I can tell you as I knew I could improve that company and we did and but I was not able in time period, one to layout every initiative by quarter. When it was going to happen and when it was going to fall in.
I don't want to get into details, but I see a lot of opportunity on vendor management on you know, we don't have workforce productivity metrics. So if you walk in my loan ops area or my deposit ops area My credit area or even on my front line, there's not metrics every company I've been in loan ops, there's metrics.
How many files per person or how many whatever.
This does not operated in that manner, and so there'll be a lot of opportunity.
Maybe one follow up on just the expense side is there any way to quantify how much of the expense base right. Now is driven from the higher mortgage revenue and then also the timing of that CD cost savings and with that.
How that will impact the expense base next quarter.
Absolutely so.
[music].
Len Nolan pitch on the spot, but do you have.
Good you look quickly see if you have a slide on mortgage only expense.
So what we did while lens looking that up we've actually made inroads here with us.
As you know, we my talking points I calculated a a pre tax pre provision and efficiency ratio excluding mortgage so what we did do you. All you all in our income statements see the revenue presented in noninterest income, but you don't see the associated expense down in non interest expense.
So you know it's hard for you to adjust.
The net of that was 16 cents per share contribution.
So I can do it real quick if you have a calculator, we're looking it up but if you take 16 cents.
A penny is about 200 and.
$78000 of pretax pre provision. So if you take 16 times 278000, I think thats like 4.2 million.
And then what you'd have to do.
That's the pre tax pre provision and then I think on our income statement I don't have it in front of me, but the mortgage number was like 9 million for the quarter for revenue nine point so.
Yeah. So I think what we're gonna get we're looking at I think it's going to be the 9.7 minus the 4.2 that's correct.
Right, Okay and to the 4.2 Watson is what's an expense and then that.
Slide I know you've got no.
No no. The 4.2 is the pre tax pre provision of mortgage.
Oh, that's is that not 97 per share.
Yes, so I think the numbers are nine seven is the revenue.
4.2 is the pre tax pre provision.
Got it which expenses are about five seven.
And that translates to 16 cents a share.
Well you are going to change the five seven because it's it's consolidated in it.
Yeah, and then as I look at that versus theirs I think in your slides you say that was up 1.8.
One point.
[noise] 6 million I think over last quarters, there was even higher than that.
That's correct because the revenues a lot higher is that.
That business is largely commission incentive based.
Great Okay.
Okay. Nick modeling question do you have any amount of revenue from PPP and then also the accretable yield high number for this quarter.
I don't I don't have it offhand, but we could get back to you on that.
Okay, and just looking at some of the offline. Thank you so much great quarter.
Thank you.
We have our next question comes from the line of Jennifer Demba from Thomas Your line is open. Please go ahead.
Hey, Bryan Keane Jennifer.
Hey, good morning.
Hi, Good morning, I wanted to do good.
And one of them are more and more about the progress you guys are having as far as market share gains.
And I know with the Pp PPP program.
Boots and capitalize on.
Ups and some competitors just want to know if that still going the way it was last quarter and if you're seeing increased.
Yeah, I'd say, it's not going like last quarter, I'd say, its going even better and.
While all of us in the world are managing through a lot with with coated and we've got our acquisition on top of that that is going on we're focused on growth and.
We've we've invested in Knoxville team Knoxville should approach 100 million in loans by year end, we printed out our leaderboard. The other day on our bankers who have produced the most new balances. This year two of our top five are in our Knoxville Mark.
It is.
And.
One gentleman has produced I think 22 million and he's only been here since March so.
So we're focused on growth they those didnt even come from their prior book from their prior banks.
A lot of our volume right now.
About you know we talked about our PPP success.
If you take our PPP units for our PTT balances.
And I I looked at several.
$15 billion to $25 billion banks.
If you common size our size to their size, we were very competitive in our results on the.
On the absolute amount here.
Half of our PPP were from non customers they.
They the stories would be unbelievable, if I share them with you.
Males and phone calls about how their banks would not return their emails and were not returned their phone calls.
Heard about us do their accountants their attorneys and heard we had great customer service, 50% of our balances so I.
So I can tell you that we moved a.
A 4 million dollar loan relationship with about $4 million in deposits in Chattanooga to us from a from a regional bank we.
We are.
Looking at a 5 million dollar dentist opportunity right now where they couldn't get their PPP through their bank and now they want to move their entire relationship to us.
We.
Oh, we are in the process, we've already approved in the process of closing an 8 million dollar relationship that as Treasury management and deposits from another regional bank, where they couldn't get the PPP to respond.
We already closed a $6 million.
Nashville based relationship.
Which actually was from an out of state bank debt that couldn't get their PPP to respond. So that's a four and a five or six and I could go on and on so a lot of that right now.
Is not new new incremental borrowings where customers are expanding a lot of it is.
I personally sent a letter to every non customer PPP relationship and signed it.
Telling them we were glad.
We can help them and would they please give us one or two referrals and that we were going to have a banker follow up within two to three weeks and we are tracking every two weeks, how we have called up on those we have over 200, new D.A.'s from those customers unrelated to PPP.
Awesome. Thanks, Thanks for the color.
Yeah and.
Also wanted to touch mortgage again, obviously, it's been strong and I was wondering what the current pipeline is looking like for human and what is the magnitude stories, I guess sterne and it's getting more normalized or what.
What is the magnitude of that compared to Q and year over year.
I'll, let Dennis response, Hey, Brian.
Hey, Brandon.
Thanks pipeline remains very strong.
And I was just out at our mortgage offices yesterday and they are busy.
Can be and we don't I mean, it won't be the record record third quarter was tremendous.
But but looking forward as long as this you know overall mortgage environments stays.
You know strong market is our mortgage guys are going to do are going to do very very well and the pipeline right. Now is is basically full so that's any [noise].
If you got any follow on on that you feel free to.
Call Me later, but it's.
This is continuing very nicely.
Great and not add that you know who knows I mean, I don't I'm I'm not really a big fan of guidance because it's you know it's intended to be helpful. But you know in many regards on some of these things you're guessing I mean, who knows on on fourth quarter I don't I would not think it would be as high as third quarter I would it's still strong.
Rates are really low people are still refining there's backed up volume people were getting through so.
I would think it's going to be high and maybe closer to second quarter for us.
What I'd say about our mortgage company is.
You know a lot of mortgage companies within banks are dependent on on bank branch referral volume.
And so those kind of mortgage operations are based on they benefit from refinance.
Or or lower volume from referrals from the branches.
The mortgage operation, we have was an independent mortgage company that was acquired several years ago by Capstar.
And has stayed together and continued to perform.
All of the.
We are in a normal long term market, they get 65% to 70% of the volume purchase transactions, that's highly unusual and so.
Well have to see how all this revised volume settles down, but we're real excited about quality purchase operation.
Great. Thanks makes it assets.
Once again, ladies and gentlemen, do you have a question at this time. Please press Star then the number one and you touched on telephone. If your question is being answered or you wish to leave yourself from the queue. Thanks guys.
Hi, Josh.
We're showing no more questions at this time, so we're going to let everybody enjoy their Friday and give it back to you. We really appreciate those that called in and your interest in following our company. We've got a great company. We've got a great team and we appreciate your interest and we look forward to talking to you.
At the end of this quarter. Thank you so much.
Ladies and gentlemen.
Today's conference call. Thank you for participating you may now disconnect have a great things.
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