Q3 2021 ServisFirst Bancshares Inc Earnings Call
Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made. And service first assumes no duty to update them.
With that I'll turn the call over to Tom.
Thank you Davis and good afternoon, and thank you for joining us on our call.
I'll talk a few minutes about better loan growth for the quarter we had $369 million of net loan growth for the quarter, which is an annualized growth rate of 18%.
$369 million of net loan growth for the quarter, which is an annualized growth rate of 18%.
Our goal has been to have a monthly loan growth goal of $100 million a month and we've exceeded that goal over the last 3 quarters, certainly were pleased to see.
Quarters, certainly were pleased to see.
We had thought that we would see line utilization improve in the second half of the year.
Line utilization improve in the second half of the year.
But we saw no improvement this past quarter.
We do not know when we will see an improvement in line utilization given the continued low inventories at our customers and supply chain issues continue.
We will see an improvement in <unk>.
Line utilization given the continued low inventories at our customers and supply chain issues continue.
But we certainly expect it to be a tailwind for us at some point in the future. So that's certainly something to look forward to.
We did see net pay downs in commercial and industrial loan balances in the quarter, excluding triple pay loans.
This is both the result of the second round of Triple T stimulus as well as as we are seeing very strong profitability in our customer base and the commercial and industrial companies.
Loan growth for the quarter was highest in the west Central Florida.
Charleston, Dothan and northwest, Florida regions. Looking at our loan pipeline is about 10% above last quarter and is back at historically high levels. We've looked back at our pre pandemic pipelines our pipelines today are roughly double where we were prior to the pandemic. On the deposit side, we do continue to see deposit growth though.
Looking at our loan pipeline is about 10% above last quarter and is back at historically high levels.
We've looked back at our pre pandemic pipelines our pipelines today are roughly double where we were prior to the pandemic.
On the deposit side, we do continue to see deposit growth though.
Most of the growth was in our correspondent division this quarter. Other regions are seeing a flattening in growth during the quarter. Most of the correspondent division growth is attributed to new account growth in South Florida market with an addition of a key banker in South Florida. Our non interest bearing accounts doubled in the core.
Other regions are seeing a flattening in growth during the quarter.
Most of the correspondent division growth is attributed to new account growth.
In South Florida market with an addition of a key banker in South Florida.
Our non interest bearing accounts doubled in the core.
In correspondent from $500 million to 1 billion. A few minutes to talk about capital we were. When we started the pandemic 18 months ago, we were under $10 billion in assets and a member analysts and investors were asking us what our plans to do with all of our excess capital. And our answer was it is nice to have excess capital on hand to fund future growth. 18 months later, we are all at $15 billion in assets. So we are quite happy we had the capital support a bigger balance sheet.
A few minutes to talk about capital we were.
When we started the pandemic 18 months ago, we were under $10 billion in assets and a member.
Analysts and investors were asking us what our plans to do with all of our excess capital.
And our answer was it is nice to have excess capital on hand to fund future growth.
18 months later, we are all at all but at $15 billion in assets. So we are quite happy we had the capital support a bigger balance sheet.
The question now is how much of the deposit growth is transitory. If any. I don't think any of us know that answer that question. But what certainly seems logical is that as a massive stimulus. Fiscal stimulus wears off our deposits will flatten or decline slightly over the next couple of years. As of this morning, we're sitting on $4.6 billion in cash. And we do have a negative carry on that $4.6 billion.
If any.
I think any of us know that answer that question.
But what certainly seems logical is that as a massive stimulus.
Fiscal stimulus wears off our deposits will flatten or decline slightly over the next couple of years.
As of this morning, we're sitting on $4 6 billion in cash.
And we do have a negative carry on that $4 6 billion.
Obviously announce report recently as saying we are in the top 10 for cash as a percentage of assets. Bud will go over our our plans in a few minutes to invest those funds over time so. On the hiring front, we continue to have many conversations more than in the past few years.
Bud will go over our our plans in a few minutes to invest those funds over time so.
On the.
Hiring front, we continue to have many conversations more than in the past few years.
More merger activity has led to more discussions with more teams early. Early in the pandemic, we took a very conservative approach and did not really told everybody that we talked to that we really didn't want to hire anybody or do anything. We're in the early part of the pandemic and we wanted to see we just thought the best thing to do was to be conservative. Usually the best thing to do in the banking business is almost always to be conservative so. That's something we continue to look at. We see many opportunities.
More merger activity has led to more discussions with more teams early.
Early in the pandemic, we took a very conservative approach and did not really toe told everybody that we talked to that we really didn't want to.
Hire anybody or do anything.
We're in the early part of the pandemic and we wanted to see we just thought the best thing to do was to be conservative.
Usually the best thing to do in the banking business is almost always to be conservative so.
That's something we continue to look at.
We see many opportunities in.
Our goal is to only Brian in a small number of very high quality bankers. So. Now I'd like to turn it over to Henry Abbott, Our Chief Credit officer to talk about our credit situations. Thank you Tom. Very pleased with the bank's performance in the third quarter and the loan portfolio continues to perform well in the current economic environment. I will give a brief overview of the key ratios for the quarter. We continued to see strong asset quality, which can be attributed to service first strong client selection credit servicing and the vitality of the markets in our footprint. Nonperforming assets to total assets were down to 11 basis points versus 15 basis points last quarter, and 29 basis points in the third quarter of 2020. For the quarter NPAs were down to $16.5 million. This is a 15% reduction from the prior quarter and a 50% reduction from the third quarter of 2020.
Now I'd like to turn it over to Henry Abbott, Our Chief Credit officer to talk about our credit situations.
Thank you Tom.
Very pleased with the bank's performance in the third quarter and the loan portfolio continues to perform well in the current economic environment.
I will give a brief overview of the key ratios for the quarter. We continued to see strong asset quality, which can be attributed to service first strong client selection credit servicing and the vitality of the markets in our footprint.
Nonperforming assets to total assets are down to 11 basis points versus 15 basis points last quarter, and 29 basis points in the third quarter of 2020.
For the quarter NPA tore down to $16 $5 million. This is a 15% reduction from the prior quarter and a 50% reduction from the third quarter of 2020.
This drop is attributed to Oreo continuing to be at near record lows in line with the prior quarter and a $2.7 million reduction in nonperforming loans. Our past due to total loans were eight basis points $6.8 million on par with last quarter and a 27% reduction from the end of the third quarter in 2020. Charge offs in Oreo expenses for the quarter were $1.8 million and 85% reduction from the $11.5 million in the third quarter of 2020. Our net credit expense annualized for the third quarter would be eight basis points and I'm proud to say that year to date net credit expenses when annualized would be four basis points. Versus credit expenses for 2020 for the whole year of 38 basis points.
Our past due to total loans were eight basis points $6 8 million on par with last quarter and a 27% reduction from the end of the third quarter in 2020.
Charge offs in Oreo expenses for the quarter or $1 8 million and 85% reduction from the $11 $5 million in the third quarter of 2020.
Our net credit expense annualized for the third quarter would be eight basis points and I'm proud to say that year to date net credit expenses when annualized would be four basis points.
Credit expenses for 2020 for the whole year of 38 basis points.
In the face of strong competition loans grew by $370 million, excluding TPP payoffs, including PDP pay off our loan outstandings still grew by $163 million. Primarily due to loan growth, we grew our ALLL by $4.2 million in the third quarter versus roughly $9.7 million last quarter. Our ALLL to loans, excluding PPP loans from total loans is 1.29. Even as we put some of the more dramatic COVID-19 economic impact in the rearview mirror given the bank continued strong loan growth and the unprecedented government aid still helping bar, we felt it appropriate to continue to grow our loan loss reserve.
Primarily due to loan growth, we grew our <unk> by $4 2 million in the third quarter versus roughly $9 $7 million last quarter.
<unk> to loans, excluding PPP loans from total loans.
129.
Even as we put some of the more dramatic COVID-19 economic impact in the rearview mirror given the bank continued strong loan growth and the unprecedented government aid still helping bar, we felt it appropriate to continue to grow our loan loss reserve.
2021 continues to be a very strong year for the bank and our core key credit metrics continued to improve and charge offs continued to be near historic lows with that I'll hand, it over to Bud. Thank you Andrew Good afternoon liquidity, Tom mentioned, we have a plan to invest a portion of our excess funds. Our initial goes on to purchase 15 year mortgage backs and five and seven year treasuries. The net monthly investment. <unk> growth will be about $100 million and we will increase these monthly purchases over time. Current yield on mortgage backs is approximately one 3%. Current yogurt over five year treasuries, it's approximately one eight and $1 three eight for seven year treasuries. We also decided to retain a portion of our mortgage originations.
Thank you Andrew Good afternoon liquidity, Tom mentioned, we have a plan to invest a portion of our excess funds. Our initial goes on to purchase 15 year mortgage backs and five and seven year treasuries.
The net monthly investment.
<unk> growth will be about $100 million and we will increase these monthly purchases over time.
Current yield on mortgage backs is approximately one 3%.
Current yogurt over five year treasuries, it's approximately one eight and $1 three eight for seven year treasuries.
We also decided to retain a portion of our mortgage originations.
Third quarter, we saw 33 million to investors and retained $53 million. Net interest margin average loans exclusive of triple a increased by $424 million in the third quarter. Average PPP loans decreased by $397 million for net average growth of $37 million. PPP fees and interest income were $6.4 million in the third quarter compared to $10.2 million in the second quarter. Also, an increase of 971 million an average excess funds decreased margin by 20 basis points in the third quarter. Noninterest expenses salaries increased 852000, compared with third quarter, 2021 to 2020.
Net interest margin average loans exclusive of triple a increased by $424 million in the third quarter.
Average <unk> loans decreased by $397 million for net average growth of <unk>.
$37 million.
<unk> will pay fees and interest income were $6 4 million in the third quarter compared to $10 2 million in the second quarter.
Also an increase of 971 million an average excess funds decreased margin by 20 basis points in the third quarter.
Noninterest expenses salaries increased 852000, compared with third quarter, 2021% to 2020.
The majority of this increase was in West Central Florida. As we added production staff and opened the Orlando Office, Westlake, Florida had the highest year over year loan growth. We've also hired 15 new producers in 2021. We increased the city of accrual in the third quarter by $1.1 billion based on high dollar volume of loan production this year. Also, we invested in a new market tax credit during the quarter. The investment write down increased noninterest expenses by $2.8 million for the quarter. But was more than offset by income tax reduction of $3.3 million. Noninterest income. Credit card income continues to grow is $2.04 million. Third quarter versus $1.8 million in third quarter 2020. Third quarter spend was $216 million in 2021 versus $151 million in 2020. And that concludes my remarks, and I'll turn the program back over to Tom. Thank you, Bud.
We added production staff and opened the Orlando Office, Westlake, Florida had the highest year over year loan growth.
We've also hired 15, new producers in 2021.
We increase the city of accrual in the third quarter by $1 1 billion based on high dollar volume of loan production this year.
Also we invested in a new market tax credit during the quarter.
The investment write down increased noninterest expenses by $2 8 million.
<unk>, but was more than offset by income tax reduction of $3 3 million.
Noninterest income.
Credit card income continues to grow is to point out $4 million.
Third quarter versus $1 8 million third quarter 2020.
Third quarter spend was $216 million in 2021 versus $151 million.
In 2020.
And that concludes my remarks, and I'll turn the program back over to Tom. Thank you Budd.
We do continue to be optimistic about our future growth. Strong pipelines and conversations with clients regarding their future plans. So all in all we were pleased with the quarter. We're pleased with the outlook and we'll be more than happy to answer any questions you might have. Thank you, let's open the floor for questions. We will now begin the question and answer session. To ask a question you may Press Star then one on your Touchtone phone.
Strong pipelines in conversations with clients regarding their future plans. So all in all we were pleased with the quarter. We're pleased with the outlook and we'll be more than happy to answer any questions you might have.
Thank you, let's open the floor for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Brad Milsaps with Piper Sandler. Please go ahead.
Okay.
Hey, good afternoon guys. Hi, Brad. Hey, Brian. Tom, I was just curious obviously another great quarter of loan growth. If you could give us a sense of kind of where your new loans are coming on the books kind of relative to the current book yield. Yes. With the phase, we're still putting loans on at $4.15 to $4.20 right.
Hi, Brad Hey, Brian.
Tom I was just curious obviously another great quarter of loan growth. If you could give us a sense of kind of where your new loans are coming on the books kind of relative to.
The current book yield.
Yes.
Brad Spud.
With the phase, we're still putting loans on at $4 15 to $4 20 right.
Okay, great, but based on your comments I wanted to make sure I heard you correctly, you thought that the pace of securities purchases would be right around $100 million a month, so about 300 million a quarter, is that correct? Right yes. We're just going to watch right. Five in February treasuries have been trending up so we'll just watch it, I'm sure we'll look at increasing that purchase amount over time, but that's $100 million, a month and 300 million of quarters our cargo. Yes, so all else equal you might get that securities portfolio up to $2 billion or so by the end of next year. Yes, yes. Right yes. Got it.
Right yes.
We're just going to watch right.
Five in February treasuries have been trending up so we'll just watch it will I'm sure we'll.
Look at increasing that purchase amount over time, but that's $100 million, a month and 300 million of quarters our cargo.
Yes, so all else equal you might get that securities portfolio up to $2 billion or so by the end of next year.
Yes, yes.
Right yes.
Got it.
Obviously, no one has a crystal ball, but just kind of curious if we got 50 basis points or 75, starting late next year. Aside from the obvious. Your cash balances would get a higher rate, what do you think the impact would be for you guys? However, you want to express it in terms of NIM, just kind of curious what the impact would be on loan yields. With higher fed funds and take into account anything you might add sitting at floors et cetera.
Aside from the obvious.
Your cash balance.
Balances would get a higher rate what do you think the impact would be for you guys.
However, you want to express it in terms of NIM, just kind of curious what the impact would be on loan yields.
With higher fed funds and take into account anything you might add sitting at floors et cetera.
Okay.
I don't know if I have a good answer just rough time ahead, especially when you go into the loan side. I really have to look at how much cash are we going to handle deposit at the fed yes, yes. Yes. One billion or 3 billion. Yes on that one. Yeah, well, maybe maybe asked differently can you just remind us of your kind of split between sort of prime or LIBOR based loans versus versus fixed rate? But what now the mix between floating. Yes. Let me tell you. 60% of them fix.
The loan side.
I really have to look at how much cash are we going to handle deposit at the fed yes, yes.
Yes.
One 3 billion.
Yes on that one.
Yeah, well, maybe maybe asked differently can you just remind us of your kind of split between sort of <unk>.
Prime or LIBOR based loans versus versus fixed rate.
But what now the mix between floating.
Yes.
Let me tell you.
60% of them fix.
Okay.
Sure.
Let me look that one I think we're probably 60% to 65%. Fixed I know that's been shrinking, but I just don't have it right here and I didn't bring that out. I don't have that in my notes. So okay. Okay I can email it to you then. Yeah. Okay no problem. Great. I'll hop back in queue, let some other folks out there. Thank you guys. All the cash is floating rate. The $4.6 billion of floating rate. Sure absolutely. Yep. I think the biggest slowed right asset we have. With that cash.
Fixed I know that's been shrinking, but I just don't have it right here and I didn't break that out.
I don't have that in my notes.
So okay.
Okay I can email it to you then.
Yeah, Okay no problem.
Great.
I'll hop back in queue, let some other folks out there. Thank you guys.
All the cash is floating rate.
The $4 6 billion of floating rate Brett sure absolutely Yep.
I think the biggest slowed right asset we have.
With that cash.
Yes understood.
The next question will come from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good afternoon guys.
Hi, good afternoon.
Just. Digging into the loan growth a little bit. Tom. You mentioned in the release about the economy. The economic recovery. You also cited just a few minutes ago about line utilization really hasn't picked up like you would have hoped but where you would really to attribute this growth to just pure economic expansion versus the effect of your hiring efforts and bringing folks over. And that probably dovetails with.
Digging into the loan growth a little bit.
Tom.
You mentioned in the release about the economy. The economic recovery. You also cited just a few minutes ago about line utilization really hasn't.
Picked up like you would have hoped but where.
You would really too.
Attribute this growth to just pure economic expansion versus the effect of your hiring efforts and bringing folks over.
And that probably dovetails with.
The deals that are going on so maybe it's not just from hiring, but you are getting some loan opportunities because of some of the consolidation that's going on in your markets. If you can just sort of point to what are the main driving forces for that loan growth. No. I am giving you a guess, but I'll take it as probably high F&I as probably half the new hires and half is. Projects from existing customers in that. People put projects on hold obviously during the pandemic and they are weighted more when do anything and I didn't want to do anything so now they're moving forward with new projects locked a lot of commercial real estate I mean, the beloved by it is not that good in the commercial industrial sector. Our loans declined in the last quarter.
Hiring, but you are getting some loan opportunities because of some of the consolidation that's going on in your markets. If you can just sort of.
0.2.
The main driving forces for that loan growth.
No.
I am giving you a guess, but I'll take it as probably high F&I as probably half the new hires and half is.
Projects from existing customers in that.
People put projects on hold obviously during the pandemic and they are weighted more when do anything and I didn't want to do anything so now they're moving forward with new projects locked a lot of commercial real estate I mean, the beloved by it is not that good in the commercial industrial sector.
<unk> loans.
A decline in the last quarter.
Say it up both just because of strong profitability and continued stimulus.
Breslin and stimulus.
Strong corporate profitability so.
And the supply chain was higher an issue so.
Higher an issue so.
But that should give you a gas Kevin I havent broken we haven't broken it down.
Yes, what's your you've mentioned that a few times and obviously, that's a big issue for everyone in the supply chain disruption the employee shortages that are out there affecting different companies is that.
When you're looking at that is that something that in your mind is just preventing a more healthy pace of C&I growth? Or is it something that is starting to get on your radar in terms of credit? In terms of getting concerned and watching things like that more carefully.
When you're looking at that is that something that in your mind is just preventing a more healthy pace of C&I growth? Or is it something that is starting to get on your radar in terms of credit? In terms of getting concerned and watching things like that more carefully.
Something that in your mind is just preventing.
A more healthy pace of C&I growth or and or is it something that is starting to get on your radar in terms of credit in terms of getting concerned and getting.
Watching things like that more carefully.
Yes, we don't have any credit concerns, but yes, we think that supply chain is getting if they ever do get fixed.
Which we don't think it's going to be anytime soon that certainly we will see more and more.
More inventory higher inventories than there's a tremendous lack of supply. There's unprecedent demand. Say it today, so we hear it from every customer that we have. The other place where it gets a little pickup in demand as steel prices have gone up and our customers led to the. For example in the steel fabrication business, there they've had to increase inventories in some of our scrap dealers or our bar a little bit more money today, but it is not it's not been an overwhelming change in the numbers there. Okay. Okay, great.
Tremendous lack of.
Supply.
<unk> demand.
Say it today, so we hear it from every customer that we have.
The other place where it gets a little pickup in demand as steel prices have gone up and our customers led to the.
For example in the steel fabrication business, there they've had to increase inventories in some of our scrap dealers or our bar a little bit more money today, but it is not it's not been an overwhelming change in the numbers there.
Okay. Okay.
Okay great.
One last one for me is just you mentioned capital how you went from this. Position of having a lot of excess capital and it's a good thing to have and you put it to use and where you sit now though. There's a lot of uncertainty in terms of what happens to this excess funds but. How do you feel about your capital levels now and if you have this kind of loan growth still going forward and we don't have a major change in the balance sheet. It something that you might look at to getting more capital. Yes. We've talked to our regulators, where our tier one leverage was 825 in the quarter will just reassess it. <unk> fourth quarter and see but. Thanks. Eight 8% as the magical number but I think we would have. Leeway in that and it will be monitored.
Position of having a lot of excess capital and it's a good thing to have and you put it to use and where you sit now though.
There's a lot of uncertainty in terms of what happens to this excess funds but.
How do you feel about your capital levels now and if you have this kind of loan growth still going forward and we don't have a major change in the balance sheet.
It something that you might look at to getting more capital.
Yes.
We've talked to our regulators, where our tier one leverage was 825 in the quarter will just reassess it.
<unk> fourth quarter and see but.
Thanks.
Eight 8% as the magical number but I think we would have.
Leeway in that and it will be monitored.
The thing that really.
Has driven it down like we grew over.
A billion in deposits in the third quarter as spikes like that that really caused the issues and I think the regulators understand that so.
I think we could probably get by without doing a capital raise or sub debt or something like that as long as thats a short term issue.
We think we think we will I mean, most us projections.
We think we're fine there from them, we think we have more than adequate capital Kevin and also.
Dan.
The risk weighting on the four 6 billion at the fed as zero so.
So we don't have a risk weighted capital issue with with that much cash on the.
Federal Reserve.
So.
So we think we think we're just absolutely.
No problems at all.
But we're glad we have that extra capital.
Yeah, no definitely and I guess part of the reason I asked the question is Youre also sitting with a very strong currencies. So I guess, that's a variable to look at where where youre at in the market willingness to.
If there is.
Capital to be had weather.
Weighing all of those different variables about whether you should do it or wait.
It was my point okay.
Thanks, very much guys. Thank you. Thank you. Thank you.
The next question will come from William Wallace with Raymond James. Please go ahead.
Hey, good afternoon guys.
Yes.
So maybe just kind of following along with Kevin just kind of line of question Amy.
Quiddity from a capital perspective, youre, saying, if the liquidity pressure not a not a loan growth perspective, but liquidity has been building now for.
Since really pre Covid I think.
And $4 6 billion is.
Massive liquidity.
One Tom I guess during your prepared remarks.
I might have missed if you gave the timeframe, but I believe you said, you're a correspondent channel balances have doubled.
$500 million 2 billion did I get that correct and is that year over year or was that in the quarter.
Go ahead Rod Yeah. This is rodney rushing in.
You heard it correct.
Since year end, our correspondent DDA balances.
With.
Just over 400 million to over a billion.
Total.
Correspondent balances or just shy of $2 billion at the beginning of the year.
Three six so what makes that up are the DDA balances.
Where.
Our downstream correspondent banks keep money in the DDA to pay their compensating balances, where where the settlement point at the fed for them for their cash flow.
We then anything.
Over that.
We sweep into fed funds or a money market account.
So right now our largest category is by far our DDA balances, but that growth has come from.
New correspondent relationships, mainly in Florida.
Last month alone we opened over 20, something a correspondent accounts in the state of Florida.
This month, we opened another six correspond on accounts and.
In addition to those new accounts.
Our downstream correspondent liquidity is higher than it's ever been they have a lot more cash.
Hi.
<unk>.
It's.
Yeah.
We are taking.
Taking this year like.
As spike didn't predict.
And I don't think it will continue but that's where it came from <unk>.
So we think.
We're seeing a flattening and as I mentioned, we're seeing a flattening quality than the other.
Although the regions for the most part in deposit growth and.
Okay.
I don't know where your questions later.
Do you do a capital raise to support cash alone.
At the Federal Reserve, we have a negative carry I don't think so you figure out some other solution to the problem. We could there are solutions to the problem that we have a way to.
Offload some deposits.
Third party arrangement.
<unk>.
If we need to so that would probably be the solution rather than a capital raise while it here for you.
You might not be going there though.
No.
Precisely where I was going as well.
We've seen the channel grow.
You have added.
A few billion dollars of liquidity from that channel alone over the past couple of years and I'm just wondering.
At what point do you start to maybe try to figure out ways to sweep some of that liquidity off the balance sheet. So you don't have to answer the questions from the regulators about our leverage ratio sub 8% et cetera.
Are you there.
This is Rodney again, what Tom alluded to was we do have that ability right now.
We're buying all of these funds obviously what goes into DDA as a as a deposit what we purchase as fed funds.
We are purchasing as principle if.
If we want to we can sell that money off too.
Another bank or we can actually place it at the fed we would have to do that in an agent relationship, which we have the capability.
We've just chosen not to do that up until now when we bring it all as principal and.
I will say, if we can put it to work.
Okay. So I guess are we at the point, where where you are starting to make those decisions I'm assuming the answer is yes. If you can start putting $100 million to work a month in securities.
Trying to figure out other ways to turn it into a positive carry that's where we are today.
Well that's more of a question for Bud This is Rodney.
I'll, let them chime in but.
Said, it's leveled off.
We want the correspondent.
Channel to grow because there are other aspects there loan participations that we purchased we make them direct loans and also we're growing our credit card outstandings through the correspondent agent credit card agent program. So there are a lot of other things other than just deposits that lead to profits.
Through our correspondent relationships and we think we.
Have a pretty good chance to be a reasonably.
Good market share in the southeast United States and as well we are.
So your international credit card program to date.
Okay. Thank you.
But it looks like you moved about $260 million into held to maturity. This quarter can you just give us a brief overview of the nature of those securities.
Yes that was.
Mortgage backed securities that we move.
Net realized unrealized gain was about $5 6 million and that will just be amortized over the remaining lives. So we get to keep that.
$5 6 million or <unk>.
Hum.
Unrealized gain total really that's to.
A lot of banks are looking at doing this really.
You don't have a negative impact from that $253 million down the road if rates go up 300 basis points I guess, so it helps your book value by moving that to.
Alrighty.
Yeah, exactly and what's the what's the duration on those items.
About five years.
Okay, and then on credit.
You highlighted in the prepared remarks really just how strong credit is.
Overall.
Yet you decided to increase the reserves and the reserves to loans.
I guess, if you take PTT applications.
Really just kind of holding flat on a reserve to loan basis.
At what point do you.
And your models make the qualitative adjustments that would.
Bringing the reserves back down or do you think you're where you need to be.
I guess we.
This is Tom while we look at it on a quarterly basis I mean that.
Yeah.
Two basis points of charge offs shown year to date basis is not reality, you and I both know that.
There's a lot of somewhere in our.
So we just don't know where it is.
I'll bet.
President of a bike for 36 years.
I've never seen losses as low at my career, rather than one off basis, but never as low as two so.
Goodbye she given above.
No it's.
Good commercial bank.
During good times charge offs are 10 to 15 basis points.
During bad times are probably <unk>.
530.
And a little bit higher if youre not.
Credit quality is not where it should be so.
We're just fall will be prepared for when that happens wallet and we think that there that we will see some charge offs that.
We are in the banking business, there there'll be charge offs.
That's where we're at to be prepared and unprepared for that.
Okay I appreciate that.
And then my last question just you got your $100 million monthly loan production target that you have been exceeding has production itself in accelerating or.
Or are payoffs also declining so you're kind of getting a double benefit.
We didn't have any payoffs are so lumpy I can't even answer the question, but there were there were no significant.
The.
The production was lower in the third quarter than the second quarter, but we didn't have any significant.
Payoffs I think a lot of the people that wanted to sell their properties or companies and worried about.
The increase in potential capital gains taxes, and other taxes have already.
So people start doing it last year, we had customer selling sale on assets last year to prepare.
Prepared for higher tax rates so.
It's just so it's just hard it's very hard to predict Wally, but usually fourth quarter is a good production.
Time for us we usually it's the highest of the year typically.
Yeah, Okay. Thank.
Thank you very much for answering my question I appreciate it guys. Thank you Ali.
The next question will come from Dave Bishop with Seaport Global Securities. Please go ahead.
Yeah. Good evening gentlemen, how are you.
Got it.
Hey, most of my questions have been asked.
To answer but.
How should we think about operating expenses here you mentioned the new market tax initiative should we think about this as sort of a good run rate.
Conversely, the tax rates are remaining around that 18% moving forward with it.
The tax credit investments.
Yeah, maybe maybe a little bit higher but somewhere in the 19% to 20% range yes.
The new markets tax credits.
All of them you have to look at at the end of the period.
Our capital gain or capital loss.
The new market that we purchased in the third quarter.
Was there to offset it.
We'll have a capital losses offset of cap gains, so thats really where some of these.
Tax credit deals come into play because you want to make sure that you're matched off as long as you can on the capital capital gains or losses, but that definitely impacted our noninterest expense for the quarter.
Got it.
So it seems like that could be a little bit of a good go back moving forward here probably.
Maybe one or $2 million or so heading into the fourth quarter I'm sorry.
Do you still have the write down will still be there. So that's.
It's about 900 and.
Well whatever type of one 8 million each quarter that we'll have in write down.
Youll have the $3 3 million in tax reductions. Okay. So yes. So that's a good good run rate moving forward, yes, yes.
Got it okay, great. That's all I had thank you.
This concludes our question and answer session as well as our conference call today. Thank you for attending today's presentation. You may now disconnect.
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