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spk07: Good morning, ladies and gentlemen, and welcome to Capstar Financial Holdings' third quarter 2020 earnings conference call. Hosting the call today from Capstar are team schools, president and chief executive officer, Dennis Duncan, chief financial officer, and three seats, chief credit officer. Please note that today's call is being recorded and will be made available for replay on Capstar's website. Please note that Capstar's earnings release, the presentation materials that will be referred to in this call, and the Form 8K that Capstar filed with SEC are available on the SEC's website at www.sec.gov and the investor relations page of Capstar's website at www.ir.capstarbank.com. Also, during this presentation, CAPSTAR may make certain comments that constitute forward-looking statements within the meaning of the Federal Security Law. Forward-looking statements reflect CAPSTAR's current views with respect to, among other things, future events and its financial performance. Forward-looking statements are not historical facts and are based upon CAPSTAR's expectations, estimates, 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 beyond CAPSAR's control. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements which only speak as of today. except as otherwise required by law, CAPSTER disclaims any obligations to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise. In addition, this presentation may include certain non-GAAP financial measures. The risks, assumptions, and uncertainties impacting forward-looking statements and the presentation of non-GAAP financial measures and a reconciliation of the non-GAAP measures with the most directly comparable GAAP measures are included in the earnings release and the presentation materials referred to in this call. Finally, CAPSTOR is not responsible for and does not edit nor guarantee the accuracy of its earnings, teleconference transcripts, provided by the third quarter. The ONV authorized live and archived webcast and transcripts are located on CAPSTAR's website. With that, I'm now going to turn the presentation over to Dean Schultz, CAPSTAR's President and Chief Executive Officer.
spk03: 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, I will 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 of 43 cents, pre-tax pre-provisioned assets of 1.86%, and return 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 $1.9 million expense related to previously terminated swaps. These swaps were terminated at a loss several years ago and the expense has been amortized over time as the 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. The remaining funding is above current market rates and no longer needed with our excess liquidity. Thereby, we have made the decision that we will not renew the funding as it will save Capstar approximately $100,000 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. 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-provisioned assets, 2.06%, and return on average tangible common equity, 15.49%. Like all banks, this quarter had a number of nuances, such as our mortgage results, PPP, excess deposits, and the effect of our FCB acquisition that affects 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. We know mortgage is not sustainable at the current level long-term, as this quarter they contributed an unbelievable 16 cents per share to our earnings. However, our mortgage business is built 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 bank's contribution at 32 cents per share. That is with 8 cents of provision expense. This equates to a pre-tax, pre-provisioned assets of 1.65 percent and an efficiency ratio of 55.6 percent. We are pleased with this result as historically Capstar's consolidated pre-tax, pre-provisioned assets has been 140 to 150 percent and efficiency ratio 60 to 65%. As I will discuss in closing, over time, 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 and without mortgage. We had growth in deposits and late period growth in loans. Lime 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 fee income contribution from growth and deposit service charges, our SBA team, 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 Chris will discuss further, we have worked closely with our customers, more often than not, strengthening our position as we agree to 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 natural to compare ratios among banks. With that, I'll turn it over to Dennis.
spk02: Thank you, Tim, and good morning, everyone. On slide seven of our deck, 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 interest margin was 2.72% for the quarter and was impacted by several items in the quarter, which Tim has mentioned. First, we continued to hold excess deposits on our balance sheet which adversely affected the net interest margin by 42 basis points in the quarter. In addition, we recognized $1.9 million of expense related to the swaps, which impacted the quarter net interest margin by 26 basis points. Finally, our second quarter sub-debt issuance, while improving our capital ratios, lowered the net interest margin by 5 basis points. Adjusting for these items, our net interest margin for the third quarter was 3.4% and relatively stable from the past couple of quarters. On slide 8, deposits increased $617 million over the second quarter. $442 million of balances came over with the acquisition of FCB, while legacy deposits grew by approximately $174 million for the quarter. Our deposit costs declined 20 basis points excluding the acceleration of the swap loss, and we further lowered deposit rates across the board late in the third quarter, which will provide benefit in the fourth quarter. Our excess balances are being strategically addressed through a four-pronged strategy, including continued pricing opportunities, a focus on loan growth, purchases within our investment portfolio, and the potential runoff 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 also saw line utilization decline during the quarter to 45.8%, and 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 counties with the FCB acquisition, significant wins with PPP non-customers, and strong and continuing growing loan pipelines. Our loan yield for the quarter was 4.47% relatively stable with the prior quarter. On slide 10, our net income Our non-interest income continued to be strong for the quarter with record levels of revenue in mortgage and SBA. The combination with FCB provided increased deposit service charges of over $400,000 for the quarter. As we discussed previously, we recorded a gain of $394,000 in connection with the sale of two 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 efficiency ratio, which Tim mentioned, due to our strong mortgage results and the benefit of the FCB acquisitions. 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.
spk01: 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 goal is to achieve early identification of and 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 portfolio's 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. 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 refined 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 than 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. Now patient activity is normalizing, and many practices are seeing record revenues as patients catch up on deferred procedures. However, this is 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 are 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 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 in meaning. Why do I say that? Six months ago, we were describing deferrals as being accommodations where we waive both principal and interest for a period of three to six months, generally with the deferred amounts being added to the end of the amortization period. At September 30th, 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 a benchmark, we'd be reporting less than 1% of loans in deferral. But we also have $76 million in loans where we have temporarily modified the repayment terms such that the borrower is 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 borrower's payment because their business was impacted by the pandemic. Thus, when we state that we have loan deferrals of 4.7%, this includes what may be more accurately referred to as a temporary payment modification tailored to the borrower's 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 are comfortable doing this based on assessment of the borrower's liquidity, the resources of its owners and guarantors, and its monthly cash flows. What we receive in return has included payment of previously deferred interest and or establishment of financial covenants geared 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 not doing so. We've had a situation where we approved a 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 modifications. This accounts for about 45% of our hotel exposure. To me, given the attention being paid to the sector, it's more meaningful that the other 55% is doing remarkably well. The second major sector is entertainment, events, and restaurants. These consist of three primary borrower groups. The first subset consists of borrowers directly tied to support for the music industry, including concert venues and support services to touring artist groups. The second subset consists of borrowers providing 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. And finally, the third subset in this group is restaurants where we have a small amount of exposure. The restaurants in this subset are impacted by diminished tourism traffic in downtown Nashville. 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, While 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 is a lot of discussion, particularly in the CMBS space, about potential stressors on valuations for hotels. In monitoring publications on 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 value stress While we acknowledge that value stress may emerge in coming quarters, it requires an enormous reduction in value to put these projects at risk of loss given a potential future default. While 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 than their 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 portfolio's 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 remain low, averaging less than $200,000 per quarter for the last several quarters. Frankly, if it wasn't for the pandemic, we would show you this 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 or an adjusted basis, we see the range as conservatively biased in these uncertain times, regardless of how you choose to slice it. With that, I'll turn it to Tim to discuss our merger activities.
spk03: Thanks, Chris. Our FCB transaction closed July 1. 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, and Waynesboro. We have invested in a Knoxville-Denovo team, and in early fourth quarter, we have formalized a Rutherford-Williamson County team to the south of Nashville, where Capstar has had little focus to date. FCB is off to a great start. With COVID, we worked together early to offer PPP loans in their markets, which were not as available. 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 one-time expenses and cost saves are on track, if not exceeding. And through FCB's strong performance, and 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 Capstar over the past year, I have shared my observations with you about the strength of our model and customer service, quality of our customers, strength of our markets, involvement in our communities, and stellar standing with our regulators. I've 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 well as strong franchises that had 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 and common stock performance versus the broader industry. Looking on page 23 at all banks nationally, $500 million to $10 billion in assets, Capstar's net interest margin percentage has been lower and more volatile in 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 as outlined on page 24. Bottom line, this is unacceptable. On page 25, we lay out the objectives of a new project, Project New Cap Star. 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, manage to a more stable NIM through improved NIM management, 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, as I have done at American Savings, United Community, and Highlands Union Bank, we are going to continuously improve our organization and achieve our desired goal. We're now happy to turn it over to the moderator for questions.
spk07: Thank you, ladies and gentlemen. If you have a question at this time, please press star, then the number one on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the hash or county. We have our first question comes from the line of Steven Scotton from Piper Sandler. Your line is open. Please go ahead.
spk04: Hey, everyone. Good morning. Hey, Stephen. Good morning. A couple 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, allowing certain deposits to run off, anything on the borrowing front, et cetera. Just talk about balance sheet management opportunities there.
spk03: Yeah, so we're going to approach it in a multifaceted approach. We've read 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 something's echoing. Stephen, can you hear me? Are you hearing me? I can hear you.
spk04: I'm not hearing an echo. I have it muted on my line, but I'm not sure.
spk03: Okay, well, we're getting bad distortion in here. Sorry. So anyway, I don't know. So what we're doing is, you know, if you read Jamie Dimon, Jamie said he's not going to – go after low-yielding 50 basis points investments. He's investing for the long-term. You know, SunTrust, I think, put on $500 million of mortgage-backed securities. We're really, you know, a lot of smart people approaching it a different way, and so we're going to do a multiple approach. You know, just in Excel, you would love for the deposits to go away because they're underwater. You know, 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 taken. They're outlined on page eight. But number one, we're going to continue looking at pricing, and we're going to look if there's ways that we can price 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 on 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's now feeling they may stay here a little longer. But we're focused on the long term and 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 if we have $300 million now of excess liquidity, just say, and it's costing us underwater 20 or 30 basis points, that's probably an annualized $800,000 to $900,000 a year that it's costing, in addition to the denominator being bigger in your margin calculation.
spk04: things. Any update on plans around share buyback resumption there?
spk03: We're studying it. I 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 desk and the feedback was most smaller to mid-sized banks had stopped after first quarter. Some kept going through. And at that time in August, banks were stepping back in and reinitiating their plans. So we just completed our three-year strategic plan. We actually presented it to the board yesterday, and we wanted to get through that. But it is something we're considering and we're modeling. We think our stock is an outstanding value. And it's really a measure of balancing the growth opportunities we have versus returning the capital. But it is being studied.
spk04: And just last thing for me, noticed that the classified ratio did go up a bit. I'm wondering what was the driver of that, or was that largely SCB merger?
spk03: Well, let me just add something. Chris can provide any details he wants. But, you know, when the contraction hit in, say, March and April, right, we and other banks went ahead and were proactive in putting provisions in. And that was really foresight, right? There had been no migration of quantitative factors. And I think anyone, banks are also taking different approaches on this, Steve. And I know one bank that's moved 100% of all their deferrals into substandard, just to be conservative. So, you know, we certainly anticipated migration. And Chris can walk through the method we've taken. But, you know, we've moved some of our deferrals down. We've moved some of the pandemic categories down. And Some of it is true operating migration. Some of it is proactive conservatism. But, Chris, would you like to add?
spk01: Yeah, absolutely. Yes, some of it did come from the acquisition of FCB, a few million dollars. It would be single digits. And we had some migration both up and out within our portfolio. So, you know, Stephen, I think 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% of it in the course of this quarter, which was a 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 payment modifications as an excuse to not rate our credits properly.
spk03: And, Stephen, let me just be clear. It is not FCB. So I don't want you to think just because that closed this quarter that that jumped the number up. It is anticipated and expected migration in deferral loans or the pandemic categories.
spk04: Got it. Got it. Okay. Congrats on the quarter, guys. Look forward to seeing more of it in the future. Okay.
spk03: Thank you for your help.
spk07: We have our next question comes from the line of Catherine from KBW. Your line is open. Please go ahead.
spk06: Thanks. Good morning.
spk03: Hey, good morning, Catherine.
spk06: 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 we're at over two, but 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 ROA could go next year, kind of as mortgage maybe normalizes a little bit, but before you can really get longer-term benefits from working the margin higher. Thanks.
spk03: Well, you know... I've 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 my margin's been taken from me. So just all I would say is it's doable. 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 sheet that I think was page 23, our pre-tax pre-provision has been 140 to 145, which if you just go in Excel, banking is basic math. If you go in Excel, pick your margin. That page shows the industry average was about 360. If you have that industry average margin of 360, and you want a 125 ROA 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 me to say right now with what's going on with margins and so forth, but 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. But in time, I do believe, you know, as the absolute curve goes up, DDA 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 real excited.
spk02: Hey, Catherine, this is Dennis. Catherine, this is Dennis. Just 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.
spk03: Yeah. And when I modeled that, I'm just trying to give illustration. 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 then 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, you know, a board is sort of the same way. What are you going to give us every quarter, Tim? It doesn't work that magically. At ASB, all I could tell you is I knew I could improve that company, and we did. But I was not able in time period one to lay out 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. We don't have workforce productivity metrics. So if you walk in my loan ops area or my deposit ops area or my credit area or even on my front line. There's not metrics. Every company I've been in, in loan ops, there's metrics of how many files per person or how many whatever. This company's just not operated in that manner. And so there'll be a lot of opportunity.
spk06: Maybe we'll 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 FCB cost savings and how that will impact the expense base next quarter?
spk03: Absolutely. So, Lynn, I don't want to put you on the spot, but do you have – can you look quickly and see if you have a slide on mortgage-only expense? So what we did while Lynn's looking that up, we have our teammate Lynn Rhodes here with us, is in my talking points, I calculated a pre-tax, pre-provision, and efficiency ratio excluding mortgage. So what we did, you all in our income statements see the revenue presented in non-interest income, but you don't see the associated expense down in non-interest expense. So it's hard for you to adjust. The net of that was $0.16 per share contribution. So I could do it real quick. If you have a calculator, we're looking it up. But if you take 16 cents, a penny is about $278,000 of pre-tax pre-provision. So if you take 16 times $278,000, I think that's 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.
spk02: Yeah.
spk03: So I think what we're going to get, we're looking it up. I think it's going to be the 9.7 minus the 4.2. That's correct.
spk06: Great. Okay. And so the 4.2 is what's in, is what's in expenses. And then that.
spk03: No, no, no, no, no, no, no, no. The 4.2 is the pre-tax pre-provision of mortgage. Oh, I see.
spk06: That's the $0.16 a share.
spk03: Yeah. So I think the numbers are $0.97 is the revenue. $4.2 is the pre-tax pre-provision. Got it. Which the expenses are about $0.57. And that translates to $0.16 a share. But you all don't see the $0.57 because it's consolidated in it.
spk06: Yeah, and as I look at that versus – I think in your slide you say that was up 1.6 million, I think, over last quarter. So it was even higher than last.
spk03: Yeah, because the revenue is a lot higher. That business is largely commission incentive-based. Great, okay.
spk06: And one just kind of modeling question, do you have the – amount of revenue from PPP and then also the accretable yield number for this quarter.
spk03: I don't have it offhand, but we could get back to you on that.
spk06: Okay. We can circle back offline. All right. Thank you so much. Great quarter.
spk03: Thank you.
spk07: We have our next question going from the line of Jennifer Demba from Trist. Your line is open. Please go ahead.
spk05: Hey, this is Brendan King from Jennifer. Hey, good morning. Hey, good morning. I wanted to discuss and wanted to learn more and know more about the progress you guys are having as far as market share gains. And I know with the PPP program, you were able to capitalize on some opportunities from competitors. I just want to know if that's still going the way it was last quarter and if you're seeing any increases opportunities.
spk03: Yeah, I'd say it's not going like last quarter. I'd say it's going even better. And while all of us in the world are managing through a lot with COVID and we've got our acquisition on top of that that's going on, we're focused on growth. And we've invested in a 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 market. And one gentleman has produced, I think, 22 million, and he's only been here since March. So we're focused on growth. Those didn't 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 or our PPP balances, you know, I looked at several 15 to $25 billion banks. If you common size our size to their size, we were very competitive in our results on the absolute amount. Half of our PPP were from non-customers. The stories would be unbelievable if I shared them with you. emails and phone calls about how their banks would not return their emails and would not return their phone calls, heard about us through their accountants, their attorneys, and heard we had great customer service. 50% of our balances. So I can tell you that we moved a $4 million loan relationship with about $4 million in deposits in Chattanooga to us from a regional bank. We are... looking at a $5 million 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 are in the process, we've already approved in the process of closing an $8 million relationship that has 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 that couldn't get their PPP to respond. So that's a four, an eight, a five, a six, and I could go on and on. So a lot of it right now is not 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 could 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 DDAs from those customers unrelated to PPP.
spk05: Awesome. Thanks for the color. Yep. Also, I wanted to touch mortgage again. Obviously, it's been strong. I was wondering what the current pipeline is looking like for 4Q, and what is the magnitude as far as, I guess, it's getting more normalized. What is the magnitude of that compared to 3Q and year-over-year?
spk02: I'll let Dennis respond. Hey, Brandon. Thanks. The pipeline remains very strong, and I was just out at our mortgage meeting offices yesterday, and they are busy as can be. And we don't, I mean, it won't be the record, the record third quarter was tremendous. But, but, you know, looking forward, as long as this, you know, overall mortgage environments stays, you know, strong, like it 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 if that's any. If you've got any follow-on on that, feel free to call me later, but it's continuing very nicely.
spk03: Brandon, I'd add, you know, who knows? I mean, 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 fourth quarter. I would not think it would be as high as third quarter. It's still strong. Rates are really low. People are still refining. There's backed up volume people are 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 a lot of mortgage companies within banks are dependent on bank branch referral volume. And so those kind of mortgage operations are based on they benefit from refis 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. And it's really built on quality where in a normal long-term market, they get 65% to 70% of their volume from purchase transactions. That's highly unusual, and so we'll have to see how all this refi volume settles down, but we're real excited that we've got a quality purchase operation.
spk05: Great. Thanks. Thanks for the answers.
spk07: Once again, ladies and gentlemen, if you have a question at this time, please press star, then the number one in your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue,
spk03: 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.
spk07: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.
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