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spk01: Greetings and welcome to the Spirit of Texas Bank Share's third quarter earnings conference call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerry Goldman, Chief Operating Officer. Thank you, Mr. Goldman. You may begin.
spk00: Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Spirit of Texas Bank Shares conference call and webcast to review 2020 third quarter results. With me today is Mr. Dean Bass, Chairman and Chief Executive Officer, Mr. David McGuire, President and Chief Lending Officer, and Ms. Allison Johnson, Interim Chief Financial Officer. Following my opening remarks, we will provide a high-level review and commentary on the financial details of the third quarter before opening the call for Q&A. I'd now like to cover a few housekeeping items. There will be a replay of today's call, and it will be available by webcast on our website at www.sotb.com. There will also be a telephonic replay available until October 28, 2020, and more information on how to access these replay features was included in yesterday's release. Please note that the information reported on this call speaks only as of today, October 21, 2020, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. In addition, the comments made by management during the conference call may contain certain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of management. However, various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the company's annual report, Form 10-K, filed with the SEC for the year ended December 31, 2019, to understand certain of those risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in yesterday's earnings release, which can be found on the Spirit of Texas website. Now I'd like to turn the call over to our Chairman and CEO, Mr. Dean Bass. Dean?
spk03: Thank you, Jerry, and good morning, everyone. I'm happy to report another strong quarterly performance. This quarter reflected improved earnings, a successful merger conversion, branch optimization, improving COVID-19 response results, and strong asset quality metrics. During the quarter, we have reached another important milestone in the history of our bank. We have thoroughly reviewed our capital needs and plans for future growth and determined that the time was right to authorize a quarterly cash dividend for our company. The dividend declared of $0.07 per common share is a solid starting point to share both our stable current earnings and future growth prospects. We have carefully chosen a dividend payout ratio that will reward our current investors for their continued support while enticing new investors with an attractive dividend yield. We'll also preserve a strong position and retain earnings to continue on the path of strong organic growth and revitalize our successful M&A program that has brought us to this milestone. We are pleased to announce net income of $7.1 million for the third quarter and dilutive earnings per share of 41 cents. Accretion of origination fees on PPP loans, net of deferred costs, continue to assist our financial performance and replace the reduction of interest income from the deep rate cuts experienced in the first quarter. As these loans are forgiven in the fourth quarter of 2020 and into the first and second quarters of 2021, we are actively finding new revenue sources and growth opportunities to further enhance profitability. Non-interest income for the third quarter, excluding gain on sale of securities, increased 48% over the second quarter. And we will continue to find growth opportunities and non-interest income given that we will likely be in a low interest rate environment for the immediate future. At the same time, we have been successfully optimizing our branch network by improving the bank's efficiencies by reducing non-interest expense. We have begun to see more clearly the impact of the COVID-19 pandemic and have made the strategic moves necessary to emerge stronger than ever, regardless of the shape of the recovery. We have a clear vision of the future of this great bank, and we'll continue to focus on serving the needs of our communities, generating stable core earnings for our investors, and maintaining a strong capital position to serve as a bedrock for future growth. Now I'd like to turn the call over to Mr. David McGuire, our president, and Chief Lending Officer to discuss the loan portfolio and asset quality. David? Thank you, Dean.
spk02: The third quarter was a pivotal time for both the lending and credit administration staff in our fight to mitigate the impact of the global pandemic. Most of the borrowers were able to resume business operations, although at limited capacity, and were able to gain a much clearer picture of the impact that the global pandemic will have going forward. Our lenders were provided a better sense of the borrower's ability to repay as the majority of the loans exited the deferment period during the quarter. Additionally, our credit administration staff received more accurate information regarding borrower financial position and ability to service debt going forward. During the quarter, 90-day deferment periods have expired on approximately 81.5% of the $520 million in loans requesting deferment, and 81% have resumed regularly scheduled payments. Over the coming months, we expect the remaining 18.5% of loans exiting periods of deferment will have similar results. For loans not able to resume regularly scheduled payments and or loans associated with businesses that have permanently closed, our credit team is working diligently to mitigate losses wherever possible. We initially focused our attention on a group of industries expected to be unfavorably impacted by the COVID-19 pandemic. However, over the past quarter, we have a much clearer picture of which borrowers have been impacted the most and which borrowers will experience a longer impact and possibly need additional assistance. Specifically, current stability in oil prices and the ability of restaurants to open dining rooms has significantly assisted borrowers in those segments. Additionally, housing demand and retail spending remain strong with no significant signs of future deterioration. With respect to commercial real estate, capitalization rates are stable, though we do expect compression in the coming quarters, which we will keep a close eye on. Travel and leisure appear to be the most negatively impacted segments as business and leisure travel has slowed tremendously and hotel occupancy rates are below levels necessary to service the underlying debt. At September 30, 2020, our total exposure in the hospitality segment consisted of $97.6 million, or 4% of our loan portfolio. Growth's loan growth during the third quarter showed significant signs of improvement. However, loan payoffs specifically on large relationships offset the majority of the growth, and net growth for the quarter was approximately 4% annualized. The lending pipeline remains robust, and we continue to see that many potential borrowers have delayed as opposed to canceled future plans. During the fourth quarter, uncertainty surrounding the election, the severity of the latest wave of COVID-19 cases, and the development of a vaccine should decline and enable us to return to a more normalized level of loan demand. The yield on loans in the third quarter of 2020 was 4.87%, which decreased 27 basis points from Q2 2020. The reduction in yield was expected as the remaining population of our variable rate loans repriced and higher yielding loans paid off during the quarter. As of September 30th, 2020, the majority of our variable rate loans remain at their floors and we expect loan yields to stabilize. Asset quality remains strong and stable as we now have a much clearer picture of exposure in troubled segments and have taken steps to mitigate losses in these areas. Non-performing loans to outstanding loans increased to 36 basis points at the end of Q3 2020 compared to 31 basis points at the end of Q2 2020. The provision for losses for the third quarter was $2.8 million, which increased the allowance to $12.2 million, or 50 basis points of our loans outstanding. At quarter end, the coverage ratio on the organic portfolio was 94 basis points, excluding PPP loans. Annualized net charge-offs were eight basis points for the third quarter of 2020. Throughout the coming quarter and into next year, our focus will be on assisting the relatively small population of borrowers still needing assistance, quickly working through problem credits and returning to more normal levels of loan growth. With that, I'll turn the call back over to Jerry Goldman to provide a review of the funding side of the company. Jerry?
spk00: Thank you, David. Total deposits at the end of Q3 were $2.3 billion, a decrease of $127 million, or 5.2%, from Q2 2020. and an increase of $702 million, or 44.3%, over Q3 2019. Of the $127 million sequential decrease from Q2 2020, approximately $63 million was the anticipated runoff of PPP-related deposits. Additionally, public fund deposits, due to their cyclical nature, were down $31 million. Non-interest-bearing deposits decreased $78.4 million, or 10.5% from Q2, again with PPP deposits accounting for 63 million of the decrease. Exclusive of PPP-related deposits, non-interest-bearing deposits now make up 27.4% of total deposits, up from 23.1% at the end of Q3 2019. This improved shift in deposit mix along with aggressive repricing of deposits, resulted in a 0.57% cost of deposits, a decrease of 10 basis points from Q2 2020. The bank has no broker deposits. The reported loan-to-deposit ratio at the end of Q3 is 107.2%. Excluding PPP activities, the loan-to-deposit ratio drops to 88.8%, up slightly from 86.6% at the end of Q2. Borrowings increased by $84.7 million during the third quarter to $277.7 million due to our $37 million sub-debt issuance and $79 million in additional draws on the PPP-LF. Offset, my FHLB paydowns. Borrowings totaled 9.5% of assets at the end of Q3. The company has significant sources of available liquidity, including $50 million in a holding company line of credit, Fed funds lines totaling $108 million, and Federal Home Loan Bank availability of $522 million. I would now like to turn the call over to our Interim Chief Financial Officer, Allison Johnson, to provide a financial overview of the third quarter. Allison?
spk07: Thanks, Jerry, and good morning, everyone. We provided detailed financial tables in yesterday's earnings release. On a consolidated basis, net income for the three months ended September 30, 2020 was $7.1 million with fully diluted EPS of $0.41 compared to earnings of $5.3 million and fully diluted EPS of $0.34 in the third quarter of 2019. Our financial results continue to benefit from the second quarter success with the payroll protection program via net accretion of origination fees. As we look to the next few quarters and we prepare for the remaining $7.8 million of net origination fees to amortize into income as loans are forgiven, it is imperative that we diligently look for new sources of non-interest income while continuing to reduce non-interest expense. Our tax equivalent margin in the third quarter of 2020 was 3.97% compared to second quarter 2020 tax equivalent margin of 4%, representing a three basis point decrease. Excluding the impact of PPP loans, our tax equivalent net interest margin was 4.28% for the quarter. Compression within the net interest margin has abated as the impact of rate cuts by the Federal Open Market Committee have been fully realized within the portfolio and the majority of our loans are at their respective floors. As of September 30th, 2020, our loan yield declined 27 basis points to 4.87% from Q2 2020. While we do expect to remain in a low interest rate environment for at least the next few quarters, we do not expect further compression within interest earning assets. the net interest margin will continue to improve on the interest-bearing liability side as higher-rate CDs continue to roll off. Additionally, during the quarter, we issued $37 million of subordinated debt at an interest rate of 6%. We have neutralized this earnings drag through reinvestment in other banks' debt issuances. We also implemented a balance sheet strategy to monetize efficient gains in the investment portfolio to offset the loss on high-cost FHLB barring. We took a $1 million gain on the sale of 36.1 million of investment securities with a duration of less than one year to unwind 10 million of FHLB borrowings with a duration of 2.3 years and reinvested the proceeds. This strategy will be immediately accretive to net interest margin. The provision for loan losses for the second quarter was 2.8 million, which increased the allowance to 12.2 million or 50 basis points of our loans outstanding. or 60 basis points excluding the 100% government guaranteed PPP loans. The majority of the provision expense for the quarter related to increasing qualitative reserves as a result of our annual allowance model updates and in response to the current economic environment. Specifically, we reconfigured qualitative weightings to weight external factors more heavily than internal factors. This change resulted in an additional provision of approximately $1 million. The coverage ratio on the organic portfolio was 94 basis points on the $1.3 billion in organic loans outstanding, excluding PPP loans at quarter end. Additionally, we have $5.8 million in unamortized discount on the acquired loan portfolio at September 30, 2020. As David mentioned, we are currently closely monitoring specific portfolio segments and expect the coverage ratio to continue to increase in the next two quarters as we gain more clarity on borrowers within these segments. Additionally, we would expect another quarter or two of elevated provision as loans are downgraded and we obtain updated collateral valuations on newly impaired loans. Non-interest income totaled $4.8 million for the third quarter of 2020, compared to $2.6 million for the second quarter of 2020. Excluding the $1 million gain on the sale of securities, non-interest income rose 48% to $3.8 million. During the quarter, we have seen increased demand for interest rate swaps and have seen an increase in SBA lending activity. We expect these trends to continue and slightly improve over the next few quarters as we emerge from recession. We have also experienced higher mortgage sales volume given the overall health of the housing market driven by low interest rates. We will focus heavily on expanding non-interest income wherever possible in the coming quarters to build a solid foundation to replace interest income loss due to the rate cuts and origination fees on PPP loans. Non-interest expense totaled $19.3 million in the third quarter of 2020, an increase of $19.8 from $16.1 million in the second quarter of 2020. When excluding the deferral of salaries related to PPP loan origination during the second quarter of 4.9 million, non-interest expense declined 1.7 million from the second quarter of 2020. This reduction is the result of cost-saving initiatives implemented early in the third quarter, which include targeted force reductions in key areas with weaker declining demand. We will continue to look for productivity efficiency and reduce redundancies from recent acquisitions in the coming quarters to further reduce non-interest expense. As noted in yesterday's press release, on October 16th, we closed the previously announced sale of our Clear Lake branch, which resulted in the sale of deposits of approximately $24.2 million. Final settlement on the sale will occur during the fourth quarter of 2020 and is expected to result in a gain on sale of approximately $700,000 and a reduction in rental and personnel expenses of $350,000. Additionally, yesterday, the bank entered into a branch purchase and assumption agreement for the sale of our Jacksboro location, which is expected to close in the fourth quarter of 2020. As of September 30, 2020, we continue to enjoy strong capital ratios, with the Tier 1 leverage ratio at the bank of 9.91% and 9.62% at the company on a consolidated basis. Maintaining a strong capital position is a current priority so that we can capitalize on any growth opportunities that arise in coming quarters. We also continue to focus on initiatives designed to return shareholder value. We continue to repurchase undervalued shares of our stock under the current stock repurchase plan and will continue to do so in the coming quarters and for as long as the stock remains at undervalued levels. I'd now like to turn the call back over to Mr. Bass for closing remarks. Dean?
spk03: Thank you, Allison. As we prepare to close out 2020, we must reflect on the past nine months to understand fully the challenges we have faced and the accomplishments we have achieved. The first quarter ended with nationwide fear and concern. Our primary focus was on protecting our investment, our great employees and customers, while working diligently to understand the government programs designed to assist them We experienced a call to serve and support our communities during the second quarter and the magnitude of which we may never see again. And one that made us all extremely proud to be community bankers and an essential part of the fight against the virus. During the third quarter, we took a hard look at our current financial and operational position and began making strategic plans for a bigger and better future. At the same time, continuing to focus on asset quality, improving earnings, and branch optimization. We will close out 2020 excited about the year to come and the ability to share future successes with our bankers, support staff, and investors. We have been battle tested this year and can now proceed with absolute confidence that our overall strategy of growing by partnering with other extraordinary bankers while focusing on our security, stability, and strength is a winning formula for success. This concludes our prepared remarks. I'd like to ask the operator to open up the line for any questions. Operator?
spk01: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Brad Millsaps with Piper Sandler. Please proceed with your questions. Hey, good morning, guys. Good morning, Brad.
spk04: Good morning, Brad. Dave, maybe we're going to start with deferrals. If my math's right, you're down to, I don't know, maybe 100 million or so deferrals. And it sounds like you have some confidence around, you know, those going off deferral. But, you know, would you kind of say that that, you know, is kind of the group you're watching, you know, the closest, you know, kind of ultimately where do you think, you know, that number falls to, you know, as you kind of close out that program?
spk02: Yeah, you're correct. It is approximately $100 million left in some form of deferral. Some are still in their first round of deferral. Some are in their second round. And very little has gone to the third round. So right now, we expect that that number will decline significantly throughout the rest of the fourth quarter as scheduled into the beginning of the first quarter of 2021.
spk04: Okay. And just wanted to maybe get some more color on your comments, you know, around, you know, loan growth returning. Can you maybe, you know, give us a little more color there, maybe in percentage wise on kind of what you're thinking in terms of, you know, growth you might be anticipating, you know, or how much bigger is your pipeline relative to where it was, you know, maybe at the lows in June or something, just any additional color there would be great.
spk02: uh sure um currently our pipeline has almost returned to pre-covered levels back in march it was approaching a billion dollars today slightly below that all our same mom and pop stuff we like to do across the whole gamut if you look at our granularity of our portfolio that's remaining. We're seeing larger deals, smaller deals, and in-between deals. So what we're seeing also is that our customers have taken their fingers off the pause button and are now actively planning for their projects or expansions going into 2021. So we expect that that pipeline that we have accumulated today will start producing this quarter into 2021. Overall, we're very happy with the organic growth we've seen in the third quarter. We expect there'll be more in the fourth and going into what we believe will be a good year for 2021 right now.
spk04: Okay, great. And then just final question for me. I know you guys have been, you know, hard at work, you know, with some branch sales and getting cost savings out from some of those deals from last year. Alison, just curious if you think this represents a pretty good expense run rate, kind of less what you talked about with the two pending branch closures or sales, excuse me, or do you think there are more cost savings to come sort of off of this run rate that we saw in the third quarter?
spk07: I think going into Q4, you should expect to see roughly a 3% decline in non-interest expense. We made significant strides between Q3 and Q2. We had an 11% decline if you add back in the 4.9 of salary deferrals that we took in Q2 of 2020. So we saw quite a bit of progress from Q2 to Q3, and then we'll continue to see that going into Q4.
spk01: Okay, great. Thank you.
spk00: Thanks.
spk01: Our next question comes from the line of Matt Olney with Stevens. Please proceed with your question.
spk06: Hey, Greg. Good morning, everybody. I want to follow up. Thank you. I want to follow up on the margin. It sounds like you expect some nice improvements here. If we remove the impact of PPP, which can obviously be volatile, I think the margin was around 428 FTE in the third quarter. I want to make sure you also expect improvements from those levels as well. Thanks.
spk07: Yeah, good question, Matt. Yeah, we definitely saw some improvement of seven basis points to 428, excluding PPP. But as reported, you saw it was at 397. And we like to maintain that margin north of 4%. So David's team has been doing a good job at drawing the line in the sand as far as rates at what we're putting on new loans at. And as we mentioned on the call, we've got our higher cost CDs rolling off in the next We've got 20% of those actually rolling off in the next quarter, and then 75% of those will reprice in the next 12 months. So we expect to see some pickup there in the net interest margin. And we're just committed going forward to maintaining that net interest margin at 4% or better.
spk06: Okay. And then the core loan yields in the third quarter, if I'm doing math right, if I take out the PPP impact, I think around 540. Does that sound about right? And David, any color on where the new and renewed loan yields are coming on more recently?
spk07: I'll take the first part of that. So yeah, excluding PPP, 540 is about right. New loans are getting, David, do you want to take that?
spk02: Yeah, as Allison said earlier, we have drawn a line in the sand and really targeting yields above 5% where possible. Competition is out there, of course, but we'll compete on rate if it's a good enough deal for us, but we're not going to compete on credit terms at all. So far, we're able to get what we have striven for with our customer, and maintaining yields above 5% up into the mid-5s is a target for us. With our current cost of funds, that will yield us the NAM that we want to see. New stuff coming on today is no different than it was 90 days ago as far as pricing for us. Okay, got it.
spk06: And then on the PPP fees, I think originally you said around $15 million. Just remind us how much we've recognized so far and how you expect to recognize that from here. Thanks.
spk07: Yeah, so gross $15 million in fees. We've recognized roughly $3 million of those. Net of those deferred costs that we deferred in Q2, we've got about $7.8 million remaining on PPP fees.
spk06: And from here, Allison, how do you see that flowing from 4Q into 1Q?
spk02: Right now, Matt, we're in the process of finishing up all the loans above $150,000. for forgiveness. We've made very good progress on that. We should be finished by the end of this month, and that represents approximately $300 million in loans that we'll have applied for forgiveness, and with the expectation that some of them will start paying off. We've had a total of three pay off, and we expect, and we've submitted well over 300 So we expect most of that will come into the fourth quarter or overrun into the first quarter. And then the next, by mid-November, we're starting on the loans below $50,000 because they're much simpler to process and faster than the ones above $50,000. And we think that that will be, that process, that's 1,800 loans, and we'll be finished with that project by the end of the year. And then that'll leave us with approximately 900 loans that'll get taken care of in late fourth quarter, early first quarter. So we're hopeful to have all the forgiveness taken care of into the first quarter of 2021. And then whenever the SBA pays us, that's when we'll recognize the fee. Okay.
spk06: Okay, great. And then just lastly for me on the credit front, it looks like non-accrual loans were relatively flat length quarter. That's great to see. What about special mention loans, substandard loans? I think those amounts were around $16 million and $32 million last quarter. Any updates on those two lines?
spk02: Coming out of our watch list committee meeting about six or eight weeks ago, we had more upgrades than downgrades. But the expectation is that, and it hasn't materialized yet, is that Of the $100 million in deferrals that are still remaining out there, a certain percentage of them will be downgraded at some point further down into special mention or down further into substandard, particularly if they ask for a third deferral, which we're being very stingy on that. But the reality of it is there's going to be some that do that. Right now that number is about $6 million in third deferral. And that's below expectations by about 40%. And so, and then also we have, you know, approximately 70 odd million dollars in SBA loans that are coming off of their SBA stimulus payments this month. There were over 561 loans, SBA loans, that this is their last, their first payment is due during October. We were projecting a 20% request for a deferral that they didn't get in the first place because the SBA was paying on their behalf. It's coming in at about 60% of that number. We're very happy with that result. The SBA portfolio certainly has our attention, but the results so far look like it's going to come in below what our modeling is telling us it was going to come. which is very, very positive for us.
spk06: Okay, great. That's all for me. Thanks, guys. Thanks, Matt.
spk03: Thanks, Matt.
spk01: Our next question comes from the line of Will Jones with KBW. Please proceed with your question. Hey, thanks.
spk05: Good morning, guys.
spk01: Morning, Will. Morning, Will.
spk05: Hey, Allison, I know a time or two you alluded to maybe enhancing some of your revenue streams on the fee income side or, you know, boosting up some non-interest income. Just curious if, you know, you guys have thought about, you know, M&A to expand fee income or, you know, any possible initiatives to just expand your current business lines there?
spk07: I'm going to let Mr. Bass take the first stab at that question.
spk03: Okay. M&A is in our DNA. Well, as you know, over the 10 years and 11 years that we've been together in this investment group, we've had about that many, if you average it, probably per year. But whether it's branch or full bank, yes, yes to that question. You know, we continue to be very active in... in the areas that are in market. We look very closely, and we are on the edges as well. And there are certain regions in Texas that we're not in yet. So those that we think can be marketed successfully. But at the same time, if we think we have locations that are not performing up to standards, we are we will not be quick to move in that direction, but we'll move in that direction appropriately. We did announce the closing of three of our locations, two of which we sold to two other banks, and a third we rolled up into one of ours. But at the same time, in the next quarter, this quarter, We'll also open up our LPO into a full bank in Corpus and also add another location in Austin, a market that we like very much. We continue to focus in the San Antonio market as well. So yes to that question. We're very, very interested in that. Allison, anything to add to that?
spk07: Yeah, and Will, as far as your question regarding our existing lines of business, with these The new Austin San Antonio group that we brought on, as well as our corporate banking group, their borrowers are looking for interest rate swap opportunities. So we hope to get into that market a little bit more and be able to offer that to some of our borrowers. As well as we see nice fee income and mortgage referral fees, obviously, given to the housing market currently. And it's nice to see SBA... gain on sale of loans come back a little bit this quarter. So, we hope to see that trend into the remainder of the year also.
spk05: Great. No, that's great, Kyla. Thank you guys for that. And maybe this last one for me, you know, we've discussed a lot of questions thus far, but maybe, Allison, I know you referenced just, you know, another quarter to be expected of elevated provisioning. You know, over the past two or three quarters, you know, you guys, it's averaging that two or three million range. Does that number still feel right moving into 4Q, or are you guys starting to get comfortable with reserve levels? So maybe just some thoughts around that provision.
spk07: So we've got a number of factors that could impact the provision for Q4 and Q1 of next year. As David mentioned earlier, the majority of our loans will be coming out of their deferment period, as well as the SBA portfolio is coming out of a period where the SBA has been paying their notes. We also have both our Comanche and Beeville acquired loan portfolios, which had a weighted average life of 40 months, is approaching the back half of that 40 months. So our analysis will probably yield a small provision on that acquired portfolio in Q4. So with that being said, I would expect a provision expense of $4 to $5 million in the $4 to $5 million range in Q4.
spk05: okay awesome great um and then maybe i guess just last one for me um you know you guys still remain a little active on the repurchasing stock um you know your stock trades at nine percent of tangible book value which is not as cheap as it's been but uh still at you know attractive levels um just want to get your thoughts on maybe future repurchase activity um you know how you guys are thinking about the buyback
spk03: It's a bargain, but I'll let Allison fill in the blanks.
spk07: No, we were aggressively, in the first half of the year, we aggressively repurchased shares, particularly when we were trading around $9, $10 a share. Now, we've eased up on that this quarter. I think we bought back roughly $750,000 in stock as we've seen our stock price getting closer to that tangible book level. We're going to continue to repurchase our shares as long as we maintain below that tangible book level, but we'll reassess that. when our stock price breaks that threshold.
spk05: Okay, great. Well, that's all for me, guys. Congrats on the quarter.
spk03: Thank you, Will. Thank you, Will. Appreciate it.
spk01: We have a follow-up question from the line of Matt Olney with Stevens. Please proceed with your question.
spk06: Yeah, guys, just to follow up, the press release mentioned the $436,000 prepaid penalty. Allison, was that in the interest expense or the non-interest expense? I couldn't find it.
spk07: That ran through non-interest expense is where that prepayment penalty was.
spk06: Okay. Okay. So I guess just trying to understand the, you mentioned the expectations for operating expenses in the fourth quarter. I think you said it would be about 3% lower versus the third quarter you just reported. Does that include the reported number you guys gave us of 19.3, or does that consider the prepayment penalty and those conversion costs?
spk07: Sorry, that's the reported 19.3 number.
spk06: Okay, so 3% lower than that number. Got it. And then on the other side, the fees were strong across the board. Maybe you mentioned in the remarks, I missed it, just any Any commentary on fees as far as anything unusual this quarter we should consider for our forecasting, or should we consider just assume additional build from here with the growth that you guys have invested over the last few quarters?
spk07: I think really the fee income was driven by people starting to see some green shoots and actually taking their finger off the pause button. So going forward, I would expect it to continue to increase. from here on out. I don't know if, David, you want to add anything to that?
spk02: Yeah, we're seeing real good opportunities to institute fees with our customers. And, you know, as mentioned earlier, the swap fee income is a good expectation for this quarter and into 2021 as people try to lock in lower rates on a long-term basis, which we benefit from with nice fees. And then we're starting to see a return of the SBA premiums. Our volume there is steady, and so that had some impact for us in the third quarter. And then just our normal origination fees, we've always been able to get origination fees on most of the loans that we originate. Got it.
spk06: Okay, guys, thanks for all your help. Sure. Thank you, Matt.
spk03: Appreciate it.
spk01: If there are no further questions, I'd like to hand the call back to management for closing remarks.
spk03: We'd just like to thank everyone for their continued support and interest in us, and we welcome any questions and calls after this meeting. So thank you very much for being a part of this today.
spk01: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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