Renasant Corporation

Hello, and welcome to the Renaissance Corporation 2020 Third Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star then one on your touchtone phone. To try your question, please press the star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Kelly Hutchinson of Renasant Bank. Please go ahead.

Good morning, and thank you for joining us for Renasant Corporation's 2020 Third Quarter Webcast and Conference Call. Participating in this call today are members of Renasant's Executive Management Team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Obviously, the continuing impact of the COVID-19 pandemic, the federal, state, and local measures taken to arrest the virus, as well as all of the follow-on effects from this pandemic situation are the most significant factors that will impact our future financial condition and operating results. Other factors include but are not limited to interest rate fluctuation, regulatory changes, portfolio performance, and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, renaissance.com, under the investor relations tab in the news and market data section. Furthermore, the COVID-19 pandemic has magnified and likely will continue to magnify the impact of these factors on us. We undertake no obligation and we specifically disclaim any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning may be non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. And now I will turn the call over to our President and Chairman. Chief Executive Officer Mitch Waycaster.

Thank you, Kelly. Good morning and thank you for joining us today. Before Kevin and Jim discuss our results for the third quarter, I want to offer a few comments regarding our markets and employees. Throughout our region, which broadly runs from the Mississippi River to the Atlantic Coast in the southeast, economic activity continues to slowly improve, though at an uneven pace. Businesses are adjusting, and while certain sectors remain fragile, companies are for the most part cautiously optimistic. The consumer came into this recession in relatively good shape and, while still hurting, is persevering. Overall, the pace of economic opening varies across our markets, but remains on a gradual uptrend. I am very proud of our employees for their extraordinary efforts during this period. Despite the physical separation, we have in many ways grown closer and stronger as a team. Economically speaking, we have been among the first responders. It was only a few months ago that we facilitated over 11,000 Triple P loans for bars in excess of $1.3 billion. and now we are guiding our clients through the forgiveness process. Likewise, on loan deferrals, we are actively engaged with our clients to find the best plan for them and the bank, and have seen the level of deferrals decline dramatically. We always seek to provide high levels of service, and I believe our team has responded brilliantly during the pandemic. Now I'll turn it over to Kevin.

Thanks Mitch and good morning. We are pleased to report third quarter earnings of $30 million or 53 cents per diluted share. The quarter was highlighted by loan and deposit growth, strong levels of fee income, particularly by mortgage banking, improved capital strength and a meaningful build in our allowance for credit losses, while all credit metrics remain stable or saw improvement. The pandemic highlighted the need to deliver our services more conveniently and efficiently. We made significant technological investments before the pandemic, and our clients and employees are benefiting from those investments. After being closed to regular traffic since mid-March, we completed the phased reopening of our branch lobbies in mid-October. With full consideration of CDC health and safety guidelines, and we are proud to be serving our clients across all of our delivery channels once again. As we reopen our branches, we continue to see adoption of our technology offerings by our customers as almost every digital, mobile, or online loan application offerings increase significantly since the onset of the pandemic. We expect continued investment in new products and intentional efforts to encourage utilization will lead to further increases in our future adoption rates. As the pandemic and any related economic impact continue to evolve, We are constantly reviewing our expense base for opportunities for cost elimination and efficiency gains. Through the first nine months of this year, we have tightly monitored our expense run rate, but recognize we must reduce expenses further in future periods, and we are taking action to do so. However, to maximize operating leverage, we must grow into some of our investments while at the same time reducing expenses. We believe our loan growth and production in the quarter, coupled with continued reductions in expenses, provide a roadmap on how we plan to improve operating leverage in future quarters. I will now turn it over to Jim, who will further discuss the quarter.

Thank you, Kevin. I will refer to the earnings deck while commenting on key themes for the quarter. We prioritize core funding, asset quality, and capital strength in our decision-making. So I will start with a review of the balance sheet. Deposits continued to see growth in the quarter and were up $88 million or 2.9% annualized. For the year, total deposits are up $1.7 billion and most of that growth has been in non-interest bearing accounts. 96% of deposits are core and the company has virtually no wholesale funding. During the quarter, loans grew to $11.1 billion. Excluding Triple P, loans are up 2.2% annualized for the quarter and 1.2% annualized for the year. Future quarters are likely to see declines in Triple P loans and result in the associated deferred income to be recognized on an accelerated basis. Asset quality measures are reflected on slides 13 through 15. Non-performing assets, which remain at low levels, represented 40 basis points of total assets, excluding Triple P, and were essentially unchanged from the second quarter. Loans 30 to 89 days past due represented 17 basis points of loans, excluding Triple P, and were up modestly compared to the previous quarter. Additionally, loan deferrals continued to decline, and as of October 23, represent 2.9% of loans outstanding, excluding Triple P. For sluggish GDP growth, relatively high unemployment levels, the prospect of a prolonged recovery, and general economic uncertainty led to an increase to the allowance for credit losses. The allowance for credit losses as a percent of loans, excluding Triple P, rose 22 basis points from the second quarter to 1.72% at the end of the third quarter. For the quarter, return on average assets and return on tangible equity were 0.8% and 10.9% respectively. Net interest income for the quarter was $106 million and was up marginally from the second quarter. This was driven by an increase in earning assets, which was somewhat offset by decline in net interest margin. Reported margin in the third quarter was 3.29% as compared to 3.38% for the second quarter. As seen on slide 21, Non-interest income increased $6.8 million from the previous quarter and was largely driven by continued strength in mortgage. Additionally, wealth, insurance, and service charges also showed gains quarter over quarter. Non-interest expenses were down $1.8 million to $116.5 million. a $5.7 million reduction in COVID-related expenses, somewhat offset increases in expenses in our mortgage division, which were tied to production. The core efficiency ratio for the quarter was 63% and was up from the second quarter. While there are signs of improvement, as Kevin noted, Efficiency is an area of focus for the company. I will now turn the call back over to Mitch.

Thank you, Jim. In closing, the uncertainty that has clouded much of 2020 remains as we begin the fourth quarter. We are unable to accurately predict the long-term impact of the pandemic. and the continuing limitations on economic activity we'll have on our stakeholders. But our commitment to the safety and security of our employees, to understand and then meet the needs of our clients, and to being a good citizen in our communities will support our success through this cycle and will continue to provide value to our shareholders. And now I'll turn the call over to the operator for Q&A.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we will pause momentarily to assemble the roster. And the first question comes from Jennifer Demba with Truist Securities.

Thank you. Good morning. Mitch, you said that the I think Kevin actually said the path to better operating leverage is through loan growth and expenses. So, can you just talk about the near-term outlook for both?

Sure. Good morning, Jennifer. I may let Mitch talk about loan growth first, and then I'll follow up with expenses.

Just as we reflect on production in the third quarter, I'll go back to the third quarter. And as we discussed on this call last quarter, we were then looking at a pipeline going into 3Q of $229 million. And similar today, not a lot changed, $219 million pipeline as we go into quarter. So we continue to see good production. but I would say cautious deal flow and pipeline across our markets and business lines. And we continue to hit on multiple cylinders. As I look at that pipeline, 24% is in Tennessee, 16% in Alabama, and then the Florida panhandle, 18% in Georgia and central Florida, 14% in Mississippi, and 28% in our corporate and our commercial business lines. So the pipeline, back to your question, the pipeline of 219 million, we would expect about 65 million growth in non-purchase. And that would indicate a production for the quarter somewhere in that 550, $625 million range. We just ended the third quarter with 636 million. with production, which compared to 521 million the prior quarter. So, continue to see good deal flow. As I mentioned, in various lines of business and geographies, from those that joined the company in the prior quarters, particularly in 19 and earlier this year, about 25% of our production. continues to come from that team. So again, broadly across the footprint and in various business lines, I would add this and just relative to payoffs, we did see payoffs increase about 45 million. They were 578 million this prior quarter versus an average of about 533 million. So Payoffs is a variable, and of course, until we see a sustained resolution of the pandemic, it's somewhat difficult to give a clear picture on the net results of the production. Kevin?

Sure. So, Jennifer, just on the expense side, and as you know, over the last beginning last year, enacted initiatives to help bring down expenses. That was before we started to experience revenue headwinds. This year just highlighted the need to increase those initiatives. And as we look at what 2021 looks like, with overall just macro, what could be macro headwinds, we still think there's ways to be opportunistic and find wins along the way. But at the same time, we're going to have to be very focused on the expenses and ensuring that the accountability measures that we have in place, whether that's on the branch, whether that's on the employee, on the lender, on the vendor, all of those are aligned with some of the headwinds we may experience on the revenue side. I know we talk a lot about the hiring we've done, and we will continue to be very selective in our hiring. but actually this year I believe we're down seven producers this year just as a result of accountability measures. And so our growth that we're experiencing is actually occurring with less production managers at the same time, and it's those types of initiatives that will need to carry us into 2021.

Jennifer, just to follow up Kevin's comments relative to the relationship managers, and as we were opportunistic last year in adding some 50 or so relationship managers. As Kevin said, we've continued to be opportunistic this year with 24 additions, but we've had 31 exits. So it speaks to our accountability and our focus on those measures that Kevin just mentioned. And back to the points on production, we were able to do that while we continue to drive a growth in our production and net loan growth.

So on expenses, is the goal to keep those expenses flat over the next few quarters, or what is specifically the goal as you look, and is the third quarter rate a good run rate?

Our intention would be really to focus on efficiency and driving meaningful improvement in efficiencies. knowing that some of that will come on the revenue side, revenue enhancement where we can. But we also have to be mindful and have expectations that the expense run rate will be coming down.

Okay. Thank you.

Thank you, Jennifer.

Thank you. And the next question comes from Michael Rose with Raymond James.

Hey, guys. Thanks for taking my questions. So I understand the reserve bill this quarter, but it is a little bit higher than what we've seen at other banks. Is the way to read this just kind of an abundance of caution because we don't know exactly what's going to happen in the future? Are you actually seeing anything in your portfolio that would give you some sort of indication that you needed to build reserves again this quarter when most others didn't? you know, did not. And then just as a follow-up to that, you know, when I look at your slide deck this quarter, you know, it does look like you removed two of the categories from the at-risk portfolios. You know, I think you removed entertainment and then retail trade. That was a little interesting, you know, I guess because, you know, healthcare is still in there, but, you know, you've removed, you know, I guess restaurants. So how do we kind of just Can you just try and put that all together for us? Because I think that's the biggest question out there right now. Thanks.

Good morning, Michael. It's Jim Mabry. And I'll start and then ask David Meredith to answer your questions on sort of impacted industries and how we look at those. But as it relates to the provision expense, I would say generally, you know, we feel good with the credit metrics. And I think as you saw in those slides that generally they're tracking well and And very favorably, and again, David will comment more on that, but I would say that that data suggests and the things that we're seeing suggest that losses will be considerably less than what the industry thought a few months ago. That being said, and while things are improving, it's still an uncertain period. And the CECL model that we use has both quantitative and qualitative inputs. And on the quantitative side, we did make some adjustments from Q2 to Q3, but I would characterize them as generally having a modest impact on the calculation for allowance. The qualitative overlay continues to have the biggest impact on the model. And I would think, assuming that the credit outlook continues to improve, it would suggest that for us anyway, the heavy lifting would be behind us in terms of provisioning. And that bodes well for a meaningful decline in future provision expenses from here, and hopefully leads to reductions in the ACL down the road. David?

Thank you, Jim. On the deferral conversation, so if we look at where we are as of October 23rd and those industries that you that you mentioned. We pulled out a few. Arts and entertainment, we pulled out just from the dollar size of deferrals that still remain in that bucket and how we've seen that industry rebound. We're down just from a dollar standpoint, $8 million in deferrals, so not a meaningful dollar amount. Restaurants, we're down to 0.8% of that portfolio, $2 million in restaurants. In retail, we're down to 0.9% or under $7 million in total. We felt those dollar declines precipitated us bringing those out of the deferral bucket. And just as a reminder, when we pull something out of our deferral bucket, it's because the loan has resumed normal contractual payments. So it wasn't that it matured from the deferral bucket and therefore we took it out. They had to make their first normally scheduled contractual payment for it to come out of that deferral bucket. So we feel very confident in the direction of those loans that have come out. And also as a follow-up on the asset quality standpoint, if we continue to do our monthly monitoring, what we call our enhanced monitoring on those loans that are in deferral, and so the recognition of assets that need to be migrated to a different risk rating, particularly classified and so forth, that may be an indicator of our asset quality. We continue to do that monthly enhanced monitoring on those loans. So we have real-time risk rating of those assets, and it's not something that's deferred until the end of the deferral period. So that's more of a real-time risk rating.

Okay, that's helpful. So I guess putting it all together, it does seem like, you know, this is, you guys are cautiously optimistic because, you know, most of the credit trends and the deferral update and everything, everything seems to move in the right direction. So I guess that's the way to read it.

I think that's fair. Again, we would hope that in future quarters the provisioning level is meaningfully less than what you saw in prior quarters. And, again, assuming no changes to the outlook, I think all signs point in that direction.

Okay, great. Thanks for the color. And then maybe just one follow-up question as it relates to the mortgage banking business. Can you just give us some color on what, again, You know, in the near term, you know, MBA data looks, you know, pretty good. You guys have obviously added some lenders over the years, picked up a team from another bank. You know, just any sort of, you know, qualitative color you can give us would be helpful. Thanks.

Sure, I'll start. This is Jim and ask others to add to it. But, you know, clearly we're very pleased with what we've seen out of the mortgage division that's been quite strong, much like, you know, the rest of the industry. And we've seen, you know, good margins there and really good volume. And I would say, you know, early in the fourth quarter, those trends continue. But we also appreciate that we're going to enter a period here in Q4 where we're going to have a seasonally slower period of time. And historically, much like others, the peak of our business is Q2 and Q3. And so I think it's natural to expect some slowdown in the mortgage business as we get further in the quarter. And that'll bleed over into the first quarter for at least the first part of it. So in terms of volume, I think that's a reasonable expectation. The margins have held up well for this year, given having both that and the volume have led to really outsized results in mortgage. And I would say that as volumes come down, it's also likely that we'll see some decline in those margins. Hard to predict where they'll go, but it would be natural and typical in the business to see margins compress somewhat as volumes decline in that business.

I would add to Jim's comment and to add to your point in your question. I think Renaissance's ability over time to be a consistent performer in mortgage, also to have the appreciation of that financial service, and over time consistently recruit and build a platform that serves our market because we do believe that is a core financial service that's paying off for us. We've also proved over time that we can manage expense in that business line while consistently offering that product. So we've built a strong team, and certainly they're putting up strong performance. And to Jim's comment, feel good about that business line going forward.

Thanks for taking my questions.

Thank you, Michael.

Thank you. And the next question comes from Kevin Fitzsimmons with the A.A. Davidson.

Hey, good morning, everyone. Maybe just a follow on to that point, Mitch, that you just made about proving you can manage the expenses in the mortgage business. If you can maybe drill into that a little more and give us a little color on how we should think about that, because I think obviously the good news is how well mortgage is doing right now, but the not so much bad news, but the uncertainty is looking ahead and saying, all right, this is probably as good as we're going to see. And eventually, not just seasonal, maybe dealing with a seasonal slowdown, but we're going to have maybe more of a normalization trend as there's limited folks left to refi and maybe rates eventually start creeping up. But just how to think about that accompanying decline in expenses and accompanying that would accompany a decline in revenues.

Thanks. Absolutely, Kevin, and a good question, and it's much back to Kevin's comment earlier about how we're focused on growing revenue and building out our teams in every business line, and I would start that discussion by pointing to the consistency of how we've stayed in the business, recruiting the right teams. We have very strong leadership in that part of our company, and What they do is they continually build in the support, particularly where some of that is somewhat variable, and monitor that within that line of business. And what I was referring to, we've been able to demonstrate in the past, and while it's hard to predict the volume of mortgage and how that will vary going forward, what I was referencing as our ability in the past as that volume changes to manage through that. It's not unlike the way we've built our business model. So I think we're well positioned as we've demonstrated that in the past. It's hard to predict at this point, but we're proving our ability to do that. Kevin, Jim, anything else you want to add?

Kevin, I would just add, and Mitch mentioned it, that the one nice thing about mortgage, it is volatile. It goes up and down, and we're all predicting when it's not going to be as beneficial. But the one thing that is constant in mortgages is the expenses are predominantly variable. And so as revenues ebbs and flows, so will expenses. And that's just how the mortgage business is built, is that there's a tight correlation on the expenses and the variability to the revenues.

Kevin, on that point, can you just give us a sense for where the efficiency ratio is today on mortgage and how, when we see that the revenues go down, where we should think of the efficiency ratio, what kind of band it would stay within?

Yeah, so right now, or historically, our mortgage company, their efficiency ratio tend to weigh on the corporate efficiency by two or three points. They typically ran in the high 60s, low 70s. Right now, with the volume they have and the mortgage they have, it's actually flipped. It's contributing a percentage point or two to the efficiency. So their efficiency today is in the... It probably has a 50 handle on it, high 50s. But that's just a result of just the volumes and the spreads, the revenue we're experiencing. As it reverts back to normal, we think that the mortgage efficiency lands back where it historically has been in the high 60s, low 70s.

Great. That's very helpful, Kev. Thanks. Just one follow-up on capital and capital deployment. It seems like the capital is strong, and you guys took the step of raising subnotes or subdebt and took the – you have the total risk base up where it is. You guys made the comment that you have the buyback approved but don't intend to use it. Can you just give us a sense on – Is that due to just getting better visibility or is that due to wanting to get the TCE ratio up to a certain point or is it just more of a regulatory, you know, issue where you don't want to be seen buying back right now? Thanks.

Kevin, this is Jim. I would say it's all those things plus a few more. I mean at the top of the house, as we think about it, it's really – the buybacks are part of a capital allocation thought process. And we've got a number of levers there, and putting the buyback in place seemed to make just good practice, good sense to us. And as you point out, we've got no current intentions to act upon that. But the way we think about capital is we want to have capital such that we're in a position where we have optionality and flexibility. And we think we've got that. And you referenced us accessing the markets for the debt in the quarter. And that only, in our opinion, added to our flexibility in terms of capital. So whether it's buybacks, or accommodating loan growth or future M&A, we feel like we're well positioned on the capital front. And that's, again, there's no one measure, no one thing we look at, but it's something we constantly think about and evaluate, but we like where we stand.

All right. Thanks, Jim. Thanks, everyone.

Thank you. And the next question comes from Brad Millshouse with Piper Sandler.

I hate to belabor the mortgage point, but I was just curious if you had the amount of loans that you sold during the quarter, just, again, trying to back into that gain on loan sale margin.

If you give me a minute, I'll have that number for you.

Okay. And then while you're looking for that, just back to the efficiency discussion in mortgage. I mean, you know, your revenues are up. you know, more than 300% year over year, yet, you know, personnel expense, you know, is maybe up a third of that, you know, $10 million or so versus a $30 million increase in mortgage revenue. As revenue comes down, does that, you know, relationship, you know, sort of hold on the way down? Or is there other costs that we need to be thinking about that, you know, could also come out as, you know, as revenue adjusts, whether it be seasonally or because of gain on loan sale margins?

Yeah, so it's predominantly in the salaries and employee benefits line item. That's where the majority of the cost is in mortgages. There's some operating costs, closing costs, but the vast majority is in that salaries and employee benefits line item. And, again, largely mortgage producers, they're paid on what they originate and close. So if they're not originating and closing, which is what drives the revenue, they're not getting paid. There's a little bit of an outsized benefit right now. Again, we've kind of hit a little bit of an inflection point where there's some outsized impact on the revenue side. So as revenue comes down, you're probably not going to see a dollar for dollar decrease on the expense side. But again, it is variable and you will see relief on the expense side. And just going back to your question about loans that were sold, we sold approximately $1.1 to $1.2 billion during the quarter. And that margin maintained in that mid 3% range, which I think is pretty close. It came down a couple of, maybe a quarter point in Q3 compared to Q4. So it tightened just a little bit, but still much wider than what we saw any point in time last year.

You know, obviously you talked a lot about revenue headwinds. That's a part of it, but just any additional color there would be helpful.

Sure. So just as we look at margin, we think that there's going to be headwinds and pressure on the margin just as a result of the environment we're in. But we feel that we're stabilizing. And so the core margin that you see, we feel that that's somewhat stabilized. As we look at new and renewed pricing, there's a little bit of pressure on just new and renewed pricing compared to what the portfolio loan yield is. But as we look at offsets on interest expense on deposits, we still think that we have several quarters, several more quarters of relief that's coming on the interest expense side.

And I would just add, Brad, to what Kevin said. I think directionally, if you look at the last few quarters in terms of core margin, they tell the story, I think. Because in Q1, we were at 356, and Q2 went to 326, and in Q3, we were at 323. So I think that tells the story in terms of direction where that may head. And that's frankly the best predictor we've got right now as we look at margin. So I think that's a helpful guide to people trying to interpret the direction of margin from here.

Okay, great. Thank you.

Thank you, Brad.

Thank you. And the next question comes from Catherine Mueller with KBW.

Hey, good morning. Maybe just to follow up on that last point you made, Jim, on the margin just continuing to come down. How do you think about the impact of excess liquidity in the next couple of quarters, particularly as PPP forgiveness starts to flow in? Some banks are looking at liquidity actually building as we start to give that forgiveness? And just curious how y'all are thinking about that.

Well, a couple of things, and I'll ask Kevin or Mitch to chime in. But again, we look at core margins. So I tend to isolate triple P and excess cash and accretable yield. And of course, for accretable yield, that continues to come down for us generally. And so as we look at core margin and think about liquidity going forward, I think on liquidity, The great thing about all this liquidity and excess liquidity is it's forced us to be more aggressive on a couple of fronts. One is on deposit pricing, which we've had meaningful progress, and I think there's more there to be had. And then as it relates to other sort of non-core funding, we took out, much like everybody else at the beginning of this, we took out some advances to bolster our liquidity position. We've, the last two quarters, paid in a few hundred million dollars in advances. At this point, I think we've got roughly a little over $100 million left in advances. So it's that liquidity and the thought of future liquidity has enabled us to be pretty aggressive in terms of how we manage the balance sheet. That being said, as we go forward, I mean, we want to be thoughtful about it because it's not that exciting to take this liquidity and put it to work at 1% or less. And so as we think about it, we certainly would love to have the loan growth to put that liquidity to work, but I would say we're, and we've got room on the balance sheet for a larger investor portfolio, but I would say we're going to be cautious there because it just doesn't feel like it's the right time to put a lot of that liquidity and securities at a spread of less than 1%. So we'll see where we go from here, but hope that we've got some ability to put at work on the loan side in 21. So we'll see how that unfolds.

Great. That's really helpful. And then how about on M&A and your thoughts on just when you think conversations will start to pick up and when you think you'll be ready for for another deal.

Yeah, Catherine, just a few thoughts. And it's a good thought. And while we're clearly focused today on the challenges, and I would say the opportunities in the pandemic, and as we've consistently done in our past, to be opportunistic, whether that's talent, new talent, new markets, but to your point, M&A partners. We're certainly continuing to evaluate those opportunities that drive shareholder value, and as always, beginning with culture, business model, making sure the alignment exists, really to answer the question, are we better together? And if you give thought to that, what better time that during the pandemic that we're all walking through to have those conversations about alignment and business model and risk appetite. So certainly during the pandemic, those conversations continue, and we continue to evaluate opportunities that will drive shareholder value. So I think the timing is somewhat hard to define. I think the opportunities, though, are certainly evident.

Great. Very helpful. Thanks.

Thank you, Catherine.

Thank you. And once again, please press star and then one if you would like to ask a question. And the next question comes from Matt Olney with Stevens. Hey, thanks. Good morning, guys.

Good morning, Matt.

On the hotel portfolio, it looks like hotel deferrals came down quite a bit in recent weeks. Any commentary you can provide for us on that and any commentary on the occupancy levels you've seen more recently in that book. Thanks.

Sure. Matt, good morning. This is David Meredith. You're right. Hospitality numbers have continued to see improvement. They're at October 23rd. They continue to see improvement since quarter end down to about 29% of that book of business, $102 million. So we continue to see positive migration even subsequent to month end. From a look at our hotel portfolio, again, we still have some headwinds in front of us. We've seen improvements in occupancy levels. We have only less than a dozen hotels that have occupancy below 50% at this point. Other ones are above 50%. We only have four properties. that are not at a break-even NOI at this point. So we feel very comfortable with the number of – the way the hotels have responded with only having four of them with a not break-even NOI. Obviously, there's still a ways to go in that, but we continue to see month over month as we continue to monitor through our –

the overall level of criticized loan buckets. Just trying to appreciate if there was additional migration into special mention. Thanks.

Sure. We did have some migration as we laid out back in Q2 with our second phase of deferral that we would migrate loans that request a second phase deferral likely into a special mention or criticized classified category. just because they've asked for that second phase deferral. And so we did see some migration in our criticized loan pools. They're up from, I guess, up by about $75 million of an increase due to our hotel portfolio. Again, just putting those assets in a criticized category. And the residual change was about $10 million in our entertainment book. That made up a change in our criticized book of business. So, again, those loans that are on deferral, that we had kind of forecasted in Q2 that if they asked for a second-phase deferral, we would migrate those loans to a proper risk-rated category. So it migrated up to the $75 million hotel and about $10 million in entertainment.

Okay, great. That makes sense. Thanks for your help.

Thank you, Matt.

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Mitch Waycaster for any closing comments. Okay.

Thank you, Keith, and to each of you who joined this morning, we appreciate your time, your interest in Renaissance Corporation, and we look forward to speaking with each of you again soon. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. May God bless you.