ServisFirst Bancshares, Inc.

Good day and welcome to the Service First Bancshares, Inc. third quarter earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by 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 star then one on your touch-tone phone. To withdraw your question, please press star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Davis Mange, Director of Investor Relations.

Please go ahead, sir.

Good afternoon, and welcome to our third quarter earnings call. We will have Tom Broughton, our CEO, Bud Foshee, our CFO, and Henry Abbott, our Chief Credit Officer, covering some highlights from the quarter, and then we'll take your questions. I'll now cover our forward-looking statements disclosure. Some of the discussion in today's earnings call may include forward-looking statements. Actual results may differ from any projections shared today, due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made, and Service First assumes no duty to update them. With that, I'll turn the call over to Tom.

Thank you, Davis, and good afternoon. As a backdrop for our call today, I'll give you an update on where we see the economy. We've seen a really nice rebound in the economy in the last several months. One helpful thing is the southeast in the United States has never had the shutdowns like many areas of our country and has not had the social unrest problems in many areas. So it is now fully reopened. Unemployment rates on average in the southeast are under 7%, which is much lower than most of the country. So we're fortunate in that regard. We're not seeing many issues even in affected industries. and I would attribute that partly to softer and shorter shutdowns in the economy. We've also seen that well-run businesses adapt to a new environment and that is what we have seen even in industries that have been highly affected by the pandemic. We did have one client that had 100% revenue loss due to COVID and the company was restructuring the quarter. Henry will talk a little bit more about that in a minute. Let's talk about our loan pipeline level. It sort of hit a low at the end of the last quarter. And it's now back at record levels, up 40% over last quarter. So we are seeing a nice rebound in loan demand since mid-July. The pipeline has more small closings pending in large part due to our bankers' efforts in the Triple P program assisting customers of other banks, and we're starting to see those customers transition their banking over to us now from their former bank. Many projects are moving ahead where both we and the client hit the pause button during the early part of the pandemic. The multifamily and industrial commercial real estate and loan demand does seem very robust. There are significant lags in growth of loan outstandings with the construction loans. So we have a pretty good backlog of construction loans that will ramp up over the next few quarters. The C&I line utilization is still at historically low levels. And over the past quarter, you've You described loan demand, C&I loan demand is fairly tepid. It has improved significantly at the end of the quarter. And we are, you know, part of the reason we've had low line utilization continuing is I think is the triple P loan proceeds. And I think also we have customers that still have low inventories as their supply chains are still not rebuilt from the early days of the pandemic. So all in all, we would expect pretty solid loan growth over the next few quarters with construction loan advances, organic growth, and expected line utilization increase. Talk a minute about expenses and expense cuts. And I see a lot in the industry written about how all the banks need to look for expense cuts due to tighter margins and lower loan demand. We do try to constantly look for expense savings which is one of the reasons we have one of the lowest efficiency ratios in the industry. While we do have a small branch network, the pandemic has proven to us that even our bank can be more efficient with our branch network and we see opportunities to reduce staffing in the future. We do see opportunities in core processing for expense savings plus additional outsourcing. One thing I'll say about expenses, you can cut expenses to improve profitability But it will not help you reach prosperity. So our focus will always be on revenue growth. On the deposit side, we continue to see strong deposit inflows, which we attribute in large part to our strong performance in the Triple Peak program. And again, many of these are strong owner-managed companies with limited borrowing needs that are good core deposits in the future. We are asked constantly about mergers and we are open to the right acquisition opportunity. While many might make economic sense, few are a good cultural fit and most that we would see out there have a large legacy branch network which would not be a good fit with Service First. We are generating excess capital and we'll look at acquisitions on a selective basis. I will say this, I think if you make a lot of acquisitions, you will over time become a very mediocre bank. So that's something we would like to avoid. Our board will continue to also look at enhancing our dividend on an annual basis. I'll now call on Henry Abbott to give a credit update. Thank you, Tom.

I'm pleased with many aspects of how our bank's loan portfolio performed in the third quarter and throughout the pandemic. For the quarter, we continued to see a significant decrease in deferrals as they burned off and those clients who were on a deferral returned to normal payments. As of 9-30, we had roughly $28 million of loans that were on some form of a deferral. This represents a 92% decrease from the prior quarter end when we had $342 million in loans on deferrals. Throughout the pandemic, the overwhelming majority of deferrals granted were principal-only deferrals. At the same time as those deferrals burned off, our past due loans were only $9.3 million, which is the lowest we've had in over three years. We have not seen a significant rise in past due credits as noted by past dues to total loans being only 11 basis points. As it relates to deferrals and past dues, we've not seen any major swings within our COVID impacted industries, hotels, restaurants, and retail CRE. As discussed in the past, these segments On a standalone basis, each make up between 1.5% and 3.5% of our total loan portfolio, and the investment slide deck posted on our website provides this data in more detail. We had one performing hotel loan of roughly $2.7 million added to the watch list, and one oil and gas customer with exposure of roughly $3.6 million added as well. No hotels are currently on a deferral, and less than 1% Only $1.5 million of our restaurant portfolio is on a deferral. We have a well-diversified portfolio from an asset class and geography perspective, and we continue to diligently monitor and take proactive actions as appropriate. Non-performing assets were $33.5 million for the quarter, which is down from the prior year end, 2019, as well as from the first quarter of 2020. but this is an increase of roughly $5 million from the prior quarter end. I'm proud to say our non-performing assets to total assets were 29 basis points at quarter end which is lower than the majority of our peer banks and less than our results were at 2018 and 2019 when they were 41 and 50 basis points respectively. While our asset quality continues to remain strong, we were proactive with one large charge off which elevated net charge offs in the third quarter Thank you for joining us. The borrower had a viable business prior to COVID but needs the economy to continue to reopen before they can return to full-scale operations. At this time, we feel we have taken appropriate steps to mark the loan and don't anticipate any future large charges of this nature on this relationship. We continue to spend a great deal of time on credit servicing activities, which should help identify elevated risk pockets and enable us to mitigate future credit expenses. Tom, I'll pass back to you.

Thank you. I'm going to call on Bud Fauci now to give a financial update for the quarter.

Thank you, Tom. Our net interest margin for the third quarter was 3.14. It was 3.32 in the second quarter. To exclude the average Triple P loan balances of $1.05 billion and the interest income and loan fees related to Triple P of $6.6 million, the margin was 3.25. and also if you exclude the increase in our average fed funds sold of 610 million, the margin was 3.33. The remaining Triple P deferred fees at the end of September are 25.3 million. CD maturities for the remainder of 2020 are 127 million. The average rate is 1.33. on those CDs. We expect the majority of these CDs repriced at 0.50 or below. Additional cuts to posted CD rates occurred on October 16th. With these rate cuts and repricing, we'll see an annual expense reduction of 1.1 million. Quarter to date cost of funds has decreased this year. It was 1.14 in the first quarter, 0.69 in the second quarter, and 0.58 in the third quarter. Rate cuts on September 11th will reduce annual interest expense by $5.5 million. Additional cuts to posted money market rates occurred on October 16th. Those cuts will reduce expense on an annual basis by $360,000. At quarter end, deposit costs, total deposits were 0.34. Interest-bearing DDA cost was 0.32 and total interest-bearing deposits was 0.47. The holding company is in process of refinancing one of its sub-debt issues. It will close on October 21st. The total debt is $34.75 million. The annual savings from the refinance will be $348,000. We have submitted 45 Triple P loans to SBA for forgiveness. The total loan amount is $42.7 million. Three of those loans have been forgiven. That totaled $143,000. A reminder, we have no accretion income related to acquisitions. Liquidity, our Fed funds sold with $600 million when we started funding Triple P loans in April. Funds were $1.55 billion. at the end of September. Our non-interest income, credit card income was $1.8 million for the third quarter versus $1.4 million in the second quarter. For the spend amount, purchase cards increased $4.5 million in the third quarter, business credit cards increased $9 million, and consumer increased $1.3 million. Total spend for the third quarter of 2020 was $151 million versus $135 million in the third quarter of 2019. Spend is back to pre-pandemic levels except for business credit cards. Merchant service income year-to-date is $397,000 versus $299,000 year-to-date 2019. And we have two officers dedicated to selling that service. Mortgage Banking Income, $2.5 million in the third quarter versus $2.1 million in the second quarter. Also, we purchased $300 million notional amount of a one-year LIBOR cap in the second quarter. The mark-to-market adjustment to the third quarter was a negative $343,000, and strike price is .50. A reminder, we don't sell anything Got them at guaranteed loans to generate non-interest income. Non-interest expense for the year total producers, we're down five. We had 134 producers at the end of September. Total employees are down nine from year end 2019, 496 employees at September 30th. We talked about expense control in our previous calls. So the totals I'm going to give you for non-interest expense have been adjusted for the PPP expenses, the FASB 91 deferral related to PPP loan originations, and ORE expenses. So for the first quarter, that total was $27.2 million. The second quarter, $26.4 million. And third quarter, $26.2 million. Capital, the bank's Tier 1 leverage ratio was 8.78% at the end of September. Also, earnings retention, we're paying 17.5 cents a quarter given in, but our earnings retention for the quarter was 78.2%, and year-to-date was 76.2%. Taxes for the third quarter, the rate was 20.3%. For the third quarter of 2019, it was 20.2%. Year-to-date 2020, that rate is 20.1%. And year-to-date 2019, the rate was 20.2%. That concludes my comments. I'll turn the program back over to Tom.

Thank you, Bud, and thank both of you for the reports. As you can see, we had really solid financial performance in the quarter and also very strong performance from a credit quality standpoint. There were a lot of questions early on in the pandemic about loan deferrals, and this will put that question to bed for us. We won't have to talk about loan deferrals again. So we'll be happy to answer questions you might have starting right now. Thank you.

And we will now begin the question and answer session. If you would like to ask a question, you may press stars and one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press stars and two. And our first question today will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.

Hey, good afternoon, guys. How are you? Thank you. I appreciate all the detail you all provided. Just a couple follow-ups here. I noticed the allowance ratio, despite the charge-off, which looks like it's emanating from one lumpy loan in a particular industry like you described, but the allowance ratio largely was stable to even slightly down. So based on what you see here, Tom, would you Do you think you're at peak reserve level in terms of having to build that reserve further, not including, you know, whatever you may do when you retroactively adopt CECL, but just thinking about the next two or three quarters, whether the days of the lion's share of reserve bill you think is behind you? Thanks.

Yeah, well, we're above CECL today. Our CECL model would call for our reserve to be about $3 million lower than it is today. So we're above CECL if that answers that question. Kevin, I realize that, of course, nobody has the crystal ball. And I also would point out that actual loan loss reserve levels, as you are a regulator yourself, as I always tell regulators, the best defense against losses is profitability. and we have profitability and that is the very best defense against any future loan losses. So we don't see any reason to think that we need substantially higher loan loss reserves today or certainly we would have provided for them during the quarter. We still do have a fairly large triple P loan fees that will You know, of course, who knows when the SBA will start paying loans. You know, we've tendered a few loans to the SBA totaling $45 million. They've paid three loans out of 45 totaling $145,000. So it's just not any money. So I don't know when they'll start doing that and when our customers will tender the loans to us for us to send them to the SBA. So I don't know if I answered your question, Kevin.

Yeah, that's great, Tom. I appreciate that. Maybe just shifting gears, I know, Bud, you provided a lot of detail on rates coming down on the funding side and what was driving the margin compression this quarter. Can you, just from a more top level, help us in how to view the likely trajectory of the margin going forward here over the next several quarters, whether you want to take that from the stated margin or whether you view it more as a core level, excluding some of the lumpy items that you described. Thanks.

Yeah, the hardest thing to predict is going to be the liquidity. I mean, we're at $1.6 billion at the end of September. We've been at the $1.5, $1.6 level for a while. That's I mean, for the margin to increase, that's really got to change. And, you know, loan production did pick up in the third quarter, but just, you know, that'll have to pick up more. Or, you know, a lot of the Triple P income, I mean, I'm sorry, a lot of the Triple P funds that customers got, but that money's still sitting here. So it's hard to forecast when they're going to spend that. Plus, like Henry pointed out, line utilization is still down, so we're waiting on that to turn around, but we can really give a good answer on margin improvement, I think.

Kevin, I can't imagine there's ever been a worse time for an analyst to try to run their models than right now. There are just so many variables in there that none of us know the answer to in terms of liquidity. When will line utilization go back up? They're going to go back up. It's just a matter of when. Our line draws are down well over $300 million since the pandemic began. We see loans flowing back in. We see loans picking up. That'll certainly help. A bit with a margin, but it will get us back to where we are used to. I don't think it's going to happen anytime soon, Kevin.

Yeah, you can say that again about the model. And then one last thing, and I'll get off, is just you had mentioned earlier about the SBA program. Repaying some of these forgiven loans and the process with that and all the uncertainty. Is it fair to say if we were assuming the bulk of the forgiveness impact to the margin running in in fourth quarter, it's now probably reasonable to push a lot of that out to first quarter? Do you think that's reasonable?

You know, my guess, and this is purely a guess, but I'm guessing that of the remaining fees that we accrued 25% of them in the fourth quarter, or take them in income, and then 75% of them come in the first quarter of next year. You know, of course, it seems they're not paying the large loans yet. You know, they're paying the very small loans. I took three loans totaling $145,000. Those are probably the three smallest loans that we've There have been a couple of business sales that we've turned those in, and some of those are larger. One was $8 million. I know that has not been paid. So it's interesting. We're trying to do all the due diligence necessary to make sure that we don't lose our SBA guarantee. And I read a statistic the other day that Pentax only processed 15% of Triple P loans. The vast bulk of the fraud situations uncovered so far are all at the fintechs. So I think it bodes well for the traditional community banks that know their customer and we look at hard at who the customers are. But I think that would be my guess, Kevin, and that is purely a guess on my part.

Okay. I appreciate that. Thanks, guys. Have a good evening.

Thank you.

And our next question will come from Brad Millsaps with Piper Sandler.

Please go ahead. Hey, good evening, guys. Hey, Brad. Hey, Brian.

Hey, Tom. You sounded pretty optimistic on loan growth. Just kind of curious, you know, if you give us, you know, a little bit more color, you know, kind of the magnitude of kind of what you're seeing come back. I know you mentioned the pipeline was up, you know, maybe 40% above. Where it was, you know, you talk a lot about pipelines and kind of, you know, those are sometimes not worth the paper they're written on, but just kind of curious kind of what you're thinking about, you know, pull-through rate, and then where are those loans, you know, being originated at in terms of the new rates coming out of the books?

Yeah, we're, we're, we're, but in terms of, I'll let you answer the question of the, the, the, the new loan rates are in line with our existing portfolio.

Yeah, most of, I would say, new loans are probably four to four and a quarter, somewhere in that range. Probably closer to four.

So, from the standpoint of, no, life-life lines are not perfect predictors of future loan growth, Brad. I'm always the first to say that, and I'll say it again. What we see in the loan pipeline from a C&I side is a lot of smaller credits that are coming on as a result of our efforts on the Triple P loan front, and they are new customers to the bank, and they're pretty small, but that's fine. There's just a lot of them, and that adds up to a substantial amount of money, I think, over the next A couple of quarters and then our construction loan draws that we expect are in future quarters is well over $300 million on loans that are already closed. But we do see a number of multifamily projects. We see other commercial real estate projects and hopefully we'll start seeing the line utilization come back up over the next few quarters as You know, again, I think it's as much, you know, the lack of the ability to acquire product for our customers to rebuild their inventories. Their supply chains are just still broken from the pandemic and they cannot refill their inventory buckets. So that's a good bit of our line utilization problem, I think, is due to that. So all of that gives me cause, reason for for optimism, Brad, in terms of our future outlook.

And just on the race, Tom, have you guys, you know, we're great where they are. Have you instituted sort of service first prime this time around where you guys, you know, sort of aren't going below a certain level? Just kind of curious if you're doing that and if the market, you know, supports it.

But we are, and of course, you know, they're banks that are outliers, and we just don't participate in, you know, we We say we're a disciplined growth company that sets high standards for performance. The word discipline is right in there in that sentence. We try to be disciplined and have more discipline than some of our other banks in the industry. We will continue to do that.

Great. I just wanted to follow up on your comments around expenses. I know six or nine months ago you guys were talking about getting tighter on the expense front. You said on this call that you can't save your way to prosperity, but just kind of curious, some of those initiatives that you guys were talking about nine months ago, are they kind of in the run rate, or is that maybe still to come? Just kind of want to get a sense of kind of where you guys were with that.

Well, I mean, like second and third quarter, I think we're at 26. If you strip out the Triple P and the ORE, we're at 26.4 in the second, 26.2 in the third quarter. So we feel like that's a pretty good level. I mean, we've essentially cut out salary increases for this year, and I know that will really come into play in 2021. So we feel like we're You know, we're at a good level going forward somewhere in that range for non-interest expense. Is that what you're saying? Is third quarter a good?

I think, Brad, I think you, like, for us forecasting the margin for an analyst, there's never been a worse time to forecast expenses either. You know, because there's so much noise in the numbers right now with a, you know, triple P loan expenses and things that we have. There were totally unexpected overtime pay incentives and that sort of thing that we're paying and should pay to our people for a job well done. We have a number of initiatives that have not yet begun to pay off in terms of core process and expense and other outsourced expenses that we see opportunity to control and bring those. You heard the headcount. All right, thanks, Tom. Take it easy on us this weekend. Appreciate it. All right. Thank you, Brad. Well, we need a rest after Georgia.

And once again, if you'd like to ask a question, please press star then one. And our next question will come from Kevin Swanson with Hot D Group. Please go ahead. Hi, guys.

Hi, Kevin.

Hey, MPAs were up slightly after the higher charge-off, but, you know, obviously they're still below levels earlier this year. Could you provide any color on when you think MPAs might peak and if there was any specific credits added this quarter?

Yeah, in terms of when they might peak, I mean, you know, I don't want to speculate on that, but I mean, you know, obviously we feel good about our asset quality. There was one large C&I credit that was added that helped drive that figure for the core operating company, and, you know, it's just one that's a long-time customer that had been struggling, and we felt appropriate to move it on to NPAs, but, you know, I I feel good about where we're going to end the year in terms of NPAs, but I don't have a crystal ball.

Kevin, with C&I credits, they always bounce around a little bit. If you chart back over the last 12 quarters, it'll be up or down a quarter or two, and then down, and then up a time or two, and then down. So they're in the range they've been. Again, most of our loan problems, I could go down the list with you, and only one credit involved this quarter was, as far as I know, I think just one was COVID-related, as we mentioned, the large write-down, the right size of that company. Nothing else is COVID-related. One's an energy credit related to the energy industry. You get that. I guess that potentially is COVID-related as well. So it's a small oil and gas supplier. So, you know, we can't give you a much better answer than that other than we try to recognize problems as soon as they happen and be proactive. And we don't see, you know, a large backlog of potential probable assets in terms of, for example, you know, the SBA made all the payments on 7A loans for six months. and so on and so forth and so forth and so forth and so forth and so forth and so forth The SBA 504 loans, we have a few of those. We had to put them on deferral. Obviously, that was required. So we feel pretty comfortable with SBA loan exposure. We just don't see, you know, I read everything that everybody writes. You know, the stimulus is going to expire and this is going to happen and all that. But, you know, we don't have any really consumer-related exposure to speak of at all. So we just don't see the, you know, It is the tale of two economies. A lot of businesses are doing extremely well. We only have one hotel that's on the watch list and none on the furl. As Henry said, one restaurant. So we just don't see potential problems out there at this point, Kevin.

Thanks, that's great. And then looking at the environments of and some of the liquidity, excess liquidity. Is there any change in what the value of a relationship looks like considering some of the difficulty in the past to put that money to work?

Well, in terms of what's a core deposit worth today compared to a few years ago? Yeah, that's fair. Yeah, I mean, you know, certainly I I still think the core deposit relationship is the key relationship in a bank. What CIT just sell for is percentage of book value. What they don't have is core deposit relationships. They've just got a book of assets that they sold and no core relationships. I still think it'll always be, if you take a long view, Yes, I would agree with you. Core deposit premiums are probably not what they are today compared to a couple of years ago. It's funny. We were worried about liquidity back in February, and today our liquidity is – we've had $2 billion in deposit growth in the last 12 months. So it's kind of unbelievable the changes we've seen there, Kevin, all of us.

Yeah, I agree. Thanks. And then maybe just a final one. You know, prior to the pandemic, there was quite a bit of potential from a lot of the M&A in your backyard. Maybe any update on some of the offensive moves? I know you prepared more, as you mentioned, you're open to an acquisition. But just curious on maybe any color further on that or any, you know, some of the more kind of team acquisitions you guys have done in the past.

Yeah, we continue to hire producers. We hired a number this quarter that we were very excited about, and we think they're key additions to the staff. There are production people looking, and they're calling our people and calling us and calling me and saying they're interested in making a move. So we think we're the best place for a banker to bring their customer base So we're excited about that. We don't see a lot of M&A activity right now. There's nothing going on right now. I think everybody wants to get the next few months behind us, and then we'll have total clarity. I know what our credit quality is. I'm not sure I know what everybody else's credit quality is at this point in time, Kevin. Okay, great. Thanks, guys. Stay healthy. Thank you.

And our next question will come from William Wallace with Raymond James. Please go ahead.

Thanks. Good evening, guys. Hi, Wallace. So, Tom, maybe just kind of following up on the point that you were just making, you look at your deferrals relative to All the other banks that are operating in your markets and you are at, if not near, the best of the bunch as far as having the lowest amount of loans on deferral. I'm curious if you've spent any time trying to discern what might differentiate the loan portfolio at Service First relative to maybe some of your competition.

You know, I don't know Wally other than we don't have any, you know, companies that have been really heavily impacted by COVID is all I can say is that is there you know we don't have convention hotels and some of the sort of properties that you know not a lot of big retail properties uh you know so yeah I just don't know what they have on their books I just know you know what we have but but um you know uh

Do you know what the occupancy rates have been in the portfolio and what the debt service coverage looks like for your hotel loans?

Our worst hotel is the one we've got on the watch list. What's the debt service coverage? 0.9?

It's below 1, but I mean it's still...

It's close to 1. The global coverage is more than good on debt service and it's a 50% loan to value. I guess we feel... We would sell our note for less than par, let's put it that way. We would not sell that long at a discount. So we feel pretty good about our, you know, again, the restaurant exposure, people adapt pretty well to a new environment, the good business people do. We think we have a good, you know, we don't have a lot of heavily leveraged borrowers, Wally and, you know, There's no substitute for equity in a business. Clarence and I were talking about this earlier in the week. You look at a business that's got a lot of debt and no equity, it's a formidable disaster. We don't have a lot of highly leveraged companies, so I think that's part of it, and we've just shied away from that type of borrower.

Okay. In the loan that you charged off, was that charged off? Did you write off the entire balance? And if not, what's remaining?

No, we did not write off the entire balance. Direct debt to that borrower remaining is roughly $13 million. As Tom alluded to, try to right-size the debt to get them through the other side of the pandemic. They've got a viable business. The economy needs to reopen before they can get back on the road to full utilization.

Was that loan in the NPA bucket in the second quarter?

That loan was not in the NPA bucket.

Is it in now in the third quarter numbers or not?

No. It's a poster child for COVID. Wiley is one of those poster children for COVID. It's a great company. 100% revenue lost during COVID. It'll come back. We feel good. We have all the same collateral base that we've had before. Good borrower. High quality person that's owner of the company and getting some family help to get through the pandemic. So we feel good about the company. Go ahead.

It's your what? No, sorry. Go ahead.

It's our most heavily impacted COVID customer.

Yeah. And the amount charged off, was that just to charge down to your estimate of the value of whatever collateral there is or was it a restructure or for what?

Yeah, if you get down to the enterprise, you know, the enterprise value, you know, closer to, you know, you can't say what's the collateral worth today, right? If you took that value, there's not a big market for collateral when nobody's using it, right? It's kind of like, what are real hotel loan-to-values? You know, when I said it's a 50% loan-to-value, I don't know. We had tried to sell the, you know, foreclose on the hotel to sell it, but I would suspect that loan-to-values are higher than we that it was when we underwrote the loans for all of these type of impacted industries.

And just one last question, just sort of circling back to that hotel portfolio, excluding the one on the watch list, what are you seeing? What's happened with occupancy rates in the third quarter, say, from where we kind of troughed in April or so?

Yes, so we're following up with most of our borrowers and getting star reports, and I think it really just depends on where they are. I mean, I think across-the-board occupancy is picked up, but it's very market-specific on where those hotels might be, and if they're down by the beach and by the coast, they've seen pickups due to the summer, but I mean, we're certainly getting debt service coverage and star reports on them quarterly to kind of understand the trends within that specific borrower's Okay.

Okay. I mean, do you have maybe a range of rates that you've seen? I know you guys operate in a handful of different metro markets around the southeast, but just any color?

Yeah, I mean, I could get you more specifics, but I mean, I think it's in the 50% range or so, you know, just slightly below 50 is my guess. It just depends.

Most of the hotel operators I've talked to are very satisfied. Most of them are cash flowing and doing well while we just don't have the big highly leveraged borrowers. Again, I think if you start quoting loan to values, what is the value today of a hotel? Anybody with common sense knows that it's not what it was before the pandemic. We don't have any convention hotels and we're pleased about that because I don't know that we're ever going to see the level of conventions we had in the past. It's going to be like an airline. It's going to be a while before they have a full comeback. We like where we are.

Okay, and moving off the credit, my last question is just on the loan growth. Did you say in your prepared remarks, Tom, that your pipeline is at record levels? Did I hear that?

It is, yes. It is. It's back at record levels.

And are you – have you all adjusted any of your underwriting requirements, just kind of an utmost of caution around uncertainty around the pandemic or – You feel like you were always conservative so you don't need to make adjustments.

We're doing additional stress testing on any potential borrower while it just makes sense to do. We sat around and talked about it and our Florida bankers said, let's just take a very cautious approach to underwriting just like we did during the big recession down in Florida where everybody was so heavily impacted. So We always try to underwrite. We pride ourselves on making the same decision through good times and bad. Whether the stock market is up or down, it doesn't matter. We try to make the same decisions every day. But we have looked very hard at credits from a pandemic-related standpoint to make sure that there's not going to be any unforeseen Consequences. Henry, Doug, is there anything you need to add?

No, I agree. I mean, just like you said, looking at stress rates a little bit more in terms of occupancy on things. But no, I mean, nothing outside of just kind of digging in a little deeper on potential changes and vacancy and other things. We haven't materially changed what we're doing. Okay. Thanks very much, guys. I appreciate it.

Thank you all.

And this concludes our question and answer session, thus concluding today's call. We'd like to thank you for attending today's presentation. And at this time, you may now disconnect your lines.