Earnings Call: Q3 2020

Oct 21, 2020

Good morning, everyone, and welcome to the Pinnacle Financial Partners Third Quarter 2020 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www dotpnfp.com. Today's call is being recorded and will be available for replay on Pinnacle's website for the next 90 days. At this time, all participants have been placed in a listen only mode. The floor will be opened for your questions following the presentation. Call. During this presentation, we may make comments, which may constitute forward looking statements. All forward looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward looking statements. Many of such factors are beyond Pinnacle Financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's Annual Report on Form 10 ks for the year ended December 31, 2019, and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non GAAP financial measures as defined by SEC Regulation G. A presentation of most directly comparable GAAP financial measures, a reconciliation of the non GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I will now turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO. Thank you, operator, and thank you for joining us. To get started here, I think Q3 was an outstanding quarter for us. Key success measures like asset quality, core deposit growth, fee growth, pre provision net revenue growth and tangible book value accretion were all very strong during the quarter. We begin every quarterly call with this dashboard, reflecting our GAAP measures. But honestly, there are so many adjustments required in order to focus on the variables that we're truly managing to here at Pinnacle that I want to move quickly to the chart reflecting the adjusted non GAAP measures. As you can see here, total revenues, fully diluted EPS and adjusted PPNR are all up meaningfully on a linked quarter basis. Revenues are up roughly 7% year over year at a time when many of them predict and banks cannot earn in 'twenty one what they earned in 'nineteen. We're proud that fully diluted EPS is already back to the 2019 level for the Q3 of 2020. And most importantly, since PPNR has become our primary focus during this pandemic and for the remainder of 2020. Adjusted CPNR is up nearly 7.5% over the same quarter last year and roughly 23% on a linked quarter annualized basis. Loans were up 16.2% year over year. For the Q3, they were flattish. Average loans were up a tick. EOP loans were down a tick on a linked quarter basis. Harold will review that in greater detail shortly and talk about our expectations going forward. But generally, we continue to believe we'll produce loan growth primarily based on our ability to take market share. Due to our prolific hiring, we have 73 relationship managers with tenures less than 2 years. That's 22% of our RMs, and that represents enormous market share movement potential. Core deposits continued to accelerate at a rapid pace during the quarter. Of course, year over year growth of $3,400,000,000 includes roughly $1,500,000,000 from our PPP borrowers, but the majority of that growth is not tied to PPP and more likely is a function of the increased liquidity among our business clients and the low cost deposit initiatives that we have put in place this year. What I think has been a really challenging year here, we continue to have a track record for consistently growing tangible book value. So nearly 13% year over year, 14.5% on a linked quarter annualized basis. Across the bottom row, you can see that asset quality held up really well in the 3rd quarter with NPAs at just 40 basis points, classified assets actually down this quarter to the lowest level in the last 5 years and annualized net charge off just 23 basis points in the quarter. I'm going to turn it over to Harold and Tim to review the results in much greater detail. As we go through the details, I find that there's a lot be encouraged about regarding our net interest margin fundamentals, particularly the trajectory of our cost of deposits. Fee income was at an all time high this quarter. We've talked for some time about BXG's differentiated model and it is, in fact, proven to be extraordinarily resilient, producing record loan originations at an average interest rate to the borrower of 14.4%, record loan sales to correspondent banks with a record low in the cycle of 4.9% average interest rate, which banks are buying that paper. That's a 0.9 5 percent spread and demonstrates both the value that borrowers place on the convenience BHG offers and the demand BHG's correspondent bank network has for that paper. They also had a highly rated securitization of their loans during the quarter, further validating the quality of the product that they're originating. And as of October 16, just 3 loans, 3 loans are on a deferral. So asset quality is holding up very well. We've said for some time that our expectation was that BHG would prove out the differentiated nature of their model during this cycle. It seems to me that they're doing that in spades. So Harold will review that in some detail. And as you know, we've talked about our transition to defense earlier this year, allocating a meaningful part of our human capital to reviewing our loan book borrower by borrower. That work was completed in the Q3. And so Tim is going to update you on that work and give you insights of what we're seeing and learning. But my expectation is it is likely to create optimism despite the fact that there are still unknowns relative to the timing of the vaccine besides the nature of the stimulus package and the full reopening of the economy. So Harold, let me turn it over to you. Thanks, Terry. Good morning, everybody. I'm going to get through these next few slides quickly. Many of them we've shown for quite some time and Q3 results are basically consistent with what we anticipated from last time, so I don't believe there are any shocking revelations. As anticipated, loan growth for the Q3 was essentially flat. Line draw dropped again to 49% at quarter end, which is the lowest that I can ever remember. One positive note was that during the quarter, new loan bookings increased consistently each month after bottoming in July. We're not going to declare that a trend just yet, but it is a positive signal. Our annual loan growth forecast excluding PPP remains in the low to mid single digits, and I'll cover both loan yields and PPP in just a second. Now to deposits. We had another big deposit quarter. We lower rates, we get more deposits. We've experienced significant growth in non interest bearing deposits ending at $7,100,000,000 at quarter end, up 47% since year end. The number of checking accounts is up almost 9% since year end. So if I could do a cartwheel, I'd be doing one right now. We're estimating that the PPP program provided about $1,500,000,000 of our deposit growth year to date. That's a rough estimate because it's basically impossible to determine a precise number. That number is simply the net growth in PPP borrowers deposits between March 31 September 30. Last quarter, we mentioned that we expected those funds to evaporate over the few quarters. My thoughts now are that we could be holding on to that money for an extended period of time. More on deposit rates in just a second. Next is our usual update to our loan pricing, given the circumstances, this is absolutely great news. Obviously, year over year loan yields are significantly impacted by yield curve adjustments, particularly LIBOR, but as the tables at the bottom of the slide show, our relationship managers held loan pricing in the 3rd quarter. We don't talk about prime based credit much, but weighted average loan rates have not changed a basis point in 6 months. Keep in mind, the chart excludes PPP money, so this is blocking and tackling kind of transactions with our clients. Loan 4 is absolutely helping. If we can keep this going, our ramp game plan for 2021 will get a shot in the arm. I'm not going to spend a great deal of time discussing deposit pricing. This is obviously not a new chart and nobody's asking about deposit payments anymore because we're so close to the bottom as there's only so much more deposit maybe you can get. We continue to target a range of less than 25 to 30 basis points for our deposit costs by year end. Our relationship managers have their client list and are working with them aimed at depositors who have outsized deposit prices. We have approximately $1,650,000,000 in wholesale funding maturities over the next two quarters that will likely allow to roll off without renewing, thus alleviating some of the liquidity build and some of the pressure on our net interest margin. Bringing this information forward from last quarter, the top left chart on investment securities is new. We've been at an absolute level of investment securities of 13% to 14% of assets for a while, not looking to change that. We're starting to get a few questions about deploying excess liquidity into bonds. It's really hard to get excited about any incremental leverage strategy at this point. There's just a ton of uncertainty right now, and the bet at the long end of the curve is going to stay where it is for the next several years, we believe, carries too much interest rate risk right now. There are obviously products out there that we can where we can get a few basis points, but for the next year or so, but credit risk begins to enter the conversation. We've always taken the position that credit risk is reserved for the loan portfolio. So we need to reduce our wholesale funding book over the next several quarters because this is not rocket science. Eventually and hopefully the PPP money is going to turn into cash. So this liquidity issue is not a 2 to 3 quarter issue, it's likely to be a 1 to 2 year issue. Along those lines, we're showing that we're a $34,000,000,000 bank at September 30. I'd say and I believe we're more like about a $29,000,000,000 to $30,000,000,000 bank as we've got about $2,500,000,000 in PPP money as well as a little more in excess liquidity. So that's about $4,000,000,000 to $5,000,000,000 plan on profitability measurements like NIM and ROA. That said, at least the PPP program is profitable. Our proposed liquidity bill is not and is costing us around $1,000,000 to $2,000,000 a quarter. We will shed the liquidity at some point slower than we'd like, but that said, we don't have a vaccine yet either, so the additional insurance is still there out of an abundance of caution. We believe that both PPP and our excess liquidity negatively impacted our 3rd quarter NIM by 40 basis points. There's a slide in the supplemental information that shows how we calculated that number. Now here's some good news in all that algebra. We believe our NIM after PPP and liquidity is approximately 3.22%. This compares to a similar calculation last quarter of 3.19%. I know that's only 3 basis points of earning asset improvement, but that 3 basis points is about $9,000,000 of net interest income over the next 12 months. Now to fee income, I'll be really brief. Fees were more than $91,000,000 for the quarter, an all time record. Everyone knows that 2020 is a powered up kind of year for mortgage. It's unbelievable. I'll talk about DSG in a few minutes, but DSG, as they say, is killing it. As anticipated, wealth management rebounded based on boundary fees for investment services, where fee revenues are received in a year, arrears and are based on market performance. So now to expenses. Personnel costs, as we stated in the press release, increased due to incentive accruals. As we discussed on this call last quarter, our Board did modify our annual cash plan such that we are providing an increased opportunity to our associates so that we can earn up to 50% of their annual award with this modification. Had the Board not elected to do so, our incentive accrual would have been around 25% of our associates' targeted award. We believe this will keep our associate base highly energized and motivated to ramp up the operating performance of the firm going into next year. This additional incentive opportunity is based on hitting a PPNR growth rate over 2019, exclusive of PPP, the liquidity build and BHG. This is our attempt to quantify the blocking and tackling of what our associates do every day without the distractions of PPP, liquidity or BHG. Also given its PPNR, the pandemic's impact on our credit book is excluded so our credit officers can work with these borrowers that might have been impacted by COVID in such a way that the credit officers can do what they believe is best for the bank without impacting the goals of this incremental incentive opportunity, which is to motivate these 2,500 people to ramp into 2021. Briefly concerning CECL, eventually this slide will lose its prominence and be permanently relocated to the supplemental part of the slide deck. Our reserve without PPP loans increased only 2 basis points to 1.43%. We also increased our off balance sheet reserve slightly. As the slide notes, our unemployment forecast improved slightly this quarter. So that, plus flattish loan growth, contributed to the modest reserve deal. The PPP program is back in the news. Not going to go through the entire slide, but we split out the smaller loan balances in the top right table. We're unsure as to how the SBA will manage the simplified approval process or the timing for reimbursement, but suffice it to say, they've carved out the smaller loans to make it easier to get repaid. We won't characterize the rigor of the forgiveness process as similar to the initial funding process, but we are not optimistic that the larger loans will likely it will likely be a choppier process, at least that's what we think for now. So we're expecting some net interest income lift in the Q4 due to PPP forgiveness, but expect Q1 of 2021 will see the greater lift. This is a new slide I discussed as I discussed on the expense slide regarding incentives, this serves as a foundation for what we're trying to do as we ramp into 2021 with increased momentum. It was a great quarter for us as PPNR per share increased above $2 for the quarter to $2.08 per share. Our goal is to try to ramp into 2021 with a mid- to high single digit PPNR per share growth, which we believe will compare very favorably to peers. Aiding our PPNR growth this year is reduced incentives, so increasing our expense load for 2021 with target payout will be a big headwind for 2021. So for 2021, we are discussing how best to manage that as we close in on our targets for next year. A lot to do with that is where we see the pandemic evolving over the next few months. I'm not going to go through this slide in-depth. Obviously, we have some idea about credit costs for the Q4, but we continue to withhold. But suffice it to say, we are optimistic about our shorter term prospects. And once COVID is over, we love our longer term prospects. Now briefly about tangible equity. These are high quality assets that will there are high quality assets that will eventually exit our balance sheet. We believe we will manage back into the high 8s and alumnis by year end or into the Q1 of next year. Quickly, some comments on capital. We are hearing some banks are getting back into or initiating buyback programs. That's obviously on our agenda as well. Likely not a focus for us for the next couple of quarters, we intend to seek reauthorization of our buyback program soon and then evaluate whether we should restart the program. We are a firm that works on many things. We are focused on growing earnings per share in an outsized way, but we are also intentional about growing tangible book value per share. We've accomplished a lot of things since year end 2016. Our balance sheet was $11,200,000,000 in assets at 2016 year end. One thing we are proud of is that since that time, we have increased our tangible book value per share by 72%. We are second to only one other firm in our peer group during that same time period. The 75th percentile of the peer group is at 37%, roughly half of our growth rate. To say I'm pleased with how this quarter ended up is an understatement. As to execution on various tactics, I think it was one of the best quarters we've had. It's difficult to relay the significant effort that my colleagues are putting forth every day working with clients and solving their problems through this pandemic. It truly is remarkable. We all know it's a difficult operating environment. Loan growth is sluggish at best and the yield curve is no friend of any bank, plus it's a yield curve that we believe will have to live through for an extended period of time. Politics are also very distracting and tend to rob us of our optimism. However, the bright spots for Pinnacle can't be overemphasized this time. Depositors continue to trust us and borrowers are figuring out how to manage their businesses through this cycle. Discipline has never been more important. We don't know how the pandemic will play out over the next few quarters, but we do like our franchise and where we do business and with whom we do business. We believe migration patterns are favoring more people and commercial businesses moving into Tennessee, the Carolinas and Georgia. We like our competitive prospects. We are as Terry will discuss shortly, we're a force in Tennessee as well as in several markets in the Carolinas. Deposit share data would indicate that we are getting there in Charlotte, Raleigh, Charleston, and believe me, we will score in Atlanta. Now to BHG. We've shown a similar slide before, and it's intended to give you a snapshot of BHG's business flows over time and, more importantly, how they're holding up during the pandemic. The blue bars on the chart are originations and have ramped up with more loans being funded, so business flows remain strong. The green bar represents loans on which gain on sale has been recorded as these loans are sold to downstream banks. This is the traditional BHG model with gain on sale revenues being generated. As you can see, both bars are at record levels in the 3rd quarter. Coupons have fluctuated over the last 3 years, but there's no discernible trend up or down. Seems like a mid-fourteen percent is the tick. As to bank buy rates, they fell to below 5% in the Q3, lowest I can recall since we became involved with Bankers Healthcare Group. One thing we have not emphasized enough is the small chart at the bottom right. Over 1,000 banks are now in DHG's network and almost 600 acquired DHG's loans this year. That seems to be one of the strongest funding platforms for a gain on sale model on the planet. There are firms out there trying to replicate this, but they've got to get real busy, real fast to find a funding platform like DHG's. It's taken 20 years, but it belongs to DHG. They own it, they developed it, and they capitalize on So from 30,000 feet, business flows remain incredibly healthy. Loan originations remain strong, loan sales are at record levels and the funding platform is ready to take DHE's inventory. The top left chart we've shown on several occasions the quality of BSG's borrowers has improved steadily over the last few years, but particularly in 2020. They continue to refine their store cards and increase the quality of the borrowing base. The right chart again is the most powerful chart I think I can offer related to BHG's improving credit quality. Looking at losses by vintage, losses continue to level out earlier months since origination, thus pointing toward a lower loss percentage over the life of the underlying loans. Pandemic relatedness will likely cause these lines to move upward, but the quality of the borrowing base, in our opinion, is very impressive. As Terry mentioned concerning deferrals, as of June 30, last quarter, total deferrals represented about 15% of the total book. Dennis led the group with a 35% deferral rate. BHG communicated with these borrowers frequently and worked to decrease the numbers meaningfully in the 3rd quarters as deferrals are essentially non existent at the end of the Q3. 90 5 percent of the deferred loans are current and paying. Of the 5% that aren't current, about 25% of those are on payment plan and paying as agreed. The remaining 75% or 3% to 4% of the deferral date is in early stage delinquencies, so losses from these could materialize in the next 2 to 3 months. But that said, this has been crazy good. We've updated charge offs and reserve bills. These are for loans that DHC has sold to their network of community banks. The green bar shows that currently they've got more than $3,400,000,000 in credit with banks who've acquired their loans. The orange line shows the annual loss rate, while the blue line on the chart details the recourse accrual as a percentage of outstanding loans with these other banks. For the 9 months of 2020, losses are running at 4.2%, basically consistent with the last few years. Lastly, we said it last quarter and we'll see it again. It's been a big year for BHG, and we anticipate big things for the Q4. During the Q3, the credit markets improved, allowed BHG the opportunity to execute on their first securitization. Appreciate that securitization went out at investment grade ratings. This allows DHE to continue to diversify its revenue stream away from gain on sale with more interest income as well as provide another very competitive pricing priced funding source. So wrapping up, loan pricing is holding, deposit growth is remarkable, the private deposit pricing is headed down, BHG is making it another great year and credit is very much manageable. So with that, I'll turn it over to Tim to talk about credit. Thank you, Daryl. Good morning, everyone. From a traditional credit metrics of past dues, net charge offs, NPAs and classified assets, Pinnacle's loan portfolio continues to hold up well. That said, we understand we may not yet have experienced COVID's full impact on our loan portfolio. Before I discuss our credit slides, first a few comments about our defensive credit work completed during prior quarters. During the Q2, we regraded all loans greater than $1,000,000 that had a payment deferral. We also re graded all hotel loans and all CRE Retail loans greater than $1,000,000 regardless of the deferral status. During the Q3, our focus broadened to include the remaining sections of our portfolio that we did not re grade during the Q2. This extensive underwriting effort included our pass grade loans with exposures greater than $2,000,000 The only risk grades we did not re underwrite were our top two grades for our very best loans, generally loans secured by cash or marketable securities. For our watch list, criticized classified loans, our review threshold was much lower at just 500,000 dollars Our re grading exercise was a tremendous amount of work for our lenders and credit staff, but we believe the benefit of quickly identifying any credits materially impacted by COVID will help us in the long run. During the Q3, we reviewed about 2,500 loans, totaling approximately $10,000,000,000 in exposure. Our work during the Q3 consisted of collecting current borrower monthly financial statements, conducting a survey questionnaire of our C and I clients, collecting data points in our CRE loans. The results of our Q3 credit work is encouraging. At the completion of regrading work, the newly identified classified loans in the quarter was only $33,600,000 But even more positive is that the net change in classified loans for the 3rd quarter was a decrease of $27,000,000 Our criticized assets had a very modest increase from the Q2 to Q3 of $70,000,000 A few comments about our hotel book. You'll recall during the Q2, we moved approximately 78% of our hotel balances into a criticized risk rating. On a very positive note, since the Q2, many of our hotel borrowers have reported improving occupancy levels. Similar to the Q2, we conducted a 4 question survey of C and I clients in mid September. The survey population was 262 clients with total loan balances of $852,000,000 This time, the C and I survey was targeted to our lowest half grade credits in a variety of segments like entertainment, restaurants, physicians. 3 of our questions were asking the borrower's estimate of revenue for 3rd Q4 2020 and Q1 2021 compared to the same period in the prior year. The 4th question was regarding months of liquidity on hand to cover operating expenses. The results were 68% said 3rd quarter revenue would be between 75% to 100% of Q3 2019. 74% said 4th quarter 2020 revenue would be between 75% 100% of Q4 2019. 76% said 1st quarter 20 21 revenues will be between 75% to 100% of Q1 2021 and finally, 62% reported having 7 more 7 months or greater of liquidity to cover operating expenses. Pinnacle continues its approach of a well balanced and granular loan portfolio. Given the extent and coverage of Pinnacle's defensive work during the second and third quarters, we believe we have identified those borrowers that have been extensively impacted by COVID. Risk rate migration during the Q3 was modest. Through the efforts of our early problem identification and a very strong special assets team, Pinnacle's classified assets decreased during the Q3. NPAs increased just 3 basis points from the 2nd quarter and net charge offs increased modestly from 10 to 23 basis points. In March, Pinnacle began proactively reaching out to clients with loan payment deferrals. We believe many of our clients accepted the offer of a payment deferral in March April simply because the impact of COVID was unknown to them. The table on this page illustrates that our loans with a payment deferral have dramatically decreased from 18.7% of loans as of June 30 to just 3.1% by end of third quarter. By mid October, our deferrals had decreased further to just 1.8% of total loans. A few comments about our 4,013 loan modification. By September 30, we had executed just a handful of 4,013 loan modifications totaling approximately 49,000,000 dollars Our 4013 loan modifications are not a one size fits all. Modifications are tailored to fit the circumstances of the loan and the borrower. For illustration purposes, I'll offer a couple of examples of modification discussions with hotel clients. My first example, we met with the borrower and agreed to an interest only period to June 30, 2021, conditioned upon the establishment of an escrow reserve of 9 months of interest payments with Pinnacle. We also implemented a LIBOR floor of 75 basis points. This was a good solution for us both. My second example was a long term client with several hotel loans that had a deferral of principal plus interest. The borrower requested a longer interest only period. We replied we are open to a modification provided we institute an interest rate floor. The customer declined our offer due to the rate floor, paid all deferred interest and agreed to resume regular P and I payments. Our thoughtful negotiation resulted in avoiding 4,013 loan modification. Naturally, there are many more variations of these two examples, but our intent with modifications is to help the client bridge to the other side of COVID, but also explore ways to improve the bank's position. Pinnacle's approach to hospitality sector has always been a disciplined, conservative approach of banking hotel sponsors who are well capitalized and have a long successful track record of operation. A few attributes to illustrate our conservative hotel underwriting: weighted average LTV of just 55%. Weighted average 2019 debt service coverage was 2.1% for stabilized properties, 91% have personal guarantees. All of our hotels are open for business. Prior to COVID, we only had one non performing SBA hotel loan of just $3,000,000 that we discussed last quarter. During the Q3, we moved just 3 hotel loans into a classified risk rating. The collective balance on these three newly identified hotel loans totaled just $5,300,000 The combined LTV for the 3 is just 40%. Business center, resort, high end and airport properties are under the greatest amount of stress. Our exposure in these categories is limited to a few in the business center and our airport categories. This page contains data for our hotel loans. Approximately 74% of our hotel loans are in the extended stay, economy and limited service sectors. Many of these types of hotels can cover operating expense and interest expense with occupancy in the 45% to 55% range. As illustrated by the 3 graphs on this page, our limited service, full service and extended state borrowers have reported improving trends in occupancy since the low point recorded in April. This slide provides details of our loans in the restaurant sector. It groups together exposures to real estate developers who lease to restaurants as well as loans directly to restaurant operators. Our restaurant exposure is just 3% of our loan book. Tennephol's very successful PPP program provided $179,000,000 in cushion to our clients. Loan deferrals to our restaurant clients have decreased from 21% of the portfolio at second quarter to a modest 3.6%. Of our 20 largest non owner occupied pre loans leased to restaurants, none have a payment deferral. Our quick service segment is made up of names like Taco Bell, Sonic, Wendy's and KFC. This slide provides insight into our retail portfolio. It consists of both retail store operators and commercial real estate loans leased to retail operators. Loans with deferrals have decreased from 18% at second quarter to only 0.5 percent. Pinnacle's successful PPP program provided $189,000,000 of cushion to our clients. Approximately 23% of our CRE term loans are single tenant properties with tenants like Tractor Supply, Dollar General, O'Reilly Auto Parts, 711 and Walgreens. Pinnacle Bank has always maintained a very limited appetite for power retail centers. We only have 6 power retail centers in our entire portfolio. The primary tenant for these properties are names like Walmart, Harris Peter, Hobby Lobby and Dick's Sporting Goods. For our pre retail construction book, 65% are built to suit single tenant to names like Tractor Supply, Dollar General and 711. Our retail strip center construction loans have an average loan size of approximately 44,000,000 dollars and have 75% of the space pre leased. This slide will provide some insight into the composition of our C and I retail book and the owner occupied real estate secured retail book. Similar to our CRE retail book, it is very granular. This slide provides some insight into our entertainment portfolio. Pinnacle's entertainment portfolio is approximately 3% of total loans. Over 50% of our entertainment exposure is in the music publishing space to finance the acquisition of song catalogs. Each catalog of songs is made up of 1,000 of well seasoned, diversified songs that are stable from an earnings standpoint. Revenue from the catalog is generated primarily from music streaming fees paid from firms like Spotify, Apple, Amazon and Terrestrial Radio. Pinnacle's very successful PPP program provided $54,000,000 of cushion to our clients. To summarize, the present status of our loan portfolio is that of tempered optimism given Pinnacle's comprehensive loan review and regrading during the second and third quarter. Net charge offs continue to remain in an acceptable range. Our level of classified assets is stable. Loan deferrals have declined to just 1.8% by mid October and September 30, loan delinquencies was just 11 basis points. While we take a measure of comfort in these metrics, we acknowledge that the duration of COVID and no second fiscal stimulus package could alter these metrics in the coming quarters. Harold, now back to you. Okay. Tim, I'll take it from here. As part of our Q1 earnings call, I talked to you about moving our firm from an offensive to a defensive posture. That included things like building a huge liquidity position on our balance sheet, adding $250,000,000 in Tier 1 capital, nearly tripling our loan loss allowance since year end and scouring our loan book aggressively, gathering financial information from borrowers to ascertain risk and respond appropriately. It also includes things like deemphasizing our continuous recruitment of revenue producers, never mind that the previous momentum in our recruitment pipelines resulted in bringing on 56 revenue producers year to date. So all that defensive work has been completed. And I'm not telling you that there's no further need to be defensive, but I am telling you that the human resources that were utilized on those defensive efforts that grew in borrower by borrower assessment as an example, we can now take that resource and use it on more offensive sorts of initiatives. So as we move forward, number 1, of course, is that we'll continue to be in active dialogue with our existing borrowers to aggressively respond to changing risk profiles. Number 2, Harold has already discussed the upcoming maturities in our wholesale deposit book that will facilitate the unwinding of our excess liquidity as the pandemic subsides. Thirdly, during the course of this year, we have specifically launched 4 broad initiatives intended to accelerate our PPNR. They include 1, proactively and aggressively lowering the cost of our existing deposit book. We intend to drive it below 25 basis points by year end 2, gathering additional low cost deposits. We have built and launched a number of deposit products with enormous potential to structure to alter our deposit mix over time. These include value added products like HSAs, tailored accounts for property managers, specialized expertise in captive insurance accounts, as well as expertise surrounding large nonprofits. Number 3, obtaining floors on loans. As you heard from Harold, we've made great progress in that area really obtaining floors on roughly 98% of new and renewed loans. And then number 4, focusing on the tremendous share of wallet opportunities that we have to provide additional financial services to our existing clients that are purchasing from someone else. We currently have meaningful traction on all four of these, which should produce significant growth in PPNR or EPS for some time to come. And finally, because all of that heavy lifting that's behind us, we're now intent on seeing what we expect to be a once in a generation market share movement. Specifically, Green Free Search indicates nearly a third of mid market businesses intend to switch, not that they're frustrated, but they intend to switch. They tell that primarily to the responsiveness or lack of responsiveness at our larger competitors, which just reinforces the power of our client friendly approach to deferrals and our nimbleness on PPP. And so it's our intent to aggressively pursue this opportunity. Guys, both of you know our strategic approach is a challenger brand. We're purposeful about creating a work environment that excites our associates, believing that if we're successful there, they'll create an engaging experience for our clients. And of course, if we're successful there, the end result is the shareholders are enriched. So let me start with exciting start with exciting our associates. Just in the last 12 months, we've been recognized by American Bankers as the 13th best bank in America to work for. That includes a lot of small and privately held banks in the category of banks greater than $10,000,000,000 in assets, we are the single best bank in America to work for. According to the Great Place to Work Institute and Fortune Magazine, we are the 4th best financial services firm in America to work for behind some giants like American Express. Same group would have us as the 4th best place to work for women. That's a powerful spot for us to be. We're the 4th best place for millennials in the country to work. We're the 12th best place for parents. We're winning best place to work awards in Memphis, Chattanooga, Knoxville, the tribe of North Carolina, Roanoke, Virginia, Charlotte and the state of South Carolina. And so the charts that you're looking at here demonstrate that we've in fact been able to translate that excitement among our associates to a truly differentiated client experience. These are the major Tennessee and North Carolina markets. The data are for businesses with sales from $1,000,000 to $500,000,000 The further to the right you are, the better your client experience is and the higher on the chart you are, the more market share you have. So let us start with the top left with Nashville, where we de novo 20 years ago next week. As you can see, our client satisfaction is the farthest to the right, indicating a differentiated experience, and our market share is the highest, indicating that experience has resulted in a number one share position. We're about replicating that phenomenon in every major market we serve. And as you can see, with one exception, our client satisfaction among major competitors is the best in the market. And so it seems obvious to me that we're in the best position to grow share of all the major competitors in our market. As further evidence that our distinct the service model yield market share pickup, you're looking at the recently released deposit share data from FDIC. For each market, you have a listing of the top banks showing their market share rank, their year over year growth rate and how that growth rate ranks in the market. So again, you start at the top left with Nashville. We're in the number one share position, and we're still the 2nd fastest growing bank in that market. I think a lot of people have been concerned that the law of large numbers would get us. But you can see even in a number one share position, the flywheel is spending pretty rapidly. As you scoot across the page in Knoxville, we did no vote there in 2007. We climbed into the number 4 share position and we're the fastest growing bank in that market. In Chattanooga, we bought Capital Markets Bank and Trust, which was a de novo from the 2,008 time period. We bought it in 2015. We've now climbed into the number 4 share position there and the fastest growing bank in that market. In Memphis, we bought Magna Bank. That was a de novo in the year 2000 or so. We've substantially moved up in the market share chart. We moved up 2 more slots this year up to the 6th position. We're the fastest growing bank in that market. Looking at Charlotte, North Carolina, we've moved up 3 slots there into the 7th position. We're the 2nd fastest growing bank in that market. In Greensboro, we're in the number 4 share position. Raleigh, we're in the 13th position, but we're the 2nd fastest growing bank in that market. That is a fabulous market opportunity that we're working hard to see. Charleston, South Carolina, we're in 8th position, but the 3rd fastest growing. Roanoke, Virginia, we're in the 3rd market share position and the fastest growing bank in that market. So it seems evident to me, first of all, that there's a once in a generation market share opportunity coming. And secondly, we're the singularly best positioned to be a winner, which, of course, results in outsized earnings growth over time. And perhaps further substantiation of why we expect outsized growth as we begin to exit this recession is our track record. The bars on the left represent annualized growth from 2,001 to 2,007 post-nineeleven. Admittedly, we were a smaller bank coming out of a smaller bank, but 7 times the industry through that extended period is meaningful. And on the right, on a larger base from 2011 to 2019 post Great Recession, we grew 6 times the industry. And so to sum up what we've talked about here today, the visibility we now have on asset quality as a result of the extensive regrading work that we have done is very encouraging. EPS, PCNR and revenues are all exhibiting strong growth quarter over quarter. BHG is showcasing its distinctive model and highlighting what makes it different from all these comparisons. And lastly, having completed the bulk of the defensive work that we set out to accomplish over the last two quarters, we believe we're uniquely positioned to pick up meaningful market share on a sound basis, which we believe will result in outsized earnings growth. So operator, I'll stop there. We'll be glad to take questions. Thank you, Mr. Turner. The floor is now open for your questions. Our first question comes from Stephen Scouten of Piper Sandler. Your line is now open. Hey, good morning everyone. Good morning, Steve. So Terry, you gave a lot of good color there about the market share takeaway opportunity. And obviously, you guys have a great track record there. I'm wondering specifically when you think that really ramps up from a talent acquisition standpoint again? And is that the primary medium for which you think that will occur? Do you start thinking more about M and A in some of these markets as well to kind of capitalize on all that opportunity? I think, Steve, we have always and we continue to view ourselves to be primarily organic growers. You can look at those historical charts and say we have mixed in acquisition and I think done it successfully. I wouldn't be surprised if we did that, but I just want to be clear, we primarily think about organic growth. Your question is a great one. The market share movement, to be honest with you, I wouldn't be for just launching out here and going out and trying to meet a bunch of people, have some aggressive calling program off of Dun and Brad list, run an ad campaign, sales promotions, all that. We don't do any of that stuff. It's all dependent on getting relationship managers, experienced relationship managers from other banks, having them move those books of business to us. And so that would continue to be the approach. I think there are 2 things that are important about that phenomenon there. Number 1, I think I indicated early on that 22% of our existing FAs have been here for less than 2 years. That's enormous market share taking capacity. We as I mentioned, I'm switching terms on you here, but I'll go back to revenue producers instead of relationship managers, which is a broader term, including mortgage originators and brokers and other sorts of revenue producers. But among those revenue producers, even trying to shut down or tamp down the hiring, we've added 50 6 revenue producers this year. And so all of that hiring that has already occurred, it is still in relatively early stage maturation, represents enormous share taking opportunity. The second aspect of that idea here is we are finding much more vulnerability today in the market than we would have over the last several quarters, particularly at some of these larger banks that continue to struggle with regulatory issues, merger and integration issues and so forth. And so we feel like we've got a number of folks that we had at some stage of recruitment. As I mentioned, we did tamp it down, slowed it down. A lot of those folks are beginning to contact us and so they want to reconsider. And so I don't mean to go on home, but you get the idea. It's primarily about organic growth. It's primarily about market share movement, about relationship managers. And we've got a big queue of folks that are in early stage maturation already on the books, and we're optimistic about our ability to hire more. Perfect. Very helpful. And then can you maybe talk a little bit about what you're seeing on the market demand side? There seems to be a view that metro areas are going to be in a bad spot for the years to come. But you guys are in kind of non metro MSAs that are maybe smaller midsized metro MSAs where I think we'd still see growth in the Southeast. So can you maybe touch on what you're seeing there? And maybe especially in Nashville where there always seems to be this view that Nashville is just music and tourism? Yes. Well, thank you for that question. I think let's talk about loan demand, current loan demand. I do think loan demand is near 0. I mean, it's a little better than that, but not much. It's pretty tight here right now. But if you think about it, the reason I think that is obvious. 1, you got a lot of people who are saying, well, right now, I don't feel like taking a big risk. Number 2, I got tons of liquidity on my balance sheet. I've just got a bunch of PPP money. I mean, there are a lot of reasons why loan demand would be just a little soft and likely to be that over a few quarters, which is the criticality for us of this market share takeaway. That's the case for why we think we'll grow. But if you're asking about the view over any extended period of time for a market like Nashville, I think we had an analyst that actually conducted sort of an Investor Day, if you will, or investor call with the Chamber of Commerce. And I think they came away, I don't want to put words in their mouth, but I think they came away very encouraged and excited about the potential, what's in the business development pipeline. As you know, what drives growth in this market has been corporate relocations. And what drives corporate relocations is primarily tax rates. And so my belief is that phenomenon is going to continue for an extended period of time. Steve, I know travel is no doubt limited. Tourism is definitely down. But I'll tell you this, if you could make it to Nashville, you would still see a large number of cranes that scares some people, but it doesn't particularly scare me because we believe that this market is going to continue to grow at an outside pace. I'll spare you the Chamber of Commerce speak, but I promise you the tax rate and tax implications are likely to expand that benefit to markets like Nashville, not the track. Perfect. Perfect. And maybe one last real quick one for me. On the loan loss reserve percentage, I'm wondering, obviously, this isn't probably a near term event, but as net charge offs probably flow through a little bit from the pandemic and we see credit normalize over the next 2, 3, 4, 5 quarters, Where can we see that loan loss reserve kind of normalize in a post CECL world? Is the kind of 109% level we saw at 1Q 'twenty, is that the right way to think about it as things normalize? Yes, Steve. I'm not sure where that where it's going to end up. What we're doing is trying to keep it where it is right now. We don't think it's a good time to try to see it go down. But eventually, we think as charge offs materialize and I got to hand it off to Tim's group, I got to hand it off to the centralized underwriting groups, They're digging up under all kinds of rocks trying to find out where what the quality and the loss content in this book is. And so we anticipate that we'll coming. And then towards the end of next year, we likely will see this reserve kind of need to get some relief. Now a lot of that's dependent on what uninfluenced forecast look like, but we're not seeing the loss content materialize in the loan book like we would have otherwise thought it was going to materialize back in March. Got it. Perfect. Thanks so much for the help guys and congrats on a really good quarter. Thank you. Thank you. And our next question comes from Jennifer Demba of Chua Securities. Your line is now open. Thank you. Good morning. Hey, Jennifer. Good morning. Congratulations on your almost 20 year anniversary. I can't believe it. You mentioned the market share gain opportunity, Terry. Do you think one of those opportunities would be specific to First Citizens in North Carolina as they are distracted with the CIT partnership over the next 2 or 3 years? That's my first question. My second question is, can you give us an update on what you're seeing in your Atlanta de novo? Thanks. Yes, that's a great question. I do think there's likely to be some opportunity in that transaction. At this point, I'm not I guess, I might have to characterize it this way. My excitement about that opportunity would be less than the excitement I have about the turmoil in companies like Wells and Truist and those sorts of companies. That the vulnerability there is seems larger and seems more timely and those kinds of things. You know this invariably when you get involved in integration work, there will be an internal focus that will create some vulnerability and we'll certainly try to seize on it. But I view those other opportunities to be still better, I guess, is maybe the way to characterize that. I believe in the Atlanta market that we're doing well. I don't mind to sort of give you some round numbers. I don't have exactly the numbers in front of me. But my guess is today there's about $70,000,000 in outstanding. There's probably north of $100,000,000 in commitments that are out. Some of those are things, construction kinds of things that might fund up over time. So it's not all immediate stuff. But that pipeline of commitments that exist that will have fundings is pretty large. And I think if Rob Garcia were talking to you about the rest of his pipeline, in other words, deals that he has in the pipe that he believes he's going to close that he doesn't yet have, he would say that, that momentum is building as well. And of course, the real measure or the real catalyst, I guess, might be a better word for our success, has to do with hiring. And so I think Rob, again, would tell you that his hiring pipeline is full. Again, don't owe me exactly to this. This will be about variety. He's got about 17 associates down there today, I think, about 4 of which might be classified as retail, branch based associates. The others would be either financial advisors or credit analysts or something that's supporting a revenue stream there. And again, it looks like to me that pipeline is really swell. We're likely to have an announcement or 2 in the next week or 2 that I think will be really I'd put in a high profile, higher category. So again, I think we're very encouraged and continue to think Rob has done a great job. I think the results are materializing. If I could follow-up one question on BHG. So that performance obviously has been really terrific. What who are the most stressed borrowers in the BHG sub segment? They are still dentists or what are you seeing among their group borrowers? Thanks. Yes. I think the dentists are still probably the most stressed. But as it sits today, I'm not sure of any market where they've got loans that are not permitting elective surgery. So I think all the dentists are open. I think all the surgeons are open. The optometrists were a little stressed in the Q2, but I think by and large their business flows are coming back. I can dig on that some more for you, Jennifer, but right now, I'm not sure that I can discern any particular segment based on the reports I get from BHG that there's one that's more stressed than another. Thanks, Tom. I will say the non medical book, call it the engineers and the architects and those folks that they branched into over the last 2 or 3 years, that book is performing better than the call it, the medical book. So that's been a real pleasing thing. Thank you. Thank you. And our next question comes from Jared Shaw of Wells Fargo Securities. Your line is now open. Hey, guys. Good morning. Hi, Jared. How are you doing? Good, thanks. Good, thanks. Congratulations on a strong quarter. Just following up, Terry, you'd said this could be a once in a generation opportunity to take market share. And just given the success you've had hiring people and using Atlanta as an example, should we really expect to think maybe you go on the offensive now and target some additional geographies? Obviously, some of the bigger competitors you mentioned do business in more than just Atlanta. Are there opportunities for you to expand into new geographies and really take that hiring model and accelerate it a little faster? And would that turn into potentially a different expense level for 2021 in the near term while that's building out? Jared, that's a fabulous question. And honestly, I guess I might characterize it this way. We might be tempted by that and we can be opportunistic in that regard. But the truth is the play that we most want to make is to harvest the opportunity in markets like Charlotte, North Carolina Raleigh, North Carolina. I think Raleigh, North Carolina was just highlighted as the hottest real estate market in the United States. It's a fabulous market, whatever metric you want to look at. I think you can see we're in a 13 share position, but we're the fastest growing bank. And so my objective is to gin up what's happening in Charlotte, what's happening in Raleigh, what's happening in Charleston, in particular, those three markets, that's where we really want to invest, that's where we want to grow and so forth. And so I don't mean to say I can't do anything else if I'm doing that, but I do want to say that, that's the most important thing for us to do is see that opportunity. That is a grand growth opportunity. And again, I know sometimes people are not as interested in things like the distinctive service experience, but that's a powerful and important point. We spent time getting that service equation right, and it's now time to harvest that in those high growth markets. Okay. And that sort of goes back to the 22% of hires that have been there less than 2 years. You have a lot in those markets. So you feel that they can start to really make some hay? I did leave that. And I also think, as I mentioned, if I again, just trying to be candid about where the opportunity is, I think the hiring opportunities are particularly strong at wells and to maybe a slightly lesser degree, but I think picking up at Truist. And so again, those Carolina markets, of course, are filled with wells and some form of BB and T or SunTrust Bankers. Okay, great. Thanks. And then shifting a little bit to BHG and looking at the growth that they've had in recourse, are they subject Yes. There's no doubt that this is helping them get towards a CECL number. Yes. There's no doubt that this is helping them get towards a CECL number at some point. CECL for them, I think, is a 2024 issue. And they're going down the path now of trying to analyze and quantify and build the models to get to a CECL compliant credit loss reserve. But I'm not sure where that number is going to actually end up. Okay. But we shouldn't necessarily look at the recourse being significantly higher than the losses at this point as a direct tie into where they think the total loss content is today? Yes, Jared, I think if I understand your question right, I think you're right. We should not Okay. Got it. And then on BHG, with the success of having that securitization, do you think that 2021, you'll see that strategy shift back more towards beginning to emphasize securitization and maybe some on balance sheet opportunities more so than straight gain on sale or will it be a continue to be a good mix? Yes. I think they'll continue a good mix. I think they believe that they will be back at the securitization gain early next year. So they're ramping up to probably do another issuance, call it, January, February. Great. Thanks a lot. All right. Thanks, Jared. Thank you. And our next question comes from Rick Vanderflay of UBS. Your line is now open. Thanks. Just following on the questions on BHG. In terms of the revenue profile, you've somewhat longer term guidance about BHG in the past. And as we kind of emerge from COVID, it seems like BHG is going very strongly. The mix of securitization versus traditional placements is kind of what it is. What should we be thinking about in terms of the revenue or earnings profile there? Yes. I think what we're looking at for next year is probably a high single digit, low double digit kind of number for them next year. We believe they've got the momentum to deliver that. So that would be what our current thinking is, Brock. Okay. And Harold, I heard the guide on funding costs. I guess, on the opposite side, where do you see securities yields trending over time. And within that securities book, we've seen a number of other banks really look to ramp that up, whether it's now or possibly waiting until after the election and hoping for a steeper curve. But should we look for really sharply higher balance there given that loan growth is muted right now? Yes. I don't think we're going to be focused on building the loan book or executing on any kind of leverage strategy to take some of this liquidity. Building the securities book. Oh, I'm sorry, building the securities book. What I mean. I just said the wrong word. Building the securities book to execute on a leverage strategy, bond yields right now look to be pretty good. We've done a lot of municipal acquisitions. We think a lot of that will hang with us. But to say that we're going to develop a strategy to kind of ramp up the bond book by 20% or even 10%. I just don't see that. Okay. And those yields, you have a sense of where they could drift assuming rates stick where they are? Where they are right now, I think our municipal book will help us hold yields. But I can't help but believe that we're going to see some deterioration in bond yields probably over the next several quarters, but I don't think it's going to be that significant. Okay. Thank you. Thank you. And our next question comes from Steven Alexopoulos of JPMorgan. Your line is now open. Hey, good morning, everyone. Hi, Stephen. Good morning. To start on the new incentive, can you give more color on exactly what the new incentive is? Is it a 4Q 2020 incentive or is it a full year 2020 in terms of results? Yes. It's for the whole year. We implemented it in I think the comp committee approved it late July. So what we tried to do was determine what a reasonable growth rate in PP and R would be for 2020 over 2019 and then try to figure out how to hit that number. And so it gives us some consistent messaging with not only revenue producers, but the whole all 2,500 people. And it keeps people in the game because obviously with the Q1 reserve bill and then again in the second quarter, 80% of our incentive was tied to EPS growth. And so that effectively knocked us out of the game for any kind of cash bonus this year. So we were trying to create something, although not get them all the way back to the start line, just try to get us at least to a 50% target level, develop some plan that will help us not only this year, but more importantly, 2021. And Harold, what growth rate do you need to maximize that incentive? What we did, and we'll talk about it in the proxy, what we did is we looked at where our peers were and tried to consider the anomalies within the peer group and said, okay, what does it take to get into the top quartile of that peer group? Got you. Okay. Got you. That's helpful. And then just following up on all the commentaries around the market share gain. Terry, I think I've asked you this before, but what exactly was it that the larger banks had done with the PPP program to upset so many customers? Did they just turn down people for the loans? They weren't available. Can you give more color on what's created this opportunity? Yes. Again, I want to cite what I hear from Greenwich, and then I'll give you my own personal commentary, which might be less valuable, I don't know. But Greenwich would say that the big banks were unresponsive. Many of them were slow to get their systems up. There was very little communication between the bank and the borrowers. All that led to mass confusion. As the money ran out, it led to mass frustration. And I think just sort of the impersonal nature of how that process worked at the big companies versus the more personalized approach that smaller banks typically used, where as an example for us, I can't recite now how many webinars we held, but we had thousands of borrowers attending our webinars, many of whom weren't even our customers, because that became the place you go to get information about how do you apply for this, how does the application work, what are the supplying that apprehension among your borrowers and they're feeling underserved. And so again, I think this phenomenon of the PPP process, the deferral process is, Steve, as we've talked before, if you go to the 2 ends of the spectrum on how to handle the deferrals, and I promise you, I'm not acting like either one of them is really bad or really good. I'm just telling you what we did and why we did it and why I think it benefits us. On one end of the spectrum, you could say, look, this world has gone to heck in a handbasket. You want a deferral, you come down here and bring me a bunch of financial information and give me some more guarantee and put up cash reserve and so forth, and I'm going to give you a deferral. And that's not an irresponsible thing to do. I mean, if you're a credit person, you're thinking about improving your borrowing base, trying to minimize losses and so forth, that would be a tag you could take. Our view was to give somebody deferral for 90 days in the middle of the time where nobody knew what it was, didn't substantially increase our credit risk, And it made our borrowers love us. And so that was the reason that we went in that direction. And so again, I'm just sort of rambling about 2 or 3 things that are sort of different in the approach. But if you had to get it down to a word, on one side, it's a more personalized service that puts borrowers at ease and makes them feel like you're looking after them and a less personalized kind of service that creates apprehension among borrowers, which leads to frustration, irritation and so forth. So that would be my characterization of it. Okay. Yes, that's helpful color. Maybe just one final one on BHG. Given the deferral trends, I was surprised that the recourse reserve ratio increased. I mean it was modest, but the reserve is up $200,000,000 in the quarter. The ratio is up. Why would that have gone higher given these really impressive deferral trends? Thanks. All right. So keep in mind, they're still a private company, and there's a lot more qualitative assessments going on than with perhaps a CECL model like we have to develop or have to roll out that's more or less subjective. So I think what BHG is doing is they're just anticipating, probably doing some conservative analyzing and building a reserve. Okay. That's helpful. Thanks for all the color. Thank you. And our next question comes from Catherine Mealor of KBW. Your line is now open. Thanks. Good morning. Hi, Ken. Good morning. I just wanted to follow-up on your PPNR commentary and outlook. So Harold, you talked about wanting to grow the PPNR. I think well, I don't know if you kind of mentioned that you wanted to have taken this mid single digit growth rate in 2021 off of 2020, but you're at least looking to grow PPNR as we move into year. And so how should we think about that as we think about PPP rolling off and mortgage kind of normalizing? Do you think even with those 2 headwinds, PP and R can still grow next year? Or is it more PP and R per share can grow because it's an active buyback activity? Yes. First of all, let's make sure we understand that for what I talked about during the slide was that we excluded PPP and BHG and the liquidity bill. So we're kind of quantifying that of those numbers and excluding that from the calculation of PPNR growth. So you're right, how does one anticipate what PPP is going to do to our numbers this year or next year? And so we didn't think it was fair to put that into an incentive target. And then all of a sudden, something happened with the SBA. They make it more onerous, which we think they will, and the PPP revenues not materialize. So we go through a process to eliminate that. So what we're trying to do is get down to blocking and tackling. And that's how we come up with our anticipated PPNR growth rate. Now if we shoot for top quartile performance, it's a lot more difficult to get that out of the peers. So, it's not exactly apples and apples when we start comparing to the peers, but we would believe that the revenue contribution that we're getting from PPP is greater from a than a lot of our peers are going to get. So that's probably a little bit of a headwind when you start talking about peer rankings for us. Does that make sense? And so but you it does. And so I was just making sure your commentary on a single digit growth PPNR was more around the incentive plan for this year, not as much an outlook for what you can do in 2021. Well, that is true. Single to high mid to high single digit growth And looking at what the peers are doing next year, it's likely to be a similar number for next year. Great. And that includes PPP, BHG and liquidity? That excludes PPP, BHG and liquidity for us. Great. Okay. That makes sense. That makes sense. And then also on the expense side, so you've guided for expenses to be flat to down. Is that inclusive of the incentive comp catch up this quarter? So just look at bottom line expenses and that's the number that's kind of flat to down next quarter? Yes. The Q3 incentive had to catch us up to 75% of the whole year. So we don't have as far to go in the Q4 with the incentive accrual. Got it. Okay. But still, so in what scenario are expenses flat in 4Q at another 90,000,000 dollars I'm sorry, I'm looking at these, sorry, excuse me, another 144,000,000 dollars Yes. I think what's going to drive it primarily is incentive accrual because the PPNR incentive is, call it, dollars 15,000,000 and I had to get 75% of that into the 3rd quarter number, and I'll only have to get 25% of that into the 4th quarter. Got it. Okay. Got it. So, the real expenses should be down next quarter? Yes. Thinking that. Okay. It was the flat that was what was the term you have. Okay. All right, great. And then maybe just one last question on just, do you have the updated criticized metrics? I know you gave classified in the press release, but do you have what criticized the linked quarter? It went up, Catherine, dollars 70,000,000 from last quarter. I don't have that number right in front of me as a percentage. Okay. A bit up $70,000,000 And what drove that increase? What kind of credits are you seeing when you're going to credit that? It was mostly hotels. We had further account of hotels in July that went into a risk rate 70. Great. Okay, great. Thank you. Great quarter. Thank you. Thank you. And this does conclude our question and answer session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.