Renasant Corp (RNST) 2020 Q3 法說會逐字稿

Hello, and welcome to the Renasant Corporation 2020 Third Quarter Earnings Conference Call and Webcast. (Operator Instructions) Please note today's event is being recorded.

I would now like to turn the conference over to Kelly Hutcheson of Renasant Bank. Please go ahead.

Good morning, and thank you for joining us for Renasant Corporation's 2020 Third Quarter Webcast and Conference Call. Participating in this call today are members of Renasant's executive management team.

Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Obviously, the continuing impact of the COVID-19 pandemic; the federal, state and local measures taken to arrest the virus; as well as all of the follow-on effects from this pandemic situation are the most significant factors that will impact our future financial condition and operating results.

Other factors include, but are not limited to, interest rate fluctuation, regulatory changes, portfolio performance, and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, renasant.com, under the Investor Relations tab, in the News & Market Data section.

Furthermore, the COVID-19 pandemic has magnified and likely will continue to magnify the impact of these factors on us. We undertake no obligation, and we specifically disclaim any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

In addition, some of the financial measures that we may discuss this morning may be non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

And now I will turn the call over to our President and Chief Executive Officer, Mitch Waycaster.

Thank you, Kelly. Good morning, and thank you for joining us today. Before Kevin and Jim discuss our results for the third quarter, I want to offer a few comments regarding our markets and employees.

Throughout our region, which broadly runs from the Mississippi River to the Atlantic Coast in the Southeast, economic activity continues to slowly improve, though at an uneven pace. Businesses are adjusting. And while certain sectors remain fragile, companies are, for the most part, cautiously optimistic.

The consumer came into this recession in relatively good shape, and while still hurting is persevering. Overall, the pace of economic opening varies across our markets but remains on a gradual uptrend. I am very proud of our employees for their extraordinary efforts during this period. Despite the physical separation, we have, in many ways, grown closer and stronger as a team.

Economically speaking, we have been among the first responders. It was only a few months ago that we facilitated over 11,000 PPP loans for borrowers in excess of $1.3 billion and now we are guiding our clients through the forgiveness process.

Likewise, on loan deferrals, we are actively engaged with our clients to find the best plan for them and the bank and have seen the level of deferrals decline dramatically. We always seek to provide high levels of service, and I believe our team has responded brilliantly during the pandemic.

Now I'll turn it over to Kevin.

Thanks, Mitch, and good morning. We are pleased to report third quarter earnings of $30 million or $0.53 per diluted share. The quarter was highlighted by loan and deposit growth, strong levels of fee income, particularly by mortgage banking, improved capital strength, and a meaningful build in our allowance for credit losses, while all credit metrics remained stable or saw improvement.

The pandemic highlighted the need to deliver our services more conveniently and efficiently. We made significant technological investments before the pandemic, and our clients and employees are benefiting from those investments. After being closed to regular traffic since mid-March, we completed the phased reopening of our branch lobbies in mid-October, with full consideration of CDC health and safety guidelines. And we are proud to be serving our clients across all of our delivery channels once again.

As we reopen our branches, we continue to see adoption of our technology offerings by our customers as almost every digital, mobile or online loan application offerings increased significantly since the onset of the pandemic. We expect continued investment in new products and intentional efforts to encourage utilization will lead to further increases in our future adoption rates.

As the pandemic and any related economic impact continue to evolve, we are constantly reviewing our expense base for opportunities for cost elimination and efficiency gains. Through the first 9 months of this year, we have tightly monitored our expense run rate, but recognize we must reduce expenses further in future periods. And we are taking action to do so.

However, to maximize operating leverage, we must grow into some of our investments, while at the same time, reducing expenses. We believe our loan growth and production in the quarter, coupled with continued reductions in expenses, provide a road map on how we plan to improve operating leverage in future quarters.

I will now turn it over to Jim, who will further discuss the quarter.

Thank you, Kevin. I will refer to the earnings deck while commenting on key themes for the quarter. We prioritize core funding, asset quality and capital strength in our decision-making. So I will start with a review of the balance sheet.

Deposits continued to see growth in the quarter and were up $88 million or 2.9% annualized. For the year, total deposits are up $1.7 billion and most of that growth has been in noninterest-bearing accounts. 96% of deposits are core, and the company has virtually no wholesale funding.

During the quarter, loans grew to $11.1 billion. Excluding PPP, loans were up 2.2% annualized for the quarter and 1.2% annualized for the year. Future quarters are likely to see declines in PPP loans and result in the associated deferred income to be recognized on an accelerated basis.

Asset quality measures are reflected on Slides 13 through 15. Nonperforming assets, which remain at low levels, represented 40 basis points of total assets, excluding PPP, and were essentially unchanged from the second quarter. Loans 30 to 89 days past due, represented 17 basis points of loans, excluding PPP, and were up modestly compared to the previous quarter.

Additionally, loan deferrals continued to decline, and as of October 23, represent 2.9% of loans outstanding, excluding PPP.

Forecast for sluggish GDP growth, relatively high unemployment levels, the prospect of a prolonged recovery, and general economic uncertainty led to an increase to the allowance for credit losses. The allowance for credit losses as a percent of loans, excluding PPP, rose 22 basis points from the second quarter to 1.72% at the end of the third quarter.

For the quarter, return on average assets and return on tangible equity were 0.8% and 10.9%, respectively. Net interest income for the quarter was $106 million and was up marginally from the second quarter.

This was driven by an increase in earning assets, which was somewhat offset by a decline in net interest margin. Reported margin in the third quarter was 3.29% as compared to 3.38% for the second quarter.

As seen on Slide 21, noninterest income increased $6.8 million from the previous quarter and was largely driven by continued strength in mortgage. Additionally, wealth, insurance and service charges also showed gains quarter-over-quarter. Noninterest expenses were down $1.8 million to $116.5 million. A $5.7 million reduction in COVID-related expenses somewhat offset increases in expenses in our mortgage division, which were tied to production.

The core efficiency ratio for the quarter was 63% and was up from the second quarter. While there are signs of improvement, as Kevin noted, efficiency is an area of focus for the company.

I will now turn the call back over to Mitch.

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

And now I'll turn the call over to the operator for Q&A.

(Operator Instructions) And the first question comes from Jennifer Demba with Truist Securities.

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

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

Yes. Jennifer, just as we reflect on production in the third quarter, I'll go back to the third quarter. And as we discussed on this call last quarter, we were then looking at a pipeline going into 3Q of $229 million. And similar, today, not a lot changed, $219 million pipeline as we go in the quarter. So we continue to see good, but I would say, cautious deal flow and pipeline across our markets and business lines. And we continue to hit on multiple cylinders.

As I look at that pipeline, 24% is in Tennessee, 16% in Alabama and then the Florida Panhandle, 18% in Georgia and Central Florida, 14% in Mississippi and 28% in our corporate and our commercial business line. So the pipeline of -- back to your question, the pipeline of $219 million, we would expect about $65 million growth in nonpurchase. And that would indicate a production for the quarter somewhere in that $550 million, $625 million range. We just ended the third quarter with $636 million with production, which compared to $521 million in the prior quarter. So continue to see good deal flow.

As I mentioned on -- in various lines of business and geographies from those that joined the company in the prior quarters, particularly in '19 and earlier this year, about 25% of our production continues to come from that team.

So again, broadly across the footprint and in various business lines, I would add this, and just relative to payoffs, we did see payoffs increase about $45 million. They were $578 million this prior quarter versus an average of about $533 million.

So payoffs is a variable. And of course, until we see a sustained resolution of the pandemic, it's somewhat difficult to give a clear picture on the net results of the production. Kevin?

Sure. So Jennifer, just on the expense side, and as you know, over the last -- beginning last year, enacted initiatives to help bring down expenses that was before we started to experience revenue headwinds. This year just highlighted the need to increase those initiatives.

And as we look at what 2021 looks like, with overall just macro, what could be macro headwinds, we still think there's ways to be opportunistic and find wins along the way. But at the same time, we're going to have to be very focused on the expenses and ensuring that the accountability measures that we have in place and whether that's on the branch, whether that's on the employee, on the lender, on the vendor, all of those are aligned with some of the headwinds we may experience on the revenue side.

I know we talk a lot about the hiring we've done, and we will continue to be very selective in our hiring.

But actually, this year, I believe we're down 7 producers this year just as a result of accountability measures. And so our growth that we're experiencing is actually occurring with less production managers at the same time. And it's those types of initiatives that'll need to carry us into 2021.

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

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

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

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

So I understand the reserve build this quarter, but it is a little bit higher than what we've seen at other banks. Is the way to read this just kind of an abundance of caution because we don't know exactly what's going to happen in the future?

Are you actually seeing anything in your portfolio that you -- would give you some sort of indication that you needed to build reserves again this quarter when most others did not?

And then just as a follow-up to that, when I look at your slide deck this quarter, it does look like you removed 2 of the categories from the at-risk portfolios.

I think you removed entertainment and then retail trade. That was a little interesting, I guess because health care is still in there, but you've removed, I guess, restaurants. So how do we kind of just -- can you just try and put that all together for us because I think that's the biggest question out there right now?

Michael, it's Jim Mabry, and I'll start and then ask David Meredith to answer your questions on sort of the impacted industries and how we look at those.

But as it relates to the provision expense, I would say, generally, we feel good with the credit metrics, and I think as you saw on those slides that generally they're tracking well and very favorable, and again David will comment more on that. But I would say that that data suggests and the things that we're seeing suggest that losses will be considerably less than what the industry thought a few months ago.

That being said and while things are improving, it's still an uncertain period. And the CECL model that we use as both quantitative and qualitative inputs. And on the quantitative side, we did make some adjustments from Q2 to Q3, but I would characterize them as generally having a modest impact on the calculation for allowance.

The qualitative overlay continues to have the biggest impact on the model. And I would think, assuming that the credit outlook continues to improve, it would suggest that for us, anyway, the heavy lifting would be behind us in terms of provisioning. And that bodes well for a meaningful decline in future provision expenses from here and hopefully leads to reductions in the ACL down the road. David?

Thank you, Jim. On the deferral conversation, so if we look at where we are as of October 23 in those industries that you mentioned, so we pulled out a few. And so arts and entertainment, we pulled out just from the dollar size of deferrals that will still remain in that book and how we've seen that industry rebound.

We're down just from a dollar standpoint, $8 million in deferral. So not a meaningful dollar amount. Restaurants were down to 0.8% of that portfolio, $2 million in restaurants. In retail, we're down to 0.9% or under $7 million in total, and that -- so those -- we felt those dollar declines precipitated us bringing those out of the deferral bucket.

And just as a reminder, when we pull something out of our deferral bucket, it's because the loan has resumed normal contractual payments. So it wasn't that it matured from the deferral bucket, and therefore, we took it out.

They had to make their first normally scheduled contractual payment rent to come out of that deferral bucket. So we feel very confident in the direction of those loans that have come out.

And also as a follow-up on the asset quality standpoint, we continue to do our monthly monitoring, what we called our enhanced monitoring on those loans that are in deferral. And so the recognition of assets that need to be migrated to a different risk rating, particularly classified and so forth, it may be an indicator of our asset quality. We continue to do that monthly, enhance monitoring on those loans.

So we have real-time risk rating of those assets, and it's not something that's deferred until the end of a deferral period. So that's more of a real-time risk rating.

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

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

Okay. Great. And then maybe just one follow-up question as it relates to the mortgage banking business. Can you just give us some color on what gain on sale margin was this quarter expectations in the near term? [MBA] data looks pretty good. You guys have obviously added some lenders over the years, picked up a team from another bank. Just any sort of qualitative color you can give us would be helpful.

Sure. I'll start, this is Jim, and ask others to add to it. But clearly, we're very pleased with what we've seen out of the mortgage division. That's been quite strong, much like the rest of the industry. And we've seen good margins there and really good volume. And I would say, early in the fourth quarter, those trends continue. But we also appreciate that we're going to enter a period here in Q4, where we're going to have a seasonally slower period of time.

And historically, much like others, the peak of our business is Q2 and Q3. And so it's -- I think it's natural to expect some slowdown in the mortgage business as we get further in the quarter. And that will bleed over into the first quarter for at least the first part of it. So in terms of volume, I think that's a reasonable expectation.

The margins have held up well for this year, given -- having both of that and the volume have led to really outsized results in mortgage. And I would say that as volumes come down, it's also likely that we'll see some decline in those margins.

Hard to predict where they'll go, but it would be natural and typical and the businesses see margins compress somewhat as volumes decline in that business.

Michael, what I would add to Jim's comment and to add to your point in your question, I think Renasant's ability over time to be a consistent performer in mortgage also to have the appreciation of that financial service and over time, consistently recruit and build a platform that serves our market because we do believe that is a core financial service that's paying off for us.

We've also proved over time that we can manage expense in that business line while consistently offering that product. So we've built a strong team, and certainly, they're putting up strong performance. And to Jim's comment, feel good about that business line going forward.

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

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

But just how to think about that accompanying decline in expenses within a company -- that would accompany a decline in revenues?

Absolutely, Kevin. And a good question, and it's much back to Kevin's comment earlier about how we're focused on growing revenue and building out our teams in every business line. And I would start that discussion by pointing to the consistency of how we've stayed in the business, recruiting the right teams.

We have very strong leadership in that part of our company. And what they do is they continually build in the support, particularly where some of that is somewhat variable, and monitor that within that line of business. And what I was referring to, we've been able to demonstrate in the past. And while it's -- it's hard to predict the volume of mortgage and how that will vary going forward and what I was referencing as our ability in the past as that volume changes to manage through that. It's not unlike the way we've built our business model.

So I think we're well positioned. As we've demonstrated that in the past, it's hard to predict at this point, but we're proving our ability to do that. Kevin, Jim, anything else you want to add to that?

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

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

Yes. So right now or historically, our mortgage company, their efficiency ratio tend to weigh on the corporate efficiency by 2 or 3 points. They typically ran in the high 60s, low 70s. Right now, with the volume they have and the mortgage they have, it's actually flipped. It's contributing a percentage point or 2 to the efficiency.

So their efficiency today is in the -- it probably has a 50 handle on it, high 50s. But that's just a result of just the volumes and the spreads, the revenue we're experiencing is, it reversed back to normal. We think that the mortgage efficiency lands back where historically it has been, in the high 60s, low 70s.

Great. That's very helpful, Kev. Just one follow-up on capital and capital deployment. It seems like the capital is strong, and you guys took the step of raising sub notes or sub-debt and took the -- you have the total risk base up where it is. You guys made the comment that you have the buyback approved but don't intend to use it.

Can you just give us a sense on, is that due to just getting better visibility? Or is that due to wanting to get the TCE ratio up to a certain point? Or is it just more of a regulatory issue where you don't want to be seen buying back right now?

Kevin, this is Jim. I would say it's all those things plus a few more. I mean at the top of the house, as we think about it, it's really -- the buybacks are part of the capital allocation thought process. And we've got a number of levers there and putting the buyback in place seem to make just good practice, good sense to us.

And as you point out, we've got no current intentions to act upon that. But the way we think about capital is we want to have capital such that we're in a position where we have optionality and flexibility.

And we think we've got that. And you referenced the -- us accessing the markets for the debt in the quarter, and that only, in our opinion, added to our flexibility in terms of capital.

So whether it's buybacks or accommodating loan growth or future M&A, we feel like we're well positioned on the capital front. And that's -- again, there's no one measure, no one thing we look at, but it's something we constantly think about and evaluate, but we like where we stand.

And the next question comes from Brad Milsaps with Piper Sandler.

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

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

Okay. And then while you're looking for that, just back to the efficiency discussion in mortgage. I mean your revenues are up more than 300% year-over-year, yet personnel expense is maybe up 1/3 of that, $10 million or so versus a $30 million increase in mortgage revenue. As revenue comes down, is that relationship sort of hold on the way down? Or are there other costs that we need to be thinking about that could also come out as revenue adjust, whether it be seasonally or because of gain on loan sale margin?

Yes. So it's predominantly in the salaries and employee benefits line item. That's where the majority of the cost is in mortgage. There's some operating costs, closing costs, but the vast majority is in that salaries, employee benefits line item.

And again, largely mortgage producers, they are -- they're paid on what they originate and close. So if they're not originating and closing, which what drives the revenue, they're not getting paid.

There's a little bit of an outsized benefit right now. Again, we've kind of hit a little bit of an inflection point, there are some outsized impact on the revenue side. So as revenue comes down, you're probably not going to see a dollar-for-dollar decrease on the expense side. But again, it is variable, and you will see relief on the expense side.

And just going back to your question about loans that were sold, we sold approximately $1.1 billion, $1.2 billion during the quarter. And that margin maintained in that mid-3% range, which, I think, is pretty close -- it came down a couple of -- maybe 0.25 point in Q3 compared to Q4. So it tightened just a little bit, but still much wider than what we saw any point in time last year.

Okay. Great. And Kevin, I apologize, I joined a few minutes late, but just kind of curious if you could just kind of update us on kind of how you're thinking about the net interest margin.

Obviously, you talked a lot about revenue headwinds. That's a part of it. But just any additional color there would be helpful.

Sure. So just as we look at margin, we think that -- there's going to be headwinds and pressure on the margin just as a result of the environment we're in, but we feel that we're stabilizing. And so the core margin that you see, we feel that that's somewhat stabilized.

As we look at new and renewed pricing, there's some -- there's a little bit of pressure on just new and renewed pricing compared to what the yield -- portfolio loan yield is. But as we look at offsets on interest expense on deposits, we still think that we have several quarters -- several more quarters of relief that's coming on the interest expense side.

And I would just add, Brad, to what Kevin said. I think directionally if you look at the last few quarters in terms of core margin, they tell a story, I think. Because in Q1, we were at 3.56%. In Q2 went to 3.26%, and in Q3, we were at 3.23%. So I think that tells the story in terms of directionally where that may head.

And that's, frankly, the best predictor we've got right now as we look at margin. So I think that's a helpful guide to people trying to interpret the direction of margin from here.

And the next question comes from Catherine Mealor with KBW.

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

Well, a couple of things, and I'll ask Kevin or Mitch to chime in. But again, we look at core margins. So I tend to isolate PPP and excess cash and accretable yield. Of course, for accretable yield, that continues to come down for us generally.

And so as we look at core margin and think about liquidity going forward, I think on liquidity, the great thing about all this liquidity and excess liquidity is it's forced us to be more aggressive on a couple of fronts.

One is on deposit pricing, which we've had meaningful progress, and I think there's more there to be had. And then as it relates to other sort of noncore funding, we took out much like everybody else at the beginning of this. We took out some advances to bolster our liquidity position. Well, we've, the last 2 quarters, paid down a few hundred million dollars in advances. At this point, I think we've got roughly a little over $100 million left in advances. So it's that liquidity and the thought of future liquidity has enabled us to be pretty aggressive in terms of how we manage the balance sheet.

That being said, and as we go forward, I mean, we want to be -- we'll be thoughtful about it because it's not that exciting to take this liquidity and put to work at 1% or less.

And so as we think about it, we certainly would love to have the loan growth to put that liquidity to work. But I would say we're -- and we've got room on the balance sheet for a larger investment portfolio, but I would say we're going to be cautious there because it just doesn't feel like it's the right time to put a lot of that liquidity and securities at a spread of less than 1%.

So we'll see what the -- where we go from here, but I hope that we've got some ability to put it work on the loan side in '21. So we'll see how that unfolds.

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

Yes. Catherine, just a few thoughts, and it's a good thought. And while we're clearly focused today on the challenges, and I would say the opportunities in the pandemic and as we consistently done in our past, to be opportunistic, whether that's talent, new talent, new markets, but to your point, M&A partners.

We're certainly continuing to evaluate those opportunities that drive shareholder value. And as always, beginning with culture, business model, making sure the alignment exist really to answer the question, are we better together?

And if you give thought to that, what better time than during the pandemic that we're all walking through to have those conversations about alignment and business model and risk appetite? So certainly, during the pandemic, those conversations continue, and we continue to evaluate opportunities, and that will drive shareholder value. So I think the timing is somewhat hard to define. I think the opportunities, though, are certainly evident.

(Operator Instructions) And the next question comes from Matt Olney with Stephens.

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

Sure. Matt, this is David Meredith. Yes, you are right. Hospitality numbers have continued to see improvement there at October 23, we -- that continued to see improvement since quarter end, down to about 29% of that book of business, $102 million. So we continue to see positive migration even subsequent to month end.

From a look at our hotel portfolio, again, while we still have some headwinds in front of us, we've seen improvements in occupancy levels. We have only less than a dozen hotels that have occupancy below 50% at this point. Other ones are above 50%. We only have 4 properties that are not at a breakeven NOI at this point. So we feel very comfortable that the number of -- the way the hotels have responded with only having 4 of them with the not breakeven NOI.

Obviously, there's still a ways to go in that, but we continue to see month-over-month as we continue to monitor through our enhanced monitoring, those improved metrics on our hotel portfolio. Again, we'll continue to have some headwinds there, but we're seeing some positive migration.

Okay. Great. That's helpful. And then sticking on credit, I think you disclosed the classified loan levels ticked up a little bit. Any change in the overall level of criticized loan buckets? Just trying to appreciate if there was additional migration into special mention.

Sure. We did have some migration -- as we laid out back in Q2, with our second phase of deferral that we would migrate loans that request a second phase deferral likely into a special mention or criticized classified category just because they've asked for that second phase deferral.

And so we did see some migration in our criticized loan pools. They're up from, I guess, from -- up by about $88 million -- or $75 million of an increase due to our hotel portfolio. Again, just putting those assets in a criticized category and the residual change was about $10 million in our entertainment book.

That made up a change in our criticized book of business. So again, those loans that are on deferral that we had kind of forecasted in Q2 that if they ask for a second phase deferral, we would migrate those loans to a proper risk-weighted category. So it that -- it migrated our business $75 million hotel and about $10 million in entertainment.

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

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

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.