Logo of jester cap with thought bubble.

Image source: The Motley Fool.

ServisFirst Bancshares Inc (NASDAQ:SFBS)
Q3 2019 Earnings Call
Oct 21, 2019, 5:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the ServisFirst Bancshares Incorporated Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Davis Mange, Investor Relations for ServisFirst Bank. Please go ahead.

Davis S. Mange -- Investor Relations

Good afternoon and welcome to our third quarter earnings call. We will have Tom Broughton, our CEO; and Bud Foshee, our CFO, covering some highlights from the quarter, and we'll then take your questions. I will now cover our forward-looking statements disclosure and then we can get started.

Some of the discussion in today's earnings call may include forward-looking statements subject to assumptions, risks and uncertainties. Actual results may differ from any projections shared today due to factors described in our most recent 10-K and 10-Q filings. Forward-looking statements speak only as of the date they are made, and ServisFirst assumes no duty to update them.

With that, I'll turn the call over to Tom.

Thomas Ashford Broughton -- President and Chief Executive Officer

Thank you. Thank you, Davis and good afternoon to everybody. Before I jump into the numbers, I'd like to mention, we elected a new Director today, Chris Mettler. Chris Mettler has been on our Charleston Board of Directors. He has a technology background and we're thrilled to have Chris as a new Director of the Company. So we think, he will be a -- really a great asset for the bank and the holding company as well. So we're -- welcome to Chris, and thank you for joining us.

In regards to the quarter, we were very pleased all in all. The only thing we didn't like, we had a little bit of margin slippage. It was unexpected. And Bud is going to talk about our plans to bring it back up to the 350 basis point range. So that's something we're working on and I'll mention that later, the flexibility we have on, given our strong deposit growth. The loan growth in the third quarter was modest. Our best growth was in Nashville and West Florida. The Birmingham region had some CRE paydowns that affected growth in the quarter, plus, we didn't have any large loan closings in the quarter.

The loans are up 10% year-over-year. We do have -- tend to have lumpiness. Last quarter, we had tremendous loan growth, this quarter it's none, it's just lumpy, and that's all I can tell you is, if you ask about the economic outlook and somebody always asked every call, it does seem that clients are more cautious, given the trade war with China and the media focus on the economy and I thought about it. We really hadn't got many request to finance new boats and airplanes lately. So that tends to be a sign that people are being a little bit on the cautious side.

Our pipeline is up a good bit, over the last quarter, even net of -- we have a much higher projected payoffs in the fourth quarter than normal and it is around several projects. They're not CRE projects, they're C&I, they're medical projects, they're going to bond financing. So the flip side of lower interest rates is that people can go to permanent market with some things that you can't do when rates are higher. So good for our clients. Some of those projects will be back. Most of those projects will be backfill where [Phonetic] new projects, they will start construction on. So we typically have good closings in the fourth quarter and we expect that there is no reason, we don't expect the same this year. We did add six new bankers in the third quarter. We added a great team in Charleston, three of them -- three bankers and one each in three Florida cities. So we've hired 20 new bankers year-to-date, just an outstanding group of people of new bankers, where you have excluding trainees, we have 139 bankers total today. We're really proud of the new people we've added this year, we've had some substantial upgrades in staff this year. The numbers don't reflect the people that we've added this year. They certainly will in 2020 and 2021. And we've added significant new overhead for these new hires. I mentioned earlier, we do have a very strong deposit growth, is 17% annualized for the quarter and 19% year-over-year. The growth was very broad based this quarter with seven of our 10 regions have an outstanding deposit growth.

We do have a lot of flexibility to manage our margin unlike many other banks. We have -- we've never accepted broker deposits or used a listing service and we have -- never had a Federal Home Loan Bank advances. So we have substantial excess liquidity. We've been trying to manage it down, but it is -- it is a bit of a champagne problem and that's a good thing to have. One new initiative Bud is going to talk about for 2020 it will be expense control is something we've never focused on, but we think is a good time to do so. We will limit hiring to revenue production personnel in 2020.

So we're also going to look at expense control of vendor cost and look at it -- that all of our fees, and costs providing services to our clients. So, I'll now turn it over to Bud to get into more detail on the numbers.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Thanks, Tom. Good afternoon. Net interest margin did decrease in the third quarter. It went from 3.44% in the second quarter to 3.36% in the third quarter. Couple of factors, average excess funds increased by $269 million in the third quarter, also LIBOR-based loans, 30-day LIBOR, we have $879 million in loans tied to that index that rate is moving ahead of Fed rate cuts. It decreased 17 basis points from June 30th to August 1st, decreased 19 basis points from August 2nd to September 18th and has since decreased about 15 basis points.

On a positive note, we've lowered deposit rates after the Fed cut rates in July and September. The cost [Phonetic] of our interest bearing DDAs it was 1.71% in July decreased to 1.57% in August, lowered again to 1.49% in September and our estimate for October is 1.32%. For October, we see an improvement in margin of $250,000 to $275,000, that would be a 3 basis point to 4 basis point increase in our margin. I have detail on the different components, if anyone would like for me to email that to you. Also just as we add $50 million in loans that will add 2 basis points to our margin also. The ALCO Committee will meet on October 23rd and will develop a plan to cut deposit rates both with and without a Fed rate cut in the month. A reminder, we have no accretion income related to acquisitions.

Non-interest income, our credit card income continues to grow $1.2 million year-to-date increase and quarter-over-quarter 2019 versus 2018, we increased $454,000. Earlier this year, the bank received an endorsement from American Bankers Association for correspondent bank agent credit card program and we have added 16 banks to this program in 2019. Our mortgage banking income grew $899,000 year to date and quarter-over-quarter 2019 versus 2018 had increased $656,000.

In early October, the bank purchased $75 million of bank-owned life insurance, the tax equivalent yield to net insurance is 4.77 [Phonetic]. A reminder, we do not sell any government guaranteed loans to generate non-interest income. Non-interest expense, we increased our third quarter incentive accrual by $500,000 based on anticipated year in payouts, to new lending teams, we've added in 2019. And Tom mentioned, we would have a new budgeting plan for 2020, a zero-based budgeting plan. This is not a traditional cost cutting plan first to justify what expenses to keep versus what to remove. Second, you consider activities that should be, or shouldn't be performed and how they should be performed.

One area that we see improved efficiencies and is our wire processing area and last budgeting is not connected to prior year spending is based on necessary activities. Loan loss provision, our third quarter net charge-offs were $8.8 million, $6.2 million were impaired, unimpaired charge-offs were $2.6 million. We've been proactive on our larger problem credits. Our Chief Credit Officer, Henry Abbott is on the call and can answer any credit-related questions. The bank participated in the state of Alabama operated loan guarantee program. This program was terminated in the third quarter. Alabama State Banking Department notified us that this was effective July 31. At that time, we had 76 loans enrolled in the program consisting of roughly $53 million in total loans. ServisFirst is losing $22 million in loan guarantees in favor of a one-time payment of $7.4 million.

Our management decided to book this $7.4 million to loan loss reserve and this was based on potential credit downgrades over the life of this loan portfolio. General loans that had a collateral shortfall and other enhanced risk were enrolled in the program, it required a 1% fee on the commitment. These were loans that would have otherwise not met the banks' lending criteria. Thus the credit enhancement entice the bank to lend in this situation. Taxes, year-to-date tax rate for 2019 is 22%, 21.04% without stock option credits of $1.2 million. The tax rate for 2018 was 18.9%, is 20.9% without stock option credits of $2.4 million.

Third quarter rate 2019 was 20.2%, 20.7% without stock option credits of $231,000. Third quarter of 2018, the rate was 19%. 20.3% without stock option credits of $539,000. For the remainder of 2019, projected tax rate is 21.3%. Shareholder value, book value excluding unrealized gain on AFS securities is up 16% year-over-year, and book value, including the unrealized gain is up 19% year-over-year. This concludes my comments and I will turn the program back over to Tom.

Thomas Ashford Broughton -- President and Chief Executive Officer

Thank you, Bud. We certainly, from an economic outlook standpoint, we don't see a recession on the horizon, but obviously that's all the focus is. It seems to be from certainly the immediate. Our thought is, if there is a recession coming, we are well prepared for a recession. We have a very strong balance sheet. We have very strong profitability. I've always -- I've argued with the regulators over the years. Regulators argue that capital is the best defense against losses and I've always argued that's not true. The best defense against loss is to have a strong stream of income to offset any potential losses. Our nonperforming assets, our balance sheet, our credit quality is pristine, our nonperforming assets are 1.5% or 1% of assets. So we like where we are, if we see a recession, there is a recession coming, we're as well prepared as any bank in the United States. So with that, we'll open it up for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Tyler Stafford with Stephens. Please go ahead.

Tyler Stafford -- Stephens -- Analyst

Hey, good afternoon, guys.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Hi Tyler

Thomas Ashford Broughton -- President and Chief Executive Officer

Hi Tyler, how are you doing?

Tyler Stafford -- Stephens -- Analyst

Good, how are you guys?

Thomas Ashford Broughton -- President and Chief Executive Officer

Super.

Tyler Stafford -- Stephens -- Analyst

Good. Hey, maybe, Bud, let's start on the margin, so the 3 basis point to 4 basis point increase and you said the different components that you could email us, could we just walk through that on the line here and how you expect to get that 3 basis point to 4 basis point increase in margin, particularly given fourth quarter that's usually a seasonally high liquidity build and I appreciate the commentary on the deposit costs. But if you could just go over that, I think you said a 1.32% interest bearing cost for October is what you expect. So a pretty sizable step down, did I hear that correctly?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Right. That's interest bearing DDAs does not include CDs. But yeah, a big decrease. It was 1.49% in September, then after all the rate cuts, we're estimating 1.32% in October.

I mean, you've got, let's see, you've got prime loans that reprice immediate, it's about $1.35 billion prime loans that reset once a month. That's $488 million excess, we're get -- our excess funds have decreased so far in October, so that definitely has a positive impact on earnings, Fed funds purchase, of course, we lower that rate, when Fed cut rates in September.

Don't know how much detail you guys want for reach component and so what current, when the loans reset, becasue you have to really go through like on the prime loans that reset once a month or 30-day LIBOR kind of going through when those would reset in October and then calculating that impact on the margin.

Tyler Stafford -- Stephens -- Analyst

Right. But if we do get an October cut, you would still expect that basis-point improvement for the fourth quarter?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yeah, because like when we have our ALCO meeting on Wednesday, we'll have a plan to cut rates even with or without a Fed rate cut, just something we've got to address. Like Tom said, we really didn't cut enough back in July, and we did a much deeper cut in September, after the Fed cut on the 18th.

Tyler Stafford -- Stephens -- Analyst

Okay.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

I mean, excess funds is really the key, I mean it's, that is decreasing. And that's kind of what's -- when it goes up $269 million in the third quarter, we didn't forecast that. That has a big impact on your margin.

Tyler Stafford -- Stephens -- Analyst

Right. But isn't seasonally fourth quarter pretty high from a liquidity standpoint if I go back the last several years? Would you expect something different for this year?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Well, I guess what we would anticipate probably is higher loan growth. I mean, I think that's traditionally how and that's -- if you look at where we are from a budget standpoint, we're well behind the loan. So I think, we'll have a stronger fourth quarter from a loan growth standpoint. I mean based on historical data we --

Tyler Stafford -- Stephens -- Analyst

Yeah.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

We didn't grow -- loan growth.

Tyler Stafford -- Stephens -- Analyst

Just last from me, on the margin. Do you have what the 9/30 total or September 30th total deposit cost was?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yeah. Total was 1.12% [Phonetic] for total cost.

Tyler Stafford -- Stephens -- Analyst

Okay, got it. And then maybe just shifting gears over to credit, a couple of questions there. So the $14 million increase in the non-accruals, can you just talk about how many loans, what type of loans were included in that increase? And then on the $22 million of loans that you lost to guarantee, what was the status of those loans from a credit rating standpoint at this point at 9/30?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yes. Henry Abbott, our Chief Credit -- he is going to talk about those components if that's OK.

Henry F. Abbott -- Senior Vice President and Chief Credit Officer

Yeah. And I'll hit the loan loss guarantee program question first. The status of that pool, what as Bud mentioned, those were typically, I guess, I'd say collateral light loans, but to-date, our loan loss, our net pool have been very minimal and all of the loans were current at the end of -- well, I guess all but one relationship was current at the end of the quarter. But on that our loans were current except for one relationship. The primary driver in the increase in non-accrual of the increase roughly $10 million was associated with one credit that is a rural hospital system out of our Nashville market. And that was the primary driver of the jump in non-accrual.

Tyler Stafford -- Stephens -- Analyst

Okay and then just lastly from me, just on the FDIC credit, just to make sure I'm clear, so the $1.7 million credit you got this quarter, would you expect the run rate to that to in the fourth quarter and go forward to flip back toward kind of your historical FDIC insurance expense?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Right. It will. Yeah, from what we gathered, that will be a normal expense, I guess, you would see in the fourth quarter.

Tyler Stafford -- Stephens -- Analyst

Okay.

Thomas Ashford Broughton -- President and Chief Executive Officer

Tyler, it is very confusing. This is Tom. We've gotten some -- the indication we got from the really primarily from the American Bankers Association is they -- you can expect to take credit, for the fourth quarter, equal to half of what you got in the third quarter. So that's, I don't understand why they -- there can't be more specificity around this number, but nevertheless, maybe you can find out, we can't seem to find out a whole lot.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

It's a moving target.

Tyler Stafford -- Stephens -- Analyst

Yeah. Okay, all right, thanks. Thanks guys. That's it from me.

Thomas Ashford Broughton -- President and Chief Executive Officer

And we, even if we do have excess liquidity build in the fourth quarter, you can assume that from a margin standpoint it will neither add to your take away from earnings, it will be revenue neutral. So hopefully.

Operator

Our next question will come from Brad Milsaps with Sandler O'Neill. Please go ahead.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hi, good evening, guys.

Thomas Ashford Broughton -- President and Chief Executive Officer

Hi, Brad.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Hi, Brad, how are you doing?

Brad Milsaps -- Sandler O'Neill -- Analyst

Good, good. But I appreciate all the color on the NIM. Maybe just want to talk about the other side of the balance sheet, loan yields I guess, were down 6 basis points or so linked quarter, just kind of curious if that would be kind of what you might expect in the third quarter and then maybe if we also get an October cut and just kind of how that compares to kind of what new loan yields are as they come on the books. And then to the extent you guys have loan floors, how might that protect you?

Thomas Ashford Broughton -- President and Chief Executive Officer

Yeah, let me talk about floors first, we have 1.4 [Phonetic] of floating rate, we got $3.1 billion in floating-rate loans, variable rate loans, 1.4 million [Phonetic] has floors --

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Billion.

Thomas Ashford Broughton -- President and Chief Executive Officer

Billion, I'm sorry, billion. 46% rate floor, well the -- where the loan rate equal the floor rate at the end of September that increased to $518 million, it was $265 million at the end of June. So with two Fed rate cuts that had a big impact. The -- let's say, let me look at the, loan yields, went down a little bit in September, some had to do with a couple of lower rate credits. There's had a lower loan yield, because it was 5.16 [Phonetic] in July, 5.19 [Phonetic] in August, 4.81 [Phonetic] in September, but I would say like 5.10 [Phonetic] to 5.15 [Phonetic] is our normal run rate on new loans.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Non-accrual affected, non-accrual status on the rural healthcare credits is the primary reason for the drop in the loan yield.

Thomas Ashford Broughton -- President and Chief Executive Officer

Yeah, we had a cut -- we had some non-accrual reversals in the, in the third quarter.

Brad Milsaps -- Sandler O'Neill -- Analyst

Got it, got it. And you said 46% of the loans that have floors are at the floor, is that what I heard?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

No, 46% of our variable rate portfolio has a floor rate.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay, got it. And then it was 500 some odd million --

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yeah, $518 million is at the floor rate at the end of September.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay, all right, great. And then just to follow a bit on expenses, I know you guys are probably in the budget process right now. Last couple of years, you guys have kind of been up high single digits tracking maybe closer to double digits this year. I know, it's early but is this something that you think you can kind of hold to kind of mid single-digit growth in 2020 or you guys are really efficient. So is there much room to cut, so to speak, or pull back?

Thomas Ashford Broughton -- President and Chief Executive Officer

Yeah, Brad, we're going to look hard at every expense. And we are looking hard at our vendors. We're going to ask every vendor to partner with us and help us drive the payer expenses. So we think it's an achievable, very achievable goal, Brad. Certainly we are -- continuing to look at adding our revenue production personnel like we always have. We adding a lot this year, we've added, again the 20 people we've added significant new overhead, but we think they'll pay off or worse [Phonetic] in next year 2020. So we'd like to draw the line in -- on the overhead and try to have a really good year.

Because if we're not satisfied with where we are this year, this is not -- this is not our standard-of-performance. So we're certainly not satisfied and we're sending the message throughout our Company that this is not satisfactory performance.

Brad Milsaps -- Sandler O'Neill -- Analyst

And typically you guys have an adjustment in the fourth quarter, particularly on personnel, I mean, it sounds like you've got a pretty full accrual in the third quarter, does that take a step back in the fourth as you kind of true things up?

Thomas Ashford Broughton -- President and Chief Executive Officer

Well we hope -- we hope we pay out more than we've got accrued, Brad, that will be good news if we do, but certainly, management accrual -- bonus accruals are going to be down from last year. I can tell you that because we just hadn't had the kind of year that we want to have.

Brad Milsaps -- Sandler O'Neill -- Analyst

Got it. Okay, thank you, guys.

Thomas Ashford Broughton -- President and Chief Executive Officer

Thank you.

Operator

Our next question will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Hey guys, good evening.

Thomas Ashford Broughton -- President and Chief Executive Officer

Hi Kevin.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Hi Kevin.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Just to follow up on Brad's question, I just wanted to make sure I heard it right. I thought when you were initially describing the cost cutting focus, was that you were going to hold off on new hires, you were going to -- but then I thought I just heard you say, you were going to continue with hiring of revenue producers, so just wanted to clarify that, number one.

Thomas Ashford Broughton -- President and Chief Executive Officer

Yeah, I mean, we'll continue to hire revenue production people, Kevin. But certainly they're going to need to be, they're not -- they don't need to be slammed dogs [Phonetic]. They're going to need to pay for themselves very quickly, how about that?

Kevin Fitzsimmons -- DA Davidson -- Analyst

And Tom, what is that -- that focus say about your willingness to look at new markets and is it -- is it make it less likely you would be entering a new market by entering -- hiring a team or is it -- it just depends what falls in your lap?

Thomas Ashford Broughton -- President and Chief Executive Officer

Yeah, I mean, we look, we talk to people all the time. I mean we talk to people at least monthly to talk to a group somewhere. So, we're certainly not going to rule out expansion to a new market at all. They are not -- there is a point they're not -- they don't have a big effect on us in terms of the most part we open new market, our start-up losses are going to be over an 18 month period about $2 million, I don't think that's going to make us or break us. I don't mean to minimize $2 million, but that certainly, we're open to new opportunities as we always have been. But we're certainly have more of a laser focus on, we need to meeting profitability more quickly. And we want our managers to make to rationalize their resources.

So they need to do with what they've got if they want to bring on somebody new then they -- we need to rationalize the resources we have on-hand today.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Okay, and that's great. Thank you. And then just on the whole decision process of looking at cost cuts and with this increased focus, is it more due to the lower-margin environment we're dealing or is it more looking ahead potentially, I know you said, you feel very good about credit. But is it more to be prepared if we have a downturn or is it a little above?

Thomas Ashford Broughton -- President and Chief Executive Officer

No, we're not getting ready for recession in that respect, it's just because it is a reaction to the kind of year we've had, it was -- this year has not been a double-digit earnings increase, and that's the kind of year we expect and we're -- it's probably -- probably seems pretty good message to everybody that this is not acceptable. This is not acceptable performance, and that's purely reaction to that, Kevin.

Kevin Fitzsimmons -- DA Davidson -- Analyst

Got it. Great. Okay, that's all I had. Thanks guys.

Thomas Ashford Broughton -- President and Chief Executive Officer

Thank you.

Operator

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

William Wallace -- Raymond James -- Analyst

Thanks. Thanks for taking my call, guys. I was hoping maybe you could dig in a little bit more on credit. So first off on the -- you mentioned there was a $10 million hospital facility, I believe you said in Nashville, that drove the third quarter increase.

Thomas Ashford Broughton -- President and Chief Executive Officer

Yes, it's out of our Nashville office. Yes, the primary driver in non-accrual.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

It is the same credit we've been talking about for a while, and it was the -- it was going to be a liquidation, sale of assets and then we've gotten [Indecipherable] with unsecured creditors who hired lawyers from New Jersey to represent them, so we're fighting over the money. There is a pot of money, we just can't get to it until we have some final resolution through the bankruptcy judge. But you go ahead. Go ahead...

William Wallace -- Raymond James -- Analyst

Was there a charge-off associated with this last year in the third quarter?

Thomas Ashford Broughton -- President and Chief Executive Officer

Last year in the third quarter?

William Wallace -- Raymond James -- Analyst

Yeah.

Thomas Ashford Broughton -- President and Chief Executive Officer

I didn't know.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

We had a charge this quarter.

William Wallace -- Raymond James -- Analyst

Okay, so what was the charge this quarter for that credit?

Henry F. Abbott -- Senior Vice President and Chief Credit Officer

Charge associated with that, this credit, this quarter was roughly $2 million.

William Wallace -- Raymond James -- Analyst

And then last year in the fourth quarter, your non-accruals jumped up a little over $10 million and then they kind of sat. So it just feels like they kind of coming in and then sitting, was that one -- one credit last quarter or was that a couple of credits, and can you talk about why it feels like they're sitting or is it just that they've moved off and others have come on.

Thomas Ashford Broughton -- President and Chief Executive Officer

I don't remember specifically the fourth quarter to follow-up my math. I think, it's a combination of both. I mean, we are being proactive and removing credits. I mean, for instance, one of the drivers of the increase in net charge-offs was we sold the loan that had been on non-accrual for quite some time and we did take a loss on it, but we had -- had very impaired to almost what our loss was. But we just felt like we needed to sell it, that was roughly 30% of our net charge-off for the quarter. So I mean, I do think we're actively working on doing the cycle if that's what your question was.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

There is a C&I credit, that is, pretty good, the next largest one is the C&I credit that will be, we should have some resolution on starting this week. So but it has been going through the bankruptcy process which take, these things filing bankruptcy, it takes forever, Wally.

William Wallace -- Raymond James -- Analyst

Understood. I guess the reason I'm just digging in, because last year, third quarter, your non-accrual loans were just over $9 million and now, we're approaching $36 million. And I understand that your NPAs are still relatively low, but that's a -- that's a pretty big jump in four quarters. So I'm just trying to get a sense as to whether we're seeing any increase in inflows or anything outside of just a couple of one-offs or larger credits that are going bad. So I know your commentary is always that you're not seeing any signs of stress in the system. So I'm just trying to get a sense as why the big jump over four quarter?

Henry F. Abbott -- Senior Vice President and Chief Credit Officer

Yeah, I mean, like you said roughly $10 million of that was one credit we move this quarter. And Tom mentioned, our second largest NPAs, one we're hoping to get some additional resolution through bankruptcy that we get some pay downs on that credit. And --

William Wallace -- Raymond James -- Analyst

All right. And so, and you mentioned Tom that there was one that moved off in the third quarter as well?

Henry F. Abbott -- Senior Vice President and Chief Credit Officer

This is Henry Abbott, and yes, I did mention, we sold the credit and so it reduce non-accruals accordingly in the third quarter.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

It was assisted living facility, Wally.

Thomas Ashford Broughton -- President and Chief Executive Officer

Roughly, it was a $5 million credit and we had it roughly impaired by half and that was close to what we sold the debt for.

William Wallace -- Raymond James -- Analyst

So that reduced it -- that reduced now close by $2.5 million, is that what you're saying?

Thomas Ashford Broughton -- President and Chief Executive Officer

Net. Yes.

William Wallace -- Raymond James -- Analyst

Okay.

Thomas Ashford Broughton -- President and Chief Executive Officer

We had impaired for half.

William Wallace -- Raymond James -- Analyst

Okay. All right. And then you had, if I understand correctly, you received a $7.4 million payment to -- into a guarantee program and you apply that entire $7.4 million to the reserves balance, through the provision expense?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yes, correct.

William Wallace -- Raymond James -- Analyst

Is that Okay, so that...

Thomas Ashford Broughton -- President and Chief Executive Officer

Actually, one of our non-accrual loans is in that pool, it's just the one credit that has some pretty serious issues with it, but as we've obviously identify that. I'm looking at -- I've got -- I'm looking at the non-performing asset list at September 30th and I don't see anything on here that was in a non-accrual last year, Wally. if there is, it's small. Is what I'm saying, it might be something for $250,000. [Speech Overlap]. No, there is not anything, we move. The good thing about C&I credits, when they -- they get in trouble fast, they out of trouble. They resolve themselves fairly quickly. We found out during the recession that some of those real estate deals just, they just are like a tar ball, they just stay forever only books.

William Wallace -- Raymond James -- Analyst

Yeah.

Thomas Ashford Broughton -- President and Chief Executive Officer

Can't get rid of them.

William Wallace -- Raymond James -- Analyst

Yeah. Okay, thank you, guys. That's helpful. So on the provision expense, had you not -- had you not moved that payment into your reserve, you would have had a negative provision expense. So you would have been releasing reserves pretty substantially?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yeah, we would have.

William Wallace -- Raymond James -- Analyst

So what would have been driving that release? Are you changing your -- any assumptions in the FAS 5 model?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Well, we got this payment, it is -- payment was a -- not completely a bad thing. This $7.4 million that you will see.

William Wallace -- Raymond James -- Analyst

Okay. So there is no changes or anything on the assumptions in the underlying model?

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

No, I mean you had lower loan growth. So it should mean that you didn't have to provide that much for loan growth, something like that.

William Wallace -- Raymond James -- Analyst

Yeah, I'm just trying to get a sense, it's --

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yeah, that would definitely had an impact on what we put in the reserve for the quarter.

William Wallace -- Raymond James -- Analyst

Okay. And one last question on the FDIC reimbursement. Do you -- some banks have told us that they think there is going to be, some reimbursement in the first quarter as well. Is that consistent with what you heard or know or you not know?

Thomas Ashford Broughton -- President and Chief Executive Officer

We've heard different stories. We're going ways, Wally. The FDIC is to half of what you got in the third quarter, you get in the fourth quarter and that should be according to the them. But I heard, I guess there is -- why such a mystery, I don't know, Wally.

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yes. It's really confusing when the fund gets to a certain level what they do. I just would like till we get it and then we'll book it.

Thomas Ashford Broughton -- President and Chief Executive Officer

Quite frankly, I don't want to have a credit, I'd rather just people keep paying at a reduced rate. If you think about of the banks that -- I don't want to have people not have make payments, but people to -- the banks [Indecipherable] they need to be making a payment, all the way up to when they fail. So I'd rather solve this big pay in at reduced rate. But they didn't, the FDIC, did not ask my opinion.

William Wallace -- Raymond James -- Analyst

That's fair enough. Fair enough. I've taken your time. I appreciate it. Thanks for the commentary and color on some of the moving parts of the non-accrual bucket. I appreciate.

Thomas Ashford Broughton -- President and Chief Executive Officer

Thank you, Wally.

Operator

[Operator Instructions] At this time there are no further questions in the question queue and this will conclude today's question and answer session as well as today's conference. [Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Davis S. Mange -- Investor Relations

Thomas Ashford Broughton -- President and Chief Executive Officer

William M. Foshee -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Henry F. Abbott -- Senior Vice President and Chief Credit Officer

Tyler Stafford -- Stephens -- Analyst

Brad Milsaps -- Sandler O'Neill -- Analyst

Kevin Fitzsimmons -- DA Davidson -- Analyst

William Wallace -- Raymond James -- Analyst

More SFBS analysis

All earnings call transcripts

AlphaStreet Logo