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Civista Bancshares Inc (NASDAQ:CIVB)
Q3 2020 Earnings Call
Oct 23, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Civista Bancshares, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would like now to turn the conference over to Dennis Shaffer. Please go ahead.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Good afternoon. This is Dennis Shaffer, President and CEO of Civista Bancshares, and I would like to thank you for joining us for our third quarter 2020 earnings call. I'm joined today by Rich Dutton, Senior Vice President of the Company and Chief Operating Officer of the bank; Chuck Parcher, Senior Vice President of the Company and Chief Lending Officer of the bank; and other members of our executive team.

Before we begin, I would like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Civista Bancshares, Inc. that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.

These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most directly comparable GAAP measures. The press release, available on our website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures.

We will record this call and make it available on Civista Bancshares' website at civb.com. Again, welcome to Civista Bancshares' third quarter 2020 earnings call. I would like to begin by discussing our results, which were issued this morning. At the conclusion of my remarks, we will take any questions that you may have. This morning, we reported earnings for the third quarter 2020 of $7.7 million or $0.48 per diluted share and $22 million or $1.36 per diluted share for the nine months ending September 30, 2020. This represents an increase in net income from 2019 of $136,000 for the quarter and a decrease of $3.5 million for the nine-month period.

The COVID-19 pandemic has had several effects on our balance sheet and income statement during 2020. Our balance sheet has grown as a result of the Paycheck Protection Program or PPP. The makeup of our income statement has shifted as well. The largest change on our income statement is an increase in provision for loan losses due to the economic uncertainty created by COVID-19, stay-at-home orders and increased unemployment. Without the increase in provision, our net income would have exceeded 2019 levels for both periods.

Our strong capital position and continued ability to generate core earnings allowed our Board of Directors to once again approve our quarterly dividend of $0.11 per share, earlier this month, which represents a dividend payout ratio of 23%. In addition, after meeting with customers and working through the second round of pandemic related loan modifications during the quarter.

We began to gain some clarity of our customers' financial positions and their ability to perform moving forward. This clarity, along with our strong capital position allowed us to resume share repurchases. During the quarter, we repurchased 107,500 shares at an average price of $12.15 per share. We view share repurchases as an integral part of our capital management strategy.

Our return on average assets was 1.08% for both the quarter and year-to-date, while our return on average equity was 9.01% for the quarter and 8.8% year-to-date. Despite the lower interest rate environment, net interest income for the quarter was $22 million, which was consistent with the linked quarter and $1.6 million greater than the prior year. Our net interest margin did contract to 3.44% compared to 3.61% for the linked quarter and 3.70% year-to-date.

While the $259 million of PPP loans provided positive net interest income in dollars, they make -- made up 12.7% of our average loans for the quarter and 7.8% year-to-date at an average yield that approximate 3%. They do have a negative impact on our margins. Without the PPP loans, our margin would improve by 40 basis points to 3.84% for the quarter and by 23 basis points to 3.93% year-to-date.

During the quarter, non-interest income was fairly consistent with that of our second quarter at $6.8 million and increased $1.4 million or 25% over the same quarter in the prior year. During the first nine months, non-interest income increased $3.7 million or 22% over the prior year. The low interest rate environment continues to drive the mortgage markets across our footprint and mortgage banking continued to be the largest driver of non-interest income. Third quarter gains on the sale of mortgage loans were $2.4 million or 6.7% greater than the linked quarter and $1.6 million or 196.1% greater than the third quarter of the previous year. Similarly, the year-to-date gain on sale of mortgage loans was $5.5 million or 223.4% higher than the previous year.

During the quarter, we sold $84.1 million in residential mortgage loans at an average premium of 286 basis points compared to $91.5 million in the linked quarter and $36 million in the prior year. Year-to-date we have sold $211.1 million in mortgages, compared to $80.5 million in the previous year-to-date. Our mortgage pipeline remains very strong. Other significant drivers of non-interest income were interchange fees and wealth management fees. Swap fee income was down for the third quarter, but it's 339% higher year-to-date.

Service charges have decreased compared to 2019 levels. We did see some rebound in service charges compared to the linked quarter with an increase of $484,000 or 52%. A $183,000 of the increase was due to reinstating several customer service charges that we suspended during the second quarter to provide relief to our deposit customers. Overdraft fees also increased $270,000 compared to the linked quarter.

While non-interest expense increased both during the quarter and the nine-month period compared to 2019, we did see a decrease of 2.1% for the linked quarter. The year-over-year increase was primarily related to compensation expense, which centered on annual pay increases that go into effect each April, commissions attributable to the increase mortgage loan activity and over time associated with commercial loan modifications increased mortgage activity and our participation in the SBA PPP program.

Our efficiency ratio was 60.7% compared to 61.7% for the linked quarter and 61.1% year-to-date. Excluding PPP loans, our loan portfolio increased $16.4 million during the third quarter and $72.9 million year-to-date. That equates to an annualized growth rate of 3.6% for the quarter and 5.7% year-to-date, that growth came in every commercial category. Our loan pipelines remain strong and we have $124.4 million in approved undrawn construction loans at September 30.

In a normal year, we would probably be disappointed with our loan growth, however, considering the effects of the pandemic, we are pleased with the loan production across our footprint. As the pandemic continues, it is difficult to project how the larger economy and more specifically our loan portfolio will grow in future quarters. However, we remain optimistic.

With respect to PPP, we originated just over 2,300 loans for $259.1 million, resulting in deferred fees of $9.9 million. The SBA recently provided guidelines for abbreviated forgiveness of PPP loans with balances less than $50,000. At September 30, we had 1,368 loans totaling $26.3 million that should qualify for the SBA's abbreviated forgiveness application. To date, we have submitted 23 applications totaling $8.1 million for forgiveness in every -- received proceeds from the SBA paying off for those loans. While this remains a more labor intensive effort than we had hoped, we are confident in our approach and are proud of Civista's role in assisting our customers and communities as we continue to navigate this pandemic.

In regards to COVID-19 loan modifications as the CARES Act was rolled out. We took a very proactive approach to modifications offering 90-day modifications on over 800 mostly commercial loans totaling $431.3 million, which represented 26.5% of our commercial loan portfolio at June 30. Since that time, we and our customers have gained a better understanding of the impact of the pandemic on their business. As a result, most have resumed making their contractual payments.

At September 30, we had 47 loans totaling $52.2 million or 2.9% of total loans remaining in deferred status. The largest concentration of these loans are $21.9 million in hotel, a $11 million in healthcare, and $3.3 million in restaurant loans. We continue to experience low charge-off rates and delinquencies remained very, very low. While we and our customers have a much better understanding of the impact of the pandemic that we will have on our businesses than we did coming into the quarter as part of our credit process we automatically downgraded each of the loans that requested concessions beyond the initial 90-day modifications. This resulted in an increase in substandard loans of $4.7 million and special mentioned loans of $107.9 million during the quarter.

Given the uncertainties associated with the COVID-19 and its impact on the economy, we continue to review and refine the qualitative factors in our allowance for our loan loss model. As a result, we recorded $2.25 million provision expense for the quarter and $7.9 million provision expense for the year. The ratio of our allowance for loan losses to loans increased to 1.11% from year-end, which was 0.86%. Exclusive of the PPP loans this ratio would have been 1.27%.

Our allowance for loan losses to non-performing loans also increased to 292.88% at the end of the first quarter from 161.95% at the end of 2019. While these reflect very strong credit metrics by historical standards, given the -- the uncertain nature of our current economy, we will continue to monitor our portfolio and the economy making further adjustments as our model dictates. As a reminder, we did meet the guidelines for the delayed implementation of CECL and will not be required to adopt it until 2023.

On the funding side, our deposits increased $390 million or 23.2% since the beginning of the year. While we have seen increases in every deposit category, the most significant increases came in our business checking accounts, where the proceeds from the PPP loans were deposited. In addition, over $108.9 million of our year-to-date deposit growth came in personal checking and savings accounts. The increase in deposits allowed us to reduce our reliance on FHLB advances by $101.5 million or 44.8% since December 31.

In addition, we borrowed $183.7 million from the PPP liquidity facility to assist with funding the PPP loans originated during the second quarter. These borrowings carry a low rate of 35 basis points and also provide for advantageous regulatory capital treatment of the PPP loans. In spite of the challenges of the current environment, we are pleased with another quarter fueled by solid core earnings

Throughout today's comments, I hope I've conveyed how proud I am of the great team we have here at Civista and the quality customers that have chosen to work with us. We couldn't have one without the other. Our people have accomplished much through the first three quarters of 2020. Despite the pandemic, we reported earnings per share for the third quarter of 2020 that exceeded earnings in the same period of 2019.

While the next several months, we'll continue to test the banking industry and the larger business world, I'm confident that Civista is well positioned with a solid balance sheet, strong capital levels, and a diverse revenue stream to meet the challenges that lie ahead.

Thank you for your attention this afternoon and now, we will be happy to address any questions that you may have.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Terry McEvoy from Stephens. Please go ahead.

Terry McEvoy -- Stephens -- Analyst

Hi. Good afternoon.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Hi, Terry.

Terry McEvoy -- Stephens -- Analyst

First question I have is on the loan modification, the $52 million which are down nicely, are those loans still, in round one or is there a segment that has moved into what I'll call, round two?

Paul J. Stark -- Senior Vice President

The majority of those -- this is Paul Stark. The majority of these -- about $43 million are still in round two. And they're going to run out here in October about eight of them have gone on and further deferments in mostly interest only.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

And Terry, most of the $259 million in round one were 90-day extensions.

Terry McEvoy -- Stephens -- Analyst

Great. And then, as a follow-up question. The 3.84% core net interest margin, what are your thoughts on the fourth quarter and heading into next year. Just as you face this low rate environment and potentially some pressure on your asset yields?

Richard J. Dutton -- Senior Vice President

Terry, this is Rich. And I think, like we said last quarter, most of the compression that we're going to see over the next number of quarters happened during the second quarter. We will continue to probably battle some contraction. But if the way we look at it, excuse me, margin for the second quarter was 3.61% and the margin for the third quarter was 3.44%. But if we back out the impact of those PPP loans and the yield that they have that would have increased the margin of the second quarter by 22 basis points and increased our margin in the third quarter by 40 basis points. I know I am throwing a lot of numbers at you.

But what was that equates to is our kind of normalized yield for the second quarter was 3.83%. Our normalized yield for the third quarter was 3.84% actually expanded by a basis point may be kind of surprised us a little bit, but what we said on the last call was that we expected basis points of compression. And our loan guys have been doing a great job of just fighting the battle every day and keeping the rates where they are.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. And then, Terry, as Rich said, I think we did bear the brunt of that in the second quarter. Remember the rate reduction was in March. We bear a little bit more and I think as you go forward that becomes that compression at least becomes a little bit narrower but we could still see a little bit as we move forward in the fourth quarter and the first quarter, it is very competitive on the lending side, we have widened spreads and things like that, but it's still competitive and we are trying to protect margin, but we do need to get and we do want some growth too. So we're kind of balance both of those things.

Terry McEvoy -- Stephens -- Analyst

That sounds great. Thanks for taking my questions.

Richard J. Dutton -- Senior Vice President

You bet.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Thanks.

Operator

Our next question comes from Michael Schiavone from KBW. Please go ahead.

Michael Schiavone -- KBW -- Analyst

Hi. Good afternoon.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Hi, Mike.

Michael Schiavone -- KBW -- Analyst

Can you guys highlighted some markets showing strength, so can you just discuss where you see opportunities for loan growth and how the pipelines are looking?

Charles A. Parcher -- Senior Vice President

Well, I can tell you, Michael, this is Chuck by the way. I can tell you pipeline going into the fourth quarter of this year as compared to the fourth quarter last year was $55 million higher. So we feel good about where we're headed in the fourth quarter. I think in Dennis's comments, he mentioned that we've got about $124 million of unfunded construction to be drawn here over the fourth quarter and first quarter of next year. So we feel like we're positioned really well.

The Metro markets have been very strong. Columbus, it doesn't seem like it's hardly missed a beat as far as from a development perspective, since the COVID took place. We've got some really nice projects in the Cleveland area, Dayton area, Cincinnati area. And we have had loan growth in some of our, what I would call rural areas as well. So we're getting contribution from all the regions and feel really good about where we're going in the fourth quarter barring any really big setbacks from the COVID.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

And Michael, I would also say, I think we're doing a really good job of dealing with the right people in the right market. We have a lot of long-standing relationships, our lenders in a lot of our markets are seasoned veterans -- banking veterans and they've dealt with these people through numerous downturns in the economy. So they've dealt with -- some of our guys who've dealt with this, some of these guys for 30 plus years. And so we're doing a very good job. And even though we have exited or high-risk industries like hotels right now and healthcare facilities, and restaurants. Those are just -- those are industry types that were not lending to. We still think we'll get some good loan growth, because of these long-standing relationships that many of our lenders have with some of these customers within our footprint.

Richard J. Dutton -- Senior Vice President

And quite frankly, Michael, the other thing that we've got a little bit of advantage of right now is with the CMBS market slowing down some of our larger projects that we would have thought that we'd have went to the permanent market by now, have stuck on the balance sheet that has helped from a balance perspective as well.

Michael Schiavone -- KBW -- Analyst

Okay. Thanks for that color. And on fee income, year-over-year growth has been quite strong. Can you just talk about how sustainable is fee income run rate is?

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Well, I think you know for the near term in the -- at least early part of next year, the mortgage banking piece is going to stay relatively strong. Those pipelines are pretty full. We've had pretty good swap income for the year up substantially. We've widened spreads there and that slowed that activity a little bit down in the third quarter, but if the CMBS markets are not active, I do think that we can continue to do some good volume on the swap income side and some of our service charge income.

It was down in the second quarter because we had kind of suspended some of that, that's back and I think interchange activity may be up some just because people are using their debit cards and things like that more. So, I think it's sustainable. We've really had a focused effort on trying to increase that non-interest income over the last three or four years and we really built that up nicely and we're going to continue to invest in those areas, so that we can continue to kind of diversify our revenue stream.

Michael Schiavone -- KBW -- Analyst

Okay. And just one last one. Many of your peers have announced plans for branch or office cost savings plans. Has the Board reviewed anything like that within the footprint to consider similar cost initiatives?

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. I think we're really taking a hard look on the expense side going into next year obviously, because in this lower for longer interest rate environment, we need to look for and make sure we're operating efficiently as we can. So we have talked about a number of things. As far as expenses, we do continue to take a hard look at them, and I believe that there are some expense reductions that we can realize. For us though some of that expense savings will be reinvested back into the company, mostly in the form of technology upgrades. We recently entered into a contract to upgrade our digital banking platform and that's a platform that will enhance our digital offerings for both our commercial and our retail customers. So I do think that we're going to see, continue to get some expense reductions, but for us, part of that at least will be reinvested back into the company.

Michael Schiavone -- KBW -- Analyst

Okay. Great. Thanks for taking my questions. Have a good weekend.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

[Indecipherable].

Operator

Our next question comes from Nick Cucharale from Piper Sandler. Please go ahead.

Nick Cucharale -- Piper Sandler -- Analyst

Good afternoon, guys. How are you?

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Hey, Nick. How are you?

Nick Cucharale -- Piper Sandler -- Analyst

Just to piggyback off the loan commentary. Can you give us a sense for the competitive dynamics in your market. It has the competition increase with the modifications coming down across the industry?

Charles A. Parcher -- Senior Vice President

It has increased -- this is Chuck again, Nick. Definitely the rates of increase that I will tell you, we probably walked away from a lot more deals than we have an in past years. That has meant is offends. We're really, really trying to hold margin as much as possible. And when we get down to certain rate on certain transactions, especially if we can't get any other ancillary income or fee income from those transactions, now we're let more walking than we ever have. Like I said before though, we feel good about where the pipeline sits at right now. And feel like fourth quarter -- we feel good about projecting out path that's going to be difficult, until we see how this COVID plays out from a growth perspective. But I do feel good at least looking into the fourth quarter.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

And Nick, just as -- I mentioned that we've exited some of those high-risk industries, most of our competition has too. So I think we're all fighting for a smaller bucket there of deals too. So I think that its only intensifies the competition.

Charles A. Parcher -- Senior Vice President

And from a marketplace perspective, I would tell you, Columbus seems to be the most competitive right now. We've had a lot of different competitors move into that marketplace over the last three to four years. I think people are still trying to -- in terms from loan growth makes those investments pay off. So we're seeing a really, really competitive rate environment down there. And then we're also seeing opportunity in the Metro market, but that seems to be the one market where it seems very frothy from a rate perspective.

Nick Cucharale -- Piper Sandler -- Analyst

Okay. And then just a follow-up on the improvement in deferrals. It was helpful that you broke out the loan types in the release but were any of the remaining modification disproportionately represented and especially effected industries, you've run through in the past or are they pretty dispersed?

Paul J. Stark -- Senior Vice President

This is Paul. It's pretty dispersed, obviously, as we talked about hotels was probably the biggest portion of it and then it's pretty distributed from there, couple of restaurants. But again, I guess that discretionary that leisure type activity is really where I think we should more subtract [Phonetic], but it's significantly lower than it was the first round and even a lot of those running off. [Phonetic]

Nick Cucharale -- Piper Sandler -- Analyst

Yeah. Nice job there. It looks like the expenses came in a little bit better than expected. Rich, can you share with us your outlook on the expense front in the near term?

Richard J. Dutton -- Senior Vice President

I mean, I guess things are going up and things is going down, Nick. I mean but COVID expenses are a big piece, although, I think they did kind of curtail during the quarter. I think net we were right at about $100,000 of COVID-related expenses. But certainly the travel and education and some of those expenses are down too. I think if you were looking for a run rate going forward and I'd hate to project much past the end of the year, but I think what we did in the third quarter as a decent proxy for what we'll do in the fourth quarter.

Nick Cucharale -- Piper Sandler -- Analyst

Okay. That's helpful. And then just lastly, with your total capital ratio at nearly 16%. You continue to have strong internal capital generation despite the reserve built. Can you help us think about your capital priorities and your thoughts on continuing to utilize the buyback?

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. I think, we think that's a great way to deploy it right now, particularly when we're trading under book value and any of those shares are highly that we're buying back are highly accretive as well. So we think that given, given our comfort level right now with our loan portfolio that, that activity, most likely will continue. So we feel very comfortable there and it's probably the best way there's is not a lot of M&A activity happening at this point. So it's probably the best way for us to deploy capital.

Nick Cucharale -- Piper Sandler -- Analyst

Great. Thank you for taking my questions.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Thank you.

Operator

Our next question comes from Russell Gunther with D.A. Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Going back to the NIM discussion on the funding cost side. I was wondering if there any levers to bring that down further, or it will be difficult to bring it down below the 50 basis point to 60 basis point range.

Richard J. Dutton -- Senior Vice President

Hey, Russell. This is Rich. And we are seeing every quarter it's going to be hard to do it and it seems like every quarter we squeeze out another basis point or 2, but they're really only significant level we've got left the pull is on the CD, the time deposit side and we don't have a ton of time deposit, but certainly those are things that we've repriced and late maybe in the third quarter. So we might see a little bit there. But to your point, it's going to be hard to reduced funding near term.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. And then on the investment security side, do you anticipate the yield on those were remaining relatively stable going forward or any type of lag compression there.

Richard J. Dutton -- Senior Vice President

I think again, what we saw earlier in the year is probably what we're going to see, I mean we've got it fairly well laddered out and not a whole lot to roll it on and on. We probably move maybe more into taxable munis than non-taxable munis. But the yields have kind of held there. So again, I don't think we're going to see much compression due to reducing the yield on our investment portfolio, again near term, next several quarters.

Russell Gunther -- D.A. Davidson -- Analyst

Got it. And then just one last question on the deferrals. I was just wondering, if you're able to share an updated trajectory going into the fourth quarter from the 3% today.

Paul J. Stark -- Senior Vice President

Well, yeah, it's really hard -- this is Paul Stark. It's hard just to say, there's one question, we've seen in the migration of credits return getting stabilized and returning back the payments. Over time here, when we get into the winter, especially some of the seasonal businesses. I think we're going to see some additional changes, but I think we're going to be a huge increase. We've been very fortunate in our portfolio. Dennis mentioned that the strength of ours. And the answer, we've not seen any defaults or any bankruptcies yet in our book. Our consumer portfolio has been very good. I mean, we have only about five deferrals in that whole book. So, knock on wood, we will continue to be fortunate and be confident, but I don't think we're going to see a huge spike or anything like that.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. And Russell the wildcard is the stimulus, there is another round of stimulus coming and they've been targeting some of these higher risk industries and stuff. So if that comes maybe there is a chance if that -- those numbers come down a little bit more. If it doesn't come, that's the uncertainty out there today that this whole pandemic has brought us. So it's just hard to predict, but we're really pleased bringing it down from the -- from where our first round level was. And again, we thought we were fairly aggressive anybody that did say they were affected. We really granted them that first 90-day extension, because that was the same time the PPP was hitting. So we're pleased with where we stand as far as deferrals today.

Russell Gunther -- D.A. Davidson -- Analyst

Got it. Thank you for taking my questions.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Thank you.

Richard J. Dutton -- Senior Vice President

Thank you.

Operator

Our next question comes from Joe Plevelich with Boenning & Scattergood. Please go ahead.

Joe Plevelich -- Boenning & Scattergood -- Analyst

Good afternoon.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. Hi, Joe.

Joe Plevelich -- Boenning & Scattergood -- Analyst

Hey, guys. Just a quick question, you talked about how you did kind of like automatic downgrades for anything that was more than a 90-day modification. Can you walk me through some of those numbers again and what if any kind of incremental downgrades we might see here over the next couple of quarters?

Paul J. Stark -- Senior Vice President

Well, let me is Dennis mentioned, we did the first deferral without proving a lot of analysis. Second round we gathered a lot of information, because historical information wasn't that really pertinent given the shutdown. And as we looked at these that they needed the second deferral and that has reduced significantly. I think, its 723 the first round down to I think just over 100, the second round. And based on that we would -- that downgraded. If their projections on cash flow was that returning back to -- on rate trajectory than we would downgraded again. So we're getting back toward and really integrating the normal risk rating process.

So, and then I think we're going to continue to see changes. We're monitoring this thing as close as we can on a credit by credit basis. So right now, as we said earlier, that's really sure where it's going to go, but it seems like the group [Indecipherable] get smaller as we go.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Yeah. And Joe, I would not say at this point, we feel pretty confident there is no risk of loss right now from where we stand. Paul has been using the term and some of our management meetings, there's more risk of default than risk of loss. We feel that we're fairly well secured with lot of those loans. We've got good sponsors behind them. There are clearly COVID pandemic affected and so right now, we really feel that -- we felt it was appropriate because obviously there is more risk. Today during this pandemic, than we had six months ago or 12 months ago, certainly, a year ago. So we feel it's appropriate to graded appropriately, downgraded, recognize it keep a close eye on it. But again I think from our standpoint, right now there is more risk of default than risk of loss.

Joe Plevelich -- Boenning & Scattergood -- Analyst

Thanks. And then do you have the specific number of criticized and classified it 930 versus 630?

Paul J. Stark -- Senior Vice President

Yeah. We did. I think in Dennis comment, a special mention really is what most of the increase was. We are at about 630 versus prior to the second deferral round where we get information was about $50 million and it's up to $117 million as of 930 and virtually all of those were -- those that where we got to new information and last given the ball that -- in our view is very low.

Richard J. Dutton -- Senior Vice President

This is Rich. Most of those were or maybe all of those were the automatic downgrades. I mean those are all we're talking special mentions there. So if we are going to be a criticized asset. Those are the best kind of criticized assets to have.

Joe Plevelich -- Boenning & Scattergood -- Analyst

Thanks, guys.

Operator

[Operator Instructions] Our next question comes from Kevin Swanson with Hardy Group. Please go ahead.

Kevin Swanson -- Hardy Group -- Analyst

Good afternoon.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Hi, Kevin.

Richard J. Dutton -- Senior Vice President

Hey, Kevin.

Kevin Swanson -- Hardy Group -- Analyst

Hey. Sorry to keep going to these deferral numbers, but I was just curious for your perspective on LTVs assuming the values that the origination date. Could you comment on, I want the impact of the cash flow disruption has done to some of the valuations and particularly in the hotel portfolio or maybe just anything you're seeing in the marketplace. What maybe update the value of those properties.

Richard J. Dutton -- Senior Vice President

So obviously if you have disruption income for a long period its going to affect your values. Right now, I think most of the appraisers are looking at these things as a temporary disruptions and really we're not seeing a huge fall off in values. And at least that's based on the values we've gotten in the last six months. So I'm sure it's over time that may change. We were not over new operations yet. So that's kind of hard to gauge, but for the most part our hotel book is fairly low, having -- from me, but I want to say 58%...

Dennis G. Shaffer -- Chief Exeuctive Officer and President

53%, I think...

Richard J. Dutton -- Senior Vice President

That's an older numbers.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Older number, OK.

Richard J. Dutton -- Senior Vice President

Yeah. We got update one, but that's where I think we see right now. So I think we're in pretty good shape. The other bucket of loans that had some stress early on was a retail related commercial real estate properties. A number that Dennis has asked for deferrals most of those are returning to payment structures and then most have gone back to full payments -- so tenants are now paying.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

And Kevin, I would say on new deals, at least that we're putting on the books appraisals are coming in pretty much, I think the values are being they're holding. So we're not seeing, like the last recession, we're going into that. We saw a big drops in real estate values. We haven't seen that on the new deals going on the book. And we haven't seen that, so we've got customers -- commercial customers sell properties and they've gotten kind of the price they wanted to get. So we haven't seen that big drop like we did during the last recession. And then the other big difference obviously is the housing market, those real estate values are really strong and during that last recession. They went in the tank. So to me that's one of the biggest differences between this pandemic induced -- this COVID induced recession -- in the last recession.

Charles A. Parcher -- Senior Vice President

Yeah, Kevin. This is Chuck. We're watching those cap rates pretty close, as those are coming in. Cap rates have really not moved much whatsoever. In fact in a few things, I think it was profitable because of the drop in interest rates over the last six months. So values are holding. And the PPP program really helped. I think that the retail investment guy like Paul mentioned earlier, we had some tenants who came in, we're at forbearance on the rent to some of our landlords or borrowers. Once the PPP funded in those values could be specified they could use that for rent that help went a long way to. And we have very few property owners right now that have people on deferral as far as from a rent perspective.

Kevin Swanson -- Hardy Group -- Analyst

Okay. Thanks. That's all really helpful. And then just finally from me. Could you maybe update us on -- in terms of PPP and new clients gains to that any kind of traction you've had on that end?

Charles A. Parcher -- Senior Vice President

Well, we've got we're tracking that a couple of the other places, we've got a little over 300 new opportunities via the PPP program. I don't have a specific dollar amounts in front of me right now. We're still working through that, but I can tell you both significant especially on the deposit side, obviously, it's a little slower to move more from lending perspective, but we feel really good about the new opportunities we've got and then almost all of those opportunities will come from the major regionals with the National Bank and looking to get back into Community Banking.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Anything else, Kevin?

Kevin Swanson -- Hardy Group -- Analyst

No, that's it. Thanks.

Richard J. Dutton -- Senior Vice President

Thank you.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Thank you, Kevin.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Dennis Shaffer for any closing remarks.

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Thank you. In closing, I just want to thank everyone for listening and thank those that participated in the call. Again, we are extremely pleased given this pandemic with our third quarter results. The balance of 2020 will continue to be a challenge, but we look forward to meeting that challenge and in talking to you again in a few months to share our year-end results. So thank you for your time today.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Dennis G. Shaffer -- Chief Exeuctive Officer and President

Paul J. Stark -- Senior Vice President

Richard J. Dutton -- Senior Vice President

Charles A. Parcher -- Senior Vice President

Terry McEvoy -- Stephens -- Analyst

Michael Schiavone -- KBW -- Analyst

Nick Cucharale -- Piper Sandler -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Joe Plevelich -- Boenning & Scattergood -- Analyst

Kevin Swanson -- Hardy Group -- Analyst

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